Coeur Mining Inc (CDE) 2011 Q1 法說會逐字稿

Good afternoon. My name is Ginger and I'll be your conference operator today. At this time, I would like to welcome everyone to the Coeur d'Alene Mines First Quarter 2011 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) Thank you. Mr. Tony Ebersole, Director of Corporate Communications, you may begin your conference.

Thank you for joining us today to discuss the Company's first quarter 2011 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 2. With that, I would like to turn the call over to Dennis.

Thank you, Tony. Welcome to you all and thank you for joining us today. We're very pleased to showcase to you today another quarter of solid performance, driven by the combination of production from our three long life silver and gold mines and from the new realm of precious metals prices, that despite recent volatility remains strong based on sound supply and demand fundamentals. With one month of second quarter results now behind us, we are seeing even stronger production and cash flows, which is the trend we expect to continue throughout 2011. The important take-away for you today is that we will produce 20 million ounces of silver and 250,000 ounces of gold in 2011. Despite the recent volatility, current prices remain well above our first quarter average realized prices of $31.27 for silver and $1,374 per ounce of gold, which underpin our confidence in the remainder of the year.

Achievements during this most recent quarter -- net sales of $199.6 million; $90.1 million of operating cash flow; adjusted earnings of $37.5 million, representing $0.42 per share; 4.1 million ounces of silver, along with 53,130 ounces of gold; average cash operating costs were $8.36 per ounce of silver. With silver and gold prices expected at Coeur to remain at newly established levels, we are on track for the Company's best year ever by a wide margin, with record cash flows and the total stated production of approximately 30 million silver equivalent ounces. We're moving along as scheduled with our expanded production plan and mine life at our long-time flagship, Rochester silver and gold mine in Nevada. It's on schedule to start adding new ounces of production in the fourth quarter, for at least eight more years, with plenty of exploration potential remaining.

Silver prices have risen about 20% this year and are at $37.28 per ounce this morning, up $1.46. During the first quarter of last year, silver averaged $16.84 per ounce compared to $31.27 per ounce in this year's first quarter. It's exciting that silver is benefiting from the dual role this essential metal plays in the world today, as both an investment and industrial metal. Although recent momentum in the silver market has been slowed by the 84% -- that's 84% increase in margin requirements in three separate hikes in just the last two weeks, the fundamentals for silver remain solid. Clearly, investment demand has been the single biggest reason for silver's upward move. Silver ETF's added 123 million ounces to their holdings during 2010, which now stand at approximately 547 million ounces worldwide. This is remarkable considering the total global production of silver in 2010 was 735 million ounces.

While investment demand has exploded, it's important to note that industrial demand grew 21% in 2010 versus 29% as a result of emerging market demand for products containing silver and, importantly, due to a growing and diverse set of new uses for silver. This includes a robust increase in the manufacture of electronic contacts in uses like automobiles, not simply a response to an increase in the volume of automobiles made, but also because the number of end uses for silver in cars is continuing to expand. The use of silver in photovoltaic cells for alternative energy is dramatically increasing.

And global industrial demand is now projected to grow another 36% to 665 million ounces by just 2015. Average gold price is also continue to set new highs, with today's price at $1,508 per ounce, up $11.40. During the first quarter of last year, gold was $1,104 compared to the $1,374 per ounce in this year's first quarter, a significant 25% increase. Like silver, gold continues its upward march, based on factors such as the weakening dollar, Middle East political instability, inflation concerns, sovereign debt in the Euro zone, and a continued bias towards what appears to be loose monetary policy. I'll talk more on the outlook for this year for Coeur in a few minutes, but now I would like to ask Mitch to join me to comment on our first quarter financial results.

Thanks, Dennis. We had the best first quarter in Company history in terms of production, sales, and cash flow, all of which continue to climb in the current quarter. With a strong April behind us, we're pleased to see our cash balance now exceed $100 million, a material jump from $64 million at the end of March. On slide 9, you can see our first quarter metal sales of $199.6 million was about double last year's first quarter. About half of this increase was due to higher production rates, especially of gold now that Kensington is operating, while the other half is attributable to higher metals prices. Based on our full year production guidance and year-to-date average prices of $36 an ounce for silver and $1,424 an ounce for gold, 2011 metal sales for Coeur are on track to exceed $1 billion.

