Coeur Mining Inc (CDE) 2010 Q1 法說會逐字稿

My name is Jennifer. I'd like to welcome everyone to the first quarter 2010 results conference call. (Operator Instructions) Thank you. And Mr. Ebersol, you may begin your conference.

Thank you, Jennifer. And thank you all for joining us to discuss the Company's first quarter results. 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; Leon Hardy, Senior Vice President of Operations; Don Birak, Senior Vice President of Exploration; and Humberto Rada, President of Couer South America.

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, everybody. And thank you for joining us on today's call. The first quarter continued to demonstrate Coeur's successful strategy of transitioning to its three new long-life precious metals mines. With increasing production, growing metal sales and explosive cash flow growth compared to last year's first quarter. With a full first quarter of operations from Palmarejo in Mexico, which began production, you'll recall, last April, we saw a nearly seven-fold increase in Company-wide gold production from a year ago, to nearly 26,000 ounces.

Metal sales increased 94% to $87.5 million, with gold now contributing nearly 1/3 of the Company's total sales and our operating cash flow grew 308% to $27.7 million. At the same time, we saw a 40% decline in capital expenditures from a year ago, as both Palmarejo and San Bartolome in Bolivia are now in full production and we near completion of our third new large mine, Kensington, within the next two months.

At Palmarejo, we've seen an increase in throughput and recovery rates as the workforce continues to optimize operations there. At San Bartolome, we've reached into the higher grade Huacajchi area above the 4,400-meter level, which resulted in improved production and costs during the quarter and is expected to have a positive impact on production and costs through the remainder of the year. In addition, we've entered into a definitive share and asset purchase agreement to sell the standby Cerro Bayo silver-gold mine in southern Chile, as part of our strategy to focus on our three new long-life assets. Now, I'll turn the call over to Leon Hardy for a detailed report on the operations during the quarter. Leon.

Thanks, Dennis. Palmarejo began operations in April of last year, with silver reserves at the beginning of this year totaling 90.5 million ounces and gold reserves at 1.1 million ounces. During this initial full year of operations, we are expecting silver production of 7.9 million ounces of silver and 109,000 ounces of gold production, at average cash operating costs of under $2.50 per ounce of silver. During the first quarter, silver production of 1.3 million ounces was 10% higher and gold production of 22,577 ounces was up 9% from previous quarter, while cash operating costs declined 12% to $5.41 per ounce of silver. Palmarejo contributed 51% of the Company's total metal sales during the quarter, a reflection of growing impact this new mine is having on Coeur's overall operating and financial profile.

On slide six, you can see that both silver and gold production rebounded nicely at Palmarejo in the first quarter, compared to the prior quarter, which is a trend we expect to see during the remaining three quarters of 2010. Slide seven, tons milled increased 24% from the prior quarter and silver recoveries averaged 72.7% in the first quarter, up from 67.2% in the fourth quarter. Low 80% silver recoveries were realized near the end of March, which bodes well for production levels during the remainder of the year.

These silver recovery improvements are directly related to improved bore feet into the mill and stabilization of the flotation surface. As part of our plan, we have now changed out the carbon in the leach circuit, which we believe will get silver recoveries into the mid-80's range on a consistent basis. We will have a new [marrow] coal refinery operational in June, which will optimize refinery operations. As a result of the increase in tons to the mill and continued strong gold production at Palmarejo, cash operating costs continue to decline. We are looking at full-year cash operating costs in 2010 of $2.50 per ounce of silver.

At San Bartolome in Bolivia, we continue to enjoy strong support from the community. First quarter production was 1 million ounces of silver, at an average cash operating cost of $9.98 per ounce. The mine expanded into the higher grade Huacajchi area in March, which had an immediate impact on operations. Tons mined increased 57%, compared to February and monthly silver production increased 48% in March to 451,000 ounces, at an average cash operating cost of $8.36. Expansion into this higher grade area is expected to continue to have a positive impact on production and costs throughout the remainder of this year. Production this year at San Bartolome is expected to reach approximately 6 million silver ounces, at cash operating costs of $8.50 per ounce.

Slide ten demonstrates the improvements in production and costs at San Bartolome, the result of the higher grade Huacajchi area and also due to recovery rates that continue to exceed budgeted level. Looking at the left side of the chart, monthly silver production, you can see the 47% increase in production from February to March. Moving on to Kensington, on slide 11, construction is proceeding on schedule, for an expected July start-up. Commissioning work on the mill is complete. Underground drilling and blasting is in process.

Final modifications and commissioning of the crusher is being completed. The tailing blind from the plant to the tailings facility is now 90% complete. Construction of the underground paste backfill plant and water treatment facilities are progressing as planned. Operations have been focused on training and staffing. Final hires are scheduled to be completed this month. Training of employees has been on several fronts, both on site, hands on, plus classroom instruction.

Capital expenditures during the quarter at Kensington totaled $30 million. We estimate that remaining capital expenditures for 2010 to be approximately $28 million in the second quarter, $13 million in the third quarter, and approximately $10 million in the fourth quarter. With initial production expected in July, we are looking at a 50,000 ounce total gold production for 2010. Based on current proven and probable mineral reserves of 1.5 million ounces of gold, production is expected to average approximately 125,000 ounces annually. And cash operating costs to be approximately $475,000 per ounce. I'll now turn the call over to Mitch for the first quarter financial update.

Thanks, Leon. On slides 13 and 14, we have broken out peak quarterly operating, financial and balance sheet statistics, going back to the first quarter of last year. The important trends to note, on slide 13, are the significant rise in gold production due to the contribution of Palmarejo beginning late last year in the third quarter. We expect the production levels achieved in the first quarter to double during the second half of 2010, as Kensington comes online in July.

Whereas silver contributed 90% of Coeur's total metal sales during last year's first quarter, it contributed 68% of total metal sales this quarter, which is a trend that will continue into the remainder of the year due to continued gold production from Palmarejo and new gold production from Kensington. Silver production was consistent with the first quarter 2009 and the Company is projecting quarterly silver production in the 4 million to 4.8 million ounce range during each of the remaining three quarters of this year due to increased silver recoveries and throughput at Palmarejo and less restricted mining at San Bartolome, as discussed by Leon.

Metal sales and cash flows continue to materially increase, while capital expenditures and production costs, as a percent of sales, continue their downward trend. On slide 14, you can see the total debt has been reduced 44%, while cash has grown 50% since March 31 of last year. And today, our debt-to-equity ratio is 49% lower than it was a year ago. With only $50 million of low coupon convertible debt remaining outstanding, and with these securities now trading near par value, the Company has now ended its debt for equity exchange programs. Since the beginning of 2009, these programs eliminated over $359 million of indebtedness and now leaves the Company with a very solid balance sheet.

On slide 15, we announced on May 4 a transaction to sell our Cerro Bayo entity in Chile to Mandalay Resources for total consideration of approximately $20 million. This sale is consistent with Coeur's strategy of transitioning to its larger, longer-life mines. The mix of consideration is also attractive to Coeur, part cash, part shares to the purchaser of royalty and deferred payments in silver ounces, that provides us with upside potential. The transaction is expected to close in late May and the Company will account for this transaction in its second quarter financial statements.

The two tables on slide 16 show actual first quarter production and full-year production estimates, by mine, for both silver and gold. For the full year, Coeur expects silver production to remain essentially consistent with 2009 levels, while gold production is projected to rise about 135% to roughly 170,000 ounces, with the first full year of production at Palmarejo and the initial production of gold from Kensington. The bar chart on slide 17 provides a fairly extensive look at the Company's 2010 expected operating cash flow and CapEx by mine. Assumes production levels are those shown on the prior slide and year to date average realized prices are assumed for the remainder of the year.

As you can see, we began the year with $23 million of cash and expect our operations to generate approximately $186 million of operating cash flow throughout 2010. Palmarejo is expected to generate approximately $112 million of that, or roughly 60% of the total, as you can see in the table that breaks out expected operating cash flow by mine. The Company still expects full year 2010 CapEx to be approximately $165 million, which includes capitalized interest and capitalized exploration. CapEx is also broken out by mine on slide 17.

After taking working capital changes and corporate adjustments into account, you can see that we expect to end the year in a very comfortable cash position. I hope this slide makes it clear that Coeur's financial profile has changed dramatically and that the Company is very well positioned for the remainder of 2010. And we anticipate an even stronger 2011, since that will be the first year that all three of the Company's new mines will be in production for a full year. Just as a quick update, we've included on slide 18, the Company's current outstanding shares, estimated market cap, and trading volume statistics, which helps suggest the opportunity Coeur's shares present in the market. I'll now turn the call over to Don Birak for an overview of what's been happening on the exploration front in the recent quarter.

Thanks, Mitch. Our 2010 exploration program is strongly focused on expanding mineral resources and reserves at our operating properties. This year, we have a budget of nearly $18 million, of which the majority is devoted to Palmarejo and Kensington. Here, you can see our mines -- our mineral reserve summary, effective at the end of 2009. In addition to these record large reserves, our properties contain over 247 million ounces of silver and over 2.3 million ounces of gold, of additional measured indicated and inferred resources, which provide a strong platform for further growth.

Starting with Palmarejo. I'm pleased to report on the progress of our exploration program at this new mine, where we had five core drills running at the end of the quarter, from both surface and underground platforms. The largest part of this program was focused on expansion and upgrading of resources and reserves around the current Palmarejo open pit and underground mine. In addition, drilling recommenced at the north end of the large Guadalupe silver and gold system but we now have over 28 million contained ounces of silver and over 340,000 ounces of gold and mineral reserves.

Looking at the Palmarejo mine area, four main zones or clavos were the site of drilling in the first quarter of this year. Here, you see a long section of three of those clavos, Rosario, 76, and 108. Drilling returned favorable results from each of the three clavos. All of them remain open at depth. And in the case of Rosario, drilling encountered high grades over 150 meters to the northwest of the main Rosario zone. Not shown here but equally exciting are some of the new exploration results in the Chapotillo clavo to the north of 76 and 108. You can find tables of drill results received for Q1 drilling at the end of this presentation.

Moving to the southeast, our program recommenced at Guadalupe in the quarter. The focus of this program will be to expand the size of the Guadulupe system, which is now over two kilometers long on strike, with drilling off the Guadulupe north zone. At the end of the quarter, we had completed five holes. Results from the first 2010 core hole number 331 are shown here, which cut nearly 15 meters of mineralization. This area also remains open at depth and on strike. In addition to Guadalupe Norte, we will continue to drill the Guadalupe Sur to upgrade resources and test new targets around Guadalupe and Palmarejo in the coming months.

Shifting to Kensington and Alaska, our drill program there is in full swing with core drill's focused on definition of ore zones planned for 2010 mining and then on to exploration targets, such as Horrible and Kimberly and a new target in the foot-wall in the Kensington main zones. To facilitate exploration drilling, we completed a 300-foot-long drill drift and exposed two new veins, one of which is shown in the photo here. We remain very encouraged by exploration results and the potential to increase mineral reserves and improve the mine plan with focused exploration.

Lastly, we move back out to Santa Cruz, Argentina and to the Joaquin project, which sits about 80 kilometers north of our Martha mine. At Joaquin and indeed all new exploration areas, we take a phased approach to drilling. Which permits to us generate and test, prioritize targets, assess their results, and design the proper follow-up program. At Joaquin, we have just completed a fourth phase of drilling, consisting of nearly 4,000 meters of core, at the La Negra and La Morocha zones, where we have had very encouraging results to date. In the quarter, we defined two new exploration areas, shown on the map, with favorable surface sampling results. We remain encouraged by results, so far, on the large Joaquin property. And now, I'll turn the call back to Dennis.

Thanks, Don. The seeds we planted three years ago are completing their bloom and we're looking forward for the remainder of this year. This includes a July start-up at Kensington, continued silver recovery increases at Palmarejo, with lowering costs, improving production and costs at San Bartolome, ongoing positive exploration results at Joaquin, Kensington and Palmarejo. Coeur's got a very strong balance sheet and we're the only pure silver and gold Company. Look for more progress towards expansion at Rochester, leading to additional new silver and gold production in 2011.

And we're confident about the continuation of these present robust gold and silver markets. This month saw the SPDR Gold Trust, the biggest exchange traded fund backed by gold bullion, rising to its highest level ever. And in India, the world's largest gold consumer, ETF volumes were up 94% in March. China, with its rising middle classes and growing disposable incomes, should continue to also drive gold prices over the next decade. So, we're looking forward to our new mines providing rising production in this strong marketplace, which should result in rapid growth through increases in metal sales and cash flow for you, our shareholders. Thank you. And now, operator, we're ready for questions.

(Operator Instructions) You do have a question from the line of John Bridges.

Good mornings, Dennis, everybody.

Hello, John.

Hi. Don has gone through the exploration, but I just wondered how you are getting on at Rochester because you're got those interesting routes of things down there?

I think, John, our current schedule has us completing the environmental assessment there about mid-year. And after that, we'll take a complete review of the schedule, with the planned start-up, as I suggested to you, to contribute metal production in 2011.

How do you think that thing is going to turn out? Is it going to be another mine again one day? And what sort of life do you think might be there?

Well, I don't think I should say anything other than, John, that we're very encouraged and pleased with the discoveries that we now have a new six-year mine life at Rochester. And we don't think that things are completed there yet.

I suppose that's a forward-looking statement.

That's as forward looking as I think anybody would like me to say today.

And then, just coming back to Kensington, congratulations on bringing that one back to life. Just wondered, what the labor situation is up there because it must be difficult to rebuild the labor team up there?

Leon?

John, we've had thousands of resumes come in and have had no problem picking the perfect people for that job.

Okay, that's good to hear. Best of luck, guys.

Thanks, John.

Your next question comes from the line of Jorge Beristain.

Good morning, Dennis. I was wondering if you could just clarify the situation at Martha? Based on the full year guidance that you've given on the slide 16, it would it seem that you're implying a bit of a turnaround there. And could you also talk a little bit about what's happening with the cash cost situation there, if that's a one-off?

Yes, hi, Jorge, it's Mitch here. How are you doing?

Hi, Mitch. Good, thanks.

Yes, you can see in the slides there, full year guidance for Martha of 1.2 million ounces. So the full year, with a little over 400,000 ounces produced in the first quarter. So, mine plan for Martha now has mining actively through September, approximately. The costs that you noted in the first quarter are higher than what we expect to see in the second quarter. But then as we approach that tail end of that mine plan for the year, we'll see them, on a per unit basis, increase again slightly.

And what is the medium term outlook at Martha, given the cost spike that we saw in the first quarter? Is this a mine where it may end up being a Cerro Bayo type situation, where you have to shut it down and reassess for awhile?

Jorge, we've previously indicated that Martha was one of the mine assets that may be included in our rationalization profile here at Coeur, as we move to emphasize our three new major mines.

Okay. And similarly, at Endeavor, it looks like you're cutting the guidance there, as well, sort of over the next few quarters. Is that also included in your rationalization plans?

Endeavor has actually add great first quarter, well exceeding our budgeted levels. And it looks to continue that throughout the remainder of the year. They've been increasing their throughput there at Endeavor. Recoveries have been ahead of budgeted levels, as well. So, it will end up having a stronger year than it did last year. So, we're happy with our investment there at Endeavor. And that remains a very easy mine to operate, given our non-operating ownership interest there in silver only.

Okay and sorry to continue asking questions here. But just lastly, the shape of what you're looking at ahead in terms of San Bart and Palmarejo, given again the full year guidance you've indicated there, would imply a bit of a steep recovery in volumes on a go forward basis. Maybe to get up to your guidance as to what these would look like on an annualized basis in 2011. So would it be fair to say that, in the 2Q, 3Q and 4Q, you see increasing output at each of the mines?

That's correct. January and February were both slower months there, with March being much indicative of what we expect to see throughout the remainder of the year.

Okay, thank you.

Thank you, Jorge.

Your next question comes from the line of Matthew O'Keefe.

Congratulations on a good quarter. I just had a couple questions regarding Kensington. If we look at the history of the 200 mines you have with them. At San Bartolome, you had a little bit of an access issue, which you obviously have have overcome. And at Palmarejo, you had some recovery issues that are obviously tracking well towards guidance. With Kensington coming on in July, are there any issues that you could see cropping up, or is there -- what would be the start-up issue there that you could foresee?

Well, I think Leon has said it well. We're ready to go. We're fully staffed with good, trained people and we expect to have good start up there.

Okay. That's it for me, thanks.

Your next question comes from the line of John Tumazos.

I'm looking at page seven of your release and cash costs are described as $7.41, cash operating costs; cash costs $7.83; and total costs $15.84. I was wondering, if you could just review which costs are in which categories and which costs are still excluded, particularly it is a relates to San Bart -- excuse me, Palmarejo, where the total cost was $21.39. Presumably there's a disconnect between your depreciation method maybe and the production or recovery rate at Palmarejo. Maybe you're not on a unit of production method or there's some ambiguity as to how many months the silver takes to recover. I'm just trying to make sense or infer as to the numbers you're reporting.

Sure. Hi, John, it's Mitch. Just to clarify the three buckets. Cash operating costs are simply mining, processing and G&A on a per ounce basis. And to the extent there's gold byproducts, that's taken into consideration. Cash costs includes, then, royalties and production taxes. So, in the instance of San Bartolome, that's the difference there between the $10.84 an ounce and the $9.84 that you see on page seven of our release. And then, total costs, obviously, includes all those plus depreciation, depletion and amortization. You are correct, at Palmarejo, there is a portion of the purchase price, that we are depleting at Palmarejo, that is not on a units of production basis. And then, there's a bucket of value associated with the current mining area that is completed on a units of production basis. So, there are two different methodologies utilized at Palmarejo to calculate DD&A per ounce.

Is there any ambiguity about production, such as a question as to how quickly the gold and silver is recovered or how much still in the heaps is recoverable?

Is that in reference, John, to Palmarejo?

Yes, sir.

Well, Palmarejo is not a heap leach operation like Rochester. But there is a retention cycle, associated with ore going through the plant, that does impact timing of ounces that come out the back end of the processing facility. But that's not a long period of time, Leon.

No, it's about one week of retention time.

So, going forward, say in 2011, what would the depreciation and amortization per ounce be at Palmarejo?

Well, I can tell you, John, as the release point out, out the $28 million of total DD&A for the Company in the first quarter, about $20 million of that was at Palmarejo. That will be about the same all year. The thing that will drive the DD&A per ounce in 2011 will be, to the extent that we have reserved increases after 12/31/2010, from the exploration work that Don Birak outlined. And then, that would have the impact of running that depletion over a larger number of ounces.

Thank you. Could you just review the cost categories that are not included in the $15.84 an ounce total cost? I presume interest expense, exploration, G&A, they look like they're between $2 and $3 an ounce.

There's no corporate items in that total cost. So, there's no interest expense. No, G&A. None of those items that you listed, that would go into that total consolidated production cost per ounce number.

Now, in -- if we were to just take Palmarejo as an example, would security be a mine cost or a G&A cost?

That would be a G&A cost, at site. So, that would be in the production cost.

That's in the cash costs. Okay. Thank you. Sorry, for so many questions.

No problem. John.

Your next question comes from the line of Chris Lichtenheldt.

Afternoon, guys. Just first question, on silver recoveries on at Palmarejo, you said they've improving in towards the end of March, were 80%. Can you just update us on April and into May if possible?

Well, we see things steadily improving and we're working on a plan down there that will deliver.

Okay. So --?

We had previously told you that the silver recovery program was designed to boost recoveries into the 80% ranges. And we are pleased to see the outlook through March.

Okay. Secondly, can you update -- or can you provide some guidance as to how much from Palmarejo will be produced from the underground versus the surface mining for this year?

Yes, it's about 60/40.

60/40 open pit?

Right.

Okay. Great. Last update, I apologize if you already mentioned this but the Palmarejo -- or rather the San Bartolome guidance, this time around, it looks to be about 6 million ounces. And I think, about a month ago, you'd indicated you were hoping for around 7 million. Can you just describe what's happened there, what's changed?

It's Mitch here. The 6 million assumes that we mine strictly in the Huacajchi and existing areas throughout all of 2010. And so, that's the guidance for production, just on a cash flow basis. San Bartolome has done a great job of reducing costs to a point where the reduced volume is offset by reduced costs. So, from a net cash flow basis, San Bartolome is about a wash for the year.

Okay. But I think, at one point, you were expecting more than that. That is that right?

There was -- yes, pretty good guidance had been at 7 million ounces, under a different assumption regarding access at Cerro Rico Mountain.

Okay, so, it's a function of how much access there is now. Okay, that's it for me. Thanks a lot.

And you have no further questions at this time.

Thank you, operator. And thanks to all of you for joining Coeur and our quarterly conference call and report to you. We look forward to keeping you advised of the developments of Coeur this coming quarter.

This does conclude today's conference call and you may now disconnect.