Coeur Mining Inc (CDE) 2010 Q4 法說會逐字稿

Good afternoon. My name is Bee, and I will be your conference operator today. At this time, I would like to welcome everyone to the Coeur d'Alene Mines' fourth-quarter and full-year 2011 earnings 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) Thank you.

Mr. Tony Ebersole, please go ahead, sir.

Thank you for joining us today to discuss the Company's fourth-quarter and full-year 2010 results. This call is also being broadcast live on the Internet through our website at www.coeur.com, where we have posted slides to accompany our prepared remarks. Telephonic replay of the call will be available for one week following today's call. On the call today 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; and Don Birak, Senior Vice President of Exploration.

Any forward-looking statements made today by Management come under securities legislation of the United States and Canada, and involve a number of risks that could cause actual results to differ materially from projections. Please see our full cautionary statement on slide two.

With that, I'd like to turn the call over to Dennis.

Welcome to all of you, and thank you for joining us today. We're pleased you've joined us to showcase to you the progress made by your Company during the fourth quarter, which has led to record 2010 results. We think these results demonstrate the momentum created by the combination of Coeur's three new long-life silver and gold mines, together with the strong precious metals market prices. Silver keeps setting new records, with prices above $33 an ounce last week, its highest level in 31 years, and another record today. Coeur's fourth quarter materially outperformed the third quarter, and our 2010 full-year results far exceeded 2009.

During this most recent quarter, the people of Coeur achieved a 75% increase in metal sales to a total $208 million, a 186% increase in operating cash flow to nearly $100 million, adjusted earnings of $49.9 million, or $0.56 per share. Our capital expenditures dropped 28%, and total debt was reduced by 14%, and our cash and cash equivalents doubled from the prior quarter. For the full year, we realized the 72% increase in metal sales to $515 million. Operating cash flow jumped 199% to a total of $184 million, while adjusted earnings were $34.3 million, or $0.39 a share. We achieved a 29% decline in capital expenditures, and our gold production increased 118% to 157,000 ounces, while we were experiencing a 7% lower cash operations cost. Clearly, we're in unprecedented metal markets, and we at Coeur fully expect this silver market to continue.

For the third quarter of 2010 to the fourth quarter, silver prices increased an amazing 42% to $26.83 per ounce, a dramatic increase over the previous four quarters. And so far this year, silver prices average close to $30 an ounce, with today's record-high reaching $33.86, compared to the average price in 2010 of nearly $21. Recently, the Times of India news service from New Delhi reported that silver was the best performing asset over the past five years. India is clearly one of the world's largest customers, as well as the largest gold consumer, with the world's largest middle class. And the article is noteworthy, in that it pointed-out that given silver's performance as an asset, it was one of the arguably best places to continue to invest, and that silver in the subcontinent had become the new gold.

Meanwhile, gold prices in the fourth quarter averaged $1,357 per ounce, up 10% from the previous quarter, and average gold prices last year were up 23% for the year over the prior year, averaging $1,237 per ounce. Today, gold has hit another record price of $1,413 per ounce. These market prices have been driven by strong fundamental investment demand. And clearly, silver, like gold, has reestablished itself as a monetary metal, as evidenced by the record levels of ETFs. Silver, our main metal at Coeur, will continue to bolster the Company's results.

ETF sales remain extremely robust. Places like India, as they catapult throughout the world, and here, sales of Silver Eagle coins cannot meet US coinage demand. We've seen central banks for the first time in more than 20 years become net buyers of gold, and given these global dynamics, along with current uncertainty in the Middle East, we remain bullish on both of our products, silver and gold. And long-term, and most importantly, people in governments of the world now realize that gold and silver resources and deposits are finite, and demand continues to grow.

Now, I'd like to have Mitch comment on our fourth-quarter and 2010 financial results.

Thanks, Dennis. We had a record setting fourth quarter and full-year financial results, and we're set up for a very strong 2011. On slide nine, you can see the 75% increase in metal sales in the fourth quarter over the third quarter, to $207.6 million. The major drivers to this increase were record silver and gold production at Palmarejo, a plus 2 million ounce quarter from San Bartolome, a growing contribution from Kensington and higher realized prices.

Fourth-quarter sales made up 40% of the Company's total sales for the year, which are shown on the following slide 10. For the full year, we achieved a 72% increase in metal sales versus 2009, to $515.5 million. This represented the first full year of production from Palmarejo, which contributed 45% of the Company's total sales. In this current year of 2011, with a first full year of production from all three new mines, we are anticipating metal sales to reach approximately $800 million, which is a 55% increase over 2010. This assumes average prices of $27.50 for silver and $1,250 an ounce for gold, and 2011 production of 20 million ounces of silver and 250,000 ounces of gold.