On slide 10, you can see that first quarter adjusted earnings were $37.5 million or $0.42 per share, which nearly equals adjusted earnings for the entire year last year. This first quarter result is a substantial increase compared with the same period a year ago, when adjusted earnings totaled just $1.7 million. On a US GAAP basis, first quarter net income was $12.5 million compared to a net loss of $12.9 million in last year's first quarter and a net loss of $5.1 million in the prior quarter. We also continued our upward trend in operating cash flow, reporting $90.1 million in the recent quarter. Again, based on our full year production guidance and year-to-date average prices, well over $500 million of operating cash flow is expected to be generated in 2011.

Our confidence in this full-year performance is based on three main drivers. Palmarejo is now at full stride with a record start to the second quarter. We are seeing increased gold production from Kensington. And Rochester is expected to contribute new silver and gold ounces beginning in the fourth quarter.

Our capital expenditures continued to decline as planned, now that the major investments in our new lines are completed. You saw a 40% decline in CapEx from the fourth quarter to just $15.9 million in the first quarter. We still anticipate full-year CapEx of around $120 million. We took advantage of our strong operating cash flow and low CapEx to aggressively repay outstanding obligations, especially short-term obligations, reduce payables and eliminate the remaining Mitsubishi gold leases in the first quarter. The Company's working capital as of March 31 reached a solid $71.4 million compared to a deficit of $4.5 million at year-end. Also as shown on the graph on slide 14, our number of shares issued has remained consistent, now that the Company is self sustaining from internally generated free cash flow. Leon will now take us through the Company's operating results.

Thanks, Mitch. In the first quarter the Company completed the necessary modifications to stabilize performance at our anchor mines. This was reflected in the start of the second quarter, with very strong operational results in April. The Company produced 4.1 million ounces of silver in the first quarter, 1.7 million ounces from Palmarejo and the same from San Bartolome. On the gold production side, shown on slide 17, we produced 53,130 ounces in the quarter, down slightly from the fourth quarter, but more than double what the Company produced in year's first quarter. We saw higher gold production in April and remain comfortable with our full year production targets at both Kensington and Palmarejo.

Palmarejo produced 1.7 million ounces of silver and 23,676 ounces of gold in the quarter at an average cash cost of $4.33 per silver ounce. Metal sales at the mine were $88.1 million, with operating cash flow of $48.8 million. Our full year forecast is buttressed by the record results in April, where the mine produced over 800,000 ounces of silver and 11,650 ounces of gold. We are confident at Palmarejo we will reach our target of 9 million ounces of silver and 120,000 ounces of gold. San Bartolome produced 1.7 million ounces of silver at an average cash cost of $9.13 per ounce during the quarter. Metal sales were $46.1 million and operating cash flow was $18.4 million at the mine. We are confident San Bartolome will achieve the target of 7 million ounces of silver. Dennis?

As many of you are aware, there were erroneous reports out of Bolivia regarding the nationalization of the country's mines. Unfortunately, this failed to clarify that these comments did not pertain to San Bartolome. We want to emphasize that the government of Bolivia at the highest levels, including Mining Minister Pimentel, have affirmed our legal ownership rights at San Bartolome. Also, and importantly, both our unions and mining cooperatives continue to voice strong support for the Company and San Bart's. So, mining operations at San Bartolome continue to operate as usual. At Kensington, the mine produced 23,676 ounces of gold in the quarter, with metal sales of $48 million and operating cash flow of $13.7 million.

Production was down from the previous quarter due to lower head grade, as mining transitioned into new areas. Higher grade zones are now contributing ore to the mill, leading to higher production rates. At Rochester, we expect to start hauling and stacking ore on the new leach pad in early July and anticipate ounces to begin coming out of this new pad in the fourth quarter. This is supported by current reserves of 28 million silver ounces and 247,000 gold ounces. Rochester contains an additional 109 million ounces of silver resources and 777,000 ounces of gold resources, which we expect to further increase production levels and mine life at Rochester. I'll now turn the call over to Don for our exploration update.

Thanks, Leon. Good morning, everyone. Our exploration strategy this year is focused on adding to resources and reserves at Palmarejo and Kensington and supporting the expansion of mining activities at Rochester. Our 2011 budget for all exploration, expensed and capitalized, is over $20.7 million and includes over 82,000 meters of new drilling. Thus far, the 2011 program is off to a good start, with over 14,500 meters of new drilling completed, which will accelerate considerably in the second quarter and into the third. In addition to the focus I mentioned, we will again drill at Rochester and Joaquin and are now collecting samples from new trenches and pits at San Bartolome to expand and upgrade mineral resources and reserves. This past quarter at Palmarejo, we completed over 9,900 meters of drilling, most of that around the main mine area.

We have some encouraging new drill results from Tucson and Chapotillo. One of the best results from Hole 149 shown on the map returned average silver grades of 1,174 grams per ton of silver and 7.2 grams per ton of gold over nearly 4 meters. The map in the upper left of the slide shows the five ore zones to be drilled this year, of surface and underground. Shifting now to Guadalupe in the southeast section of the Palmarejo district, the slide shows a long section with our year-end 2010 mineral reserves outlined in dark green and flanked by areas of additional mineral resources in lighter green. Color coded drill hole pierce points, as they intersected the Guadalupe zone, are shown. It's important to note that while we have assigned Guadalupe to over 68 million contained ounces of total silver and over 900,000 total gold ounces, deposit is still open for expansion.

Many of the opportunities to add resources or reserves are relatively reachable with surface drilling shown on this slide. The deeper extensions and some tighter space in-fill targets will be drilled from underground positions. We are driving a road from Palmarejo to Guadalupe now and expect color at North Portal at about the 1200-meter level in July. Now, let's move to Kensington in Southeast Alaska, where we have our second largest program under way. Late last year we commenced drilling on the Raven vein, a gold bearing shear vein similar to other such veins in the current Kensington mine. Raven occurs about 2000 feet due west of the Kensington mine and is easily accessed in the main tunnel of the mill site. The significance of the Raven discovery is its high grade nature. It demonstrates the potential for additional similar structures in the mine.

Here in long section looking west, we show some initial modeling of the drilling we completed in 2010 and the first quarter of this year. We have now completed the first mineral resource tested on the Joaquin property located in Santa Cruz, Argentina, about 70 kilometers north of our Martha mine. They are now focused on adding to the resources and beginning work on a feasibility study. This initial resource of approximately 68 million silver ounces and 80,000 gold ounces, prepared by an independent engineering firm, used metal prices of $1,300 and $20 per ounce of gold and silver respectively. The mineral resources are summarized in the appendix if this presentation. These ounces were discovered in [defiance] of less than $7 million in exploration costs or around $0.10 per silver ounce to 2010. I'll turn the call back now to Dennis for closing comments.

Thank you, Don. We're looking ahead to record-breaking year for Coeur in terms of silver and gold production, sales, earnings, and cash flow, now that our three anchor mines are all in production for their first time. We also have the contribution of new silver and gold production from Rochester starting in the fourth quarter. Our full year 2011 production forecast remains a record 20 million ounces of silver and 250,000 ounces of gold. We also expect to report progress on adding to reserves at Palmarejo and Kensington, growing the resource base on our large land package of Palmarejo and supporting the mining activities at Rochester. And also, advancing the Joaquin project. So, we thank you all for joining us on the call today and now we'll be happy to answer your questions.

(Operator Instructions) Jeffrey Thorpe.

Congratulations on another solid quarter.

Thanks, Jeff.

I just want to make sure that I heard correctly that you guys have $100 million of cash now, so it looks like you've generated $34 million in April and so I guess my question is, given that you're generating so much free cash flow, what do you plan to do with it?

Well, Mitch mentioned that we're currently forecasting free cash flow of approximately $0.5 billion this year and that money will be devoted to growing the business of Coeur everywhere from acquiring further greenfield exploration properties for the Company. We're actively looking at development stage properties and operating mines. And of course it's only appropriate that we take a good look at our shareholders in terms of dividend policy for the Company.

Great. And then a second question is I'm just wondering what sort of cost pressures you're seeing on the consumable side or input side of your business.

Well, costs are rising. There's no question about that. But they are not rising anywhere comparable to these new paradigms in pricing that we do expect to continue. We will continue to focus, I can assure you, on how to bring further cost efficiencies to the Company in terms of reducing our cash costs as we go through the balance of the year.

Thank you so much.

Andrew Kaip.

Look, I've got just one question regarding Kensington. And that is that costs were higher than what we were expecting, I think, the street was expecting at Kensington. Can you give us some detail on how costs are going to be for the remainder of the year? Are we going to see those costs come down? Or should we be modeling higher costs at the operation through the remainder of this year?

They were higher and I'm going to ask Mitch to break down our expectations on costs.

Yes, hi, Andrew. We saw in the first quarter, especially from the beginning of the first quarter to the end of the first quarter, us starting to pair off some of the still start-up related costs there at Kensington, things like equipment rentals, outside services, freight, things that still were hold-overs from the initial ramp up phase there at Kensington. So from January to the end of the quarter we're seeing a trend that is pointing favorably. Those costs will continue to come down throughout the remainder of the year. The target is by the end of the year to be around $600 an ounce. Obviously, as the denominator increases as we see grades recover from first quarter levels, that will obviously push that cost per ounce down to those ranges as we move forward throughout the rest of the year.

Okay and then on the production side, you indicate that production was lower due to lower grades and that April production is showing the capacity to move into higher grade portions of the deposit. I'm just wondering whether you're at the point where your production schedule is stabilizing and we should expect more -- we should expect grades to remain at those higher levels or should we forecast slightly lower production or slightly lower production in the third quarter, as you then sequence into another back filling program or there's more emphasis on back filling.

Andrew, I'll ask Leon to handle that question.

Andrew, we're going through a cycling pattern at Kensington. We came out of last year without sufficient backfill capacity. We brought that up in the first quarter. We have caught the backfill up and I don't feel that the rest of the year we'll have a shortfall in backfill. So our higher grade zones, as well as the other zones in the mine, will all be blended in on an equal basis for the rest of the year.

So we should be expecting much more stable production from Kensington moving forward?

That's correct.

All right, thank you.

(Operator Instructions) Patrick Donnelly.

Just wanted to get your opinion, updated opinion on hedging out potential production this year, next year, and just down the road. Obviously, silver's been very volatile this year. Just wanted to get your thoughts in terms of locking in some of this cash flow to make it more predictable, if you will, at least on a partial basis.

We will not hedge silver at Coeur. That's been our policy for sometime. We don't anticipate changing it. I'm fully convinced that our shareholders want to have the volatility behind the silver price as it translates to our shares and that's the policy we intend to keep.

Well, that's certainly definitive. Okay, thank you.

John Bridges.

Just wondered if you could give us a bit more color on the Joaquin project and how you can see that developing and how it might interact with Martha.

I'm going to ask Don Birak to jump in here, John.

Thank you.

Joaquin is on a track now since we've completed the first mineral resource on this property. We're finishing up with some drilling on both La Negra and moving to the La Morocha. And what we're starting is a internal studies to produce eventually a feasibility on this. We'll go through the engineering and metallurgical work again, add new metallurgical and engineering parameters and analysis to the study and get to the point where we can see that this is going to produce for Coeur a new line. Obviously, would be synergies with Martha in terms of management and running the project. Beyond that, we'll look at all opportunities to lever off of what we have in Martha.

How would you characterize the mine? What sort of cost per ton do you think you could achieve from this thing?

I think it's a little bit premature to put that out. We just completed the resource estimate and of course that had some assumptions about cost for the Whittle pit scoping study or scoping analysis and that will be -- we'll crystallize that in the tech report that we're going to be filing here within about 45 days.

Okay, and that will be an interesting read. Are there any other veins on the site?

Yes, there are, John. We're drilling on extensions of La Morocha to the northwest