Our sales growth far exceeds increases in our production costs, leading to large increases in overall gross margins. This is reflected in the fourth-quarter results shown on slide 11, where quarterly gross profit increased 108% to $120.8 million, and gross margins increased from 49% in the third quarter to 58% in the fourth quarter.

For the full year 2010 on slide 12, gross profit jumped 136% to $257.8 million, with margins increasing from 36% in 2009 to 50% in 2010. With the addition of a full year of Kensington production in 2011, we expect gross profit to increase over 70% to approximately $450 million, assuming the same metals prices I mentioned earlier, which are well below current spot prices.

On slide 13, for the first time this quarter, we are reporting an adjusted earnings number. The Company believes this metric, along with operating cash flow, provides investors with the cleanest view possible of its financial results and performance. The main adjustments to US GAAP net income are removing the non-cash impact relating to the accounting for the gold production royalty at Palmarejo, backing out other non-cash, nonrecurring items, including gains and losses on debt extinguishments and gains and losses from discontinued operations. We also only include current income taxes and exclude the deferred portion of income taxes in order to provide investors with a more representative number for taxes actually paid during a period. You can see the reconciliation to the right of the bar chart on slide 13. Also, there's a detailed reconciliation of adjusted earnings to US GAAP net income in the fourth-quarter press release and at the back of these presentation slides.

In the fourth quarter alone, the Company realized $49.9 million in adjusted earnings, or $0.56 per share, a huge increase from the year-ago fourth quarter when the Company's realized adjusted earnings were only $2.5 million. On slide 14, for the full year, we recorded $34.3 million in adjusted earnings, or $0.39 per share, compared to a loss of $23.5 million for the previous year. These dramatic improvements in the Company's financial performance, particularly in the fourth quarter on an earnings basis, after depreciation, depletion, and amortization, D&A expenses, exploration costs, interest expense and current taxes, hopefully demonstrate to the investment community just how far the Company has come on our key financial performance metrics.

Most dramatic of all performance metrics has been our rise in operating cash flow, as shown on slide 15. In the fourth quarter, operating cash flow rose 186% to $99.4 million, just in the fourth quarter. The Company generated 54% of its total full-year operating cash flow just in the three last months of 2010. For the full year 2010, we saw similar percentage increase in operating cash flow to $183.9 million. Again, assuming a $27.50 silver price and $1,250 gold price this year, we expect 2011 operating cash flow to exceed $400 million.

It's important to note, shown on slide 17, that as we have seen this dramatic rise in metal sales, adjusted earnings and operating cash flow, we're also undergoing a similar dramatic reduction in CapEx. We saw CapEx decline 29% to $156 million in 2010. Most of that CapEx number was for the completion of the Kensington Mine in Alaska. Looking ahead, we expect 2011 CapEx to come in at about $120 million. Most of that for the development of the new mining activities at Rochester, and for various environmental-related capital projects at our other mines that will support operations for the long-term.

Slide 18 illustrates the trends we have established of rising cash flow and lowering debt levels over the past five quarters. Our cash and equivalents at year-end were $66.1 million, which was double that of September 30 levels. Total debt is $159.6 million, which is a reduction of 28% over the last three quarters. Relative to fourth quarter EBITDA of $109.5 million, and with the repayment of higher cost debt with cash, and the use of lower cost debt, the Company's balance sheet ended 2010 in a very comfortable position.

On slide 19, it's also important to note that over the past year, our number of shares outstanding has remained constant at 89.3 million. Our Company has grown into a fairly constant G&A expense level of around $25 million per year, with G&A as a percent of sales now down to the 3% range, which places Coeur in the low-end in our industry.

Leon Hardy will now take you through the Company's operating results.

Thanks, Mitch. In the fourth quarter of 2010, the Company produced 4.8 million ounces of silver, a 12% increase over the 4.3 million ounces produced in the third quarter. For the full year 2010, our combined operations produced 16.8 million ounces of silver, consistent with the previous year. Silver production was lower at San Bartolome and Martha in 2010, which was offset by increased silver production at Palmarejo in it's first full year of operation. For the coming year 2011, we are looking ahead to 20 million ounces of silver production.

On the gold production side, shown on slide 28, in the fourth quarter of 2010, we produced 60,600 ounces of gold, versus 47,500 ounces in the third quarter. This 28% increase in quarterly gold production quarter-to-quarter was due to the continued ramp-up at Kensington, which produced 27,990 ounces of gold in the fourth quarter, and also due to Palmarejo's strong quarter, which exceeded 30,000 ounces of quarterly gold production for the first time since commencing production in April 2009. For the full year 2010, gold production increased 118% to 157,000 ounces. This was due to the contribution of our startup of operations at Kensington in July, and the first full year of mining at Palmarejo. We're expecting roughly 60% increase in gold production this year to approximately 250,000 ounces, which will add significantly to our expected metal sales and cash flow, as Mitch previously discussed.

This last quarter was a record quarter for Palmarejo for both silver and gold production. Palmarejo exceeded 2 million ounces of silver production for the first time since commencing production, which was a 33% increase, compared to the previous quarter. Gold production in the fourth quarter exceeded 30,000 ounces for the first time in a quarter since startup. This resulted in a 39% increase in operating cash flow at Palmarejo. Capital expenditures dropped 30% during the quarter at the mine, and average cash operating costs in the fourth quarter were $2.67 per ounce of silver. Full-year 2010 production at Palmarejo was 5.9 million ounces of silver and 102,000 ounces of gold, at an average cash operating cost of $4.10, down 58% from the prior year. Full-year operating cash costs at Palmarejo was $94 million with CapEx of $54 million.

San Bartolome, in the fourth quarter, elevated production levels by 12% over the previous quarter, to 2 million ounces. Average cash operating costs were $7.60 per ounce. Operating cash flow from the mine was $34 million. Full-year 2010 production totaled 6.7 million ounces of silver, at an average cash cost of $7.87 per ounce. Annual metal sales from San Bartolome were $143 million, with a 144% increase in operating cash flow, to $61 million in 2010.

At Kensington, we ramped-up to full capacity, producing 28,000 ounces of gold in the fourth quarter. We are still anticipating average annual production levels of 125,000 ounces, with a 12-year mine life, at current proven and probable reserve levels of 1.4 million ounces. CapEx last year was $92.7 million, as our construction was completed. Fourth quarter CapEx was $9.6 million, down 53% from the previous quarter.

Construction activities at Rochester are proceeding in preparation for active mining to begin soon, with additional production adding to our residual leaching beginning in the second half of this year. In 2010, production was 2 million ounces of silver and 9,641 ounces of gold, and our new expanded mining will add to those existing levels in 2011. Last year, cash operating costs were $2.93 per ounce of silver.

Now, I'll turn the call over to Don Birak for our exploration update.

Thank you, Leon.

We start 2011 with a robust inventory of mineral resources and reserves, sufficient for many years of production and strong upside potential to grow our mine lives. After 2010 mine depletion and other changes, metal reserves stand at over 227 million ounces of silver, and over 2.5 million ounces of gold. Additional metal resources are up at all properties, except Endeavor, and most notably at Rochester. We see continued potential to add to resources this year with our strong organic growth exploration budget of almost $21 million. Our 2000 -- excuse me, our year-end metal resources and reserves are tabulated at the end of this presentation for your reference. At the Palmarejo main line, while we reported a decline in total reserves there, drilling late in the fourth quarter and counted new veins with significant silver and gold mineralization, these results are not yet included in our overall reserves and resources at Palmarejo.

Turning to some specific achievements at Palmarejo, we realized significant gains at the Guadalupe deposit, which now stands at over 68 million contained ounces of metal resources inclusive of reserves. In addition, we tested new targets near both Guadalupe and Palmarejo with encouraging results. In the midst of commencing the production at Kensington, we completed nearly 20,000 feet of core drilling on the Raven zone, which is showing good potential to contribute to reserves and resources from high-grade shear veins and vein clusters.

Rochester work in 2010 focused on target generation and new drilling around the Nevada Packard deposit in the south part of our land position. At Joaquin in Argentina, we earned an initial 51% managing equity in the joint venture, and conducted detailed drilling in support of an initial mineral resource estimate slated for completion this year.

Looking in more detail at some of the key results, I'll start with Palmarejo.Last year, we focused nearly all of our drilling around the Palmarejo Mine and the Guadalupe deposit, an area that amounts to less than 5% of our large land package in the districts. Some of the most exciting results were obtained on new targets near Palmarejo Mine, such as La Victoria, San Juan de Dios, and underground drilling at the 108 and 76 clavos late in the year. I am confident that drilling and geologic work performed in 2010 has given us a very firm platform of mineral resources and reserves for many years of production, while we commence a broader program to find new ore deposits.

The story at Guadalupe continues to be one of growth. This deposit is now over 2.7 kilometers long, with excellent resource and reserve expansion potential on-strike and at-depth with further drilling. As an example, here you can see one of the recent core holes at Guadalupe. This hole cuts over 11 meters to a width of high-grade mineralization and remains open up dip and to the northwest. Hole 287 was part of our (inaudible) over 5000 meters of drilling that was completed in the fourth quarter of last year and not yet reflected in our mineral resources and reserves.

Now, we move to Rochester on slide 38. Rochester has yielded over 127 million silver recovered ounces and 1.4 million recovered gold ounces and is poised for it's next phase of production. New silver and gold mineral reserves now stand at 27.5 million ounces and nearly 250,000 ounces, respectively. All of the reserves are located at the Rochester deposit shown in the center of the aerial photograph on this slide. Our large land position at Rochester -- or excuse me, our land position is large at Rochester, and we are actively exploring it. In 2010, our district-wide exploration program produced some exciting results at the Nevada Packard deposit, located about two miles to the south of the main Rochester.

Finally, we shift north to Kensington, shown on slide number 37, where I'm pleased to present results from our exploration program there. Most of the attention during the year was devoted to commencing production. We also conducted new drilling to better define the known mineralization at Kensington and explore some more. This past year, we completed about 20,000 feet of core on Raven, and we have included assays from the latest drilling completed in this fourth quarter of last year at the back of this presentation, none of which are reflected in the mineral resources for Kensington yet. Many of the new core holes cut good width of high-grade, so we are confident that follow-up work on Raven will contribute to both reserves and resources in the future.

Finally, we show here photographs of two of the latest core holes on the Raven zone, both cut high-grade gold over good widths, and I can tell you we're very excited about starting drilling that's commenced this quarter on Raven again. 2011 plan at Kensington is for over $2 million and 41,000 feet of new core drilling.

I'll now turn the call back over to Dennis for closing comments.

Thanks, Don.

In this past quarter and in 2010, we demonstrated strong momentum as we entered this year. We now estimate that our gold production will increase 60% to 250,000 ounces, and silver production will grow 19% to 20 million ounces in 2011. With expected continued strength in our silver and gold markets, we anticipate generating very strong free cash flow for our shareholders.

One final note, there was a report in the Financial Times recently that some mining firms have begun to hedge their silver production against possible declines in price. I just want to make it clear that Coeur has a policy of not hedging its silver production. We know that our investors like you are believers in the continued price appreciation of silver and gold, and we want our investors to be able to maximize their investment and leverage to the metal, so we will not be hedging any of our silver.

Operator, we're now ready for questions.

(Operator Instructions).

Your first question comes from Jorge Beristain.

Good afternoon, or good morning on your time, Dennis. My question is in light of the expected rise in free cash flow projected for 2011, what could be the possible uses of funds, and have you contemplated reactivating a dividend policy for Coeur?

The Board has not considered the question of a dividend policy. I'm sure it will, given the progress of the Company and what we see going forward, Jorge. We're keenly aware that our job is to do things that are accretive to shareholder value and reward our shareholders.

Thank you. And, my second question is a little bit more technical for Mitch, but just should try to understand a little bit better what you're reflecting on your balance sheet in terms of the pending Franco-Nevada royalty. There's about a $52 million cash owed as part of the near-term Franco-Nevada royalty, and I'm assuming, is that for the next 12 months for the 2011 year? That's my first question.

That's right, Jorge, yes.That's the estimated next 12-month value of the royalty payments there.

And, should we be thinking about this as net debt because I'm not certain that you included it in that slide where you did break out your cash and long-term debt?

It is an obligation of the Company, Jorge. It's difficult to put-- obviously, it changes as gold prices change. So, for that reason, we primarily-- we don't include it in our debt, we don't include capital leases either, but both are obligations of the Company. But, you're right, we don't have that in our total debt numbers, but it is a contingent obligation based on how much we produce and what the gold price is.

Okay, and, in terms of the order of magnitude, you reflected around a $51 million mark-to-market on the MPV of that obligation in the fourth quarter, but the cash outlay on that was minor, it was around $5 million. So, I was wondering if you would expect to see a similar magnification impact on your P&L for 2011?We know what the expected cash outlay is, but would we expect a much stronger net income statement impact of which a bulk of that would be non-cash?

Yes, the non-cash portion relates to the estimation of the future payments over the minimum obligation of that royalty, which is 400,000 ounces of gold, so the swing that we see each quarter is-- relates to the change from the end of one quarter to the end of another quarter as far as the estimation out over that period of time, number of years, and how the gold price changes the estimated value of those payments.

Okay.

So, the -- that's what's, that's what's changed -- that's the fair value adjustment number that you see from quarter to quarter on the income statement, is that change in estimated future liabilities over that minimum royalty obligation.

And, are you just simply using the gold strip to calculate that, or are you using a fixed gold price?

It's a forward curve.

Okay, thank you.

Yes.

Your next question comes from the line of John Tumazos.

Hello, Dennis, Mitch, Don. I was in Patagonia for a week and a half and last Thursday, the two partners in the San Jose Mine took me up a big mountain top looking over toward Goldcorp Cerro Negro and there was San Jose JV ground, Minera Andes 100% ground, [Inaudible] 100% ground and Coeur 100% ground. And, the Coeur 100% ground looked pretty good right above the old Andean resources to the south. Do you have any plans to drill this year on that 100% ground just north of the Cerro Negro veins, and could you give us an update on the Martha property?

Yes, we do have some good exploration holdings in the Company, John, and, clearly, we'll be doing some drilling this year at Tornado. Leon will give us a few comments--

Is Tornado what you call that property?

Yes, it is.

Excuse me for not -- I got the other -- the other guys were telling me your story.

No problem, John. Thanks for the question. Leon, some comments on Martha?

Martha continues to operate at a reduced rate this year. We are looking for synergies while we continue to explore heavily, very close to Martha. We feel positive about the project.

How much money are you going to spend at the Tornado property near Gold Corp?

John, this is Don. Our first phase of drilling there is just getting the results in for it now, and first-- the next phase is going to be geophysics which we're doing, trying to identify the structures in a little bit more detail and then go through with a second phase of drilling. That'll probably end up being somewhere at around $0.5 million in total, but those results would be just an initial-- from an initial program on Tornado. So, for--

Are the targets buried veins, not outcropping that are sulfides that you identified from induced polarization?

They are covered, John, so we're looking at projecting those, using whatever methods we can, geophysics, geochemistry and mapping, and, so, that's our program for this year.

Excuse me for taking you guys off the set agenda, but I was getting real excited for you last week. And, Dennis, I hear you've been CEO longer than George Blanda was a quarterback and kicker.

Well, let's hope I can finish it off as well as he did.

I hear you're going to come back as many times as Mario Lemieux. Is that true?

Thanks, John.

Have a good one.

As you know, we've got a succession plan in process underway here at Coeur, and we'll be announcing a successor later this year.

Thank you.

Your next question comes from the line of Mike Curran.

Yes, good afternoon, guys. I just wondered, just on the-- backward-looking, I was wondering if you could tell us what your silver sales were in Q4 versus the production? And, then forward-looking, I'm having a hard time getting to 20 million ounces, so maybe if you could just give us the forecast of production from a few of the bigger mines and see if, where I'm missing a couple million ounces for this year?

Yes, hi, Mike, it's Mitch here. As far as sales versus production in 2010, we produced, as the release says, 16.8 million ounces, we sold 17.2 million. And, then on gold, we produced 157,000 ounces and we sold 130,000. The difference in the silver is twofold. One is from a Martha concentrate shipment, there's about 0.5 million difference between produced and sold at Martha. And, then the other was a dore shipment out of San Bartolome that didn't make it into the third quarter and the sales of those fell into the fourth quarter. And, then, the difference in the gold ounces is entirely concentrate shipment sales out of Kensington.

That's great. And, maybe just a couple of numbers for forecasts for [Inaudible] mines this year to see where I'm missing, how you get to 20?

Yes, we're not giving mine-by-mine guidance at this point, Mike. The 20 million ounce number really assumes kind of a static San Bart's, a static Rochester and improved performance out of Palmarejo that's more -- that was indicated sort of by the fourth quarter performance there at Palmarejo.

All right. No, that's great, that gives us some guidance. Great.

There are no further audio questions at this time.

Thank you all for joining Coeur's call today. I can assure you that we continue and will remain focused on returning shareholder value to our owners here at Coeur. We continue to add very talented people to the team here at Coeur, as we prepare for the future. And, I can assure you we will remain focused on our strategic plan and the details necessary to make 2011 a great year for Coeur. Thank you.

Thank you, ladies and gentlemen, this will conclude today's conference call. You may now disconnect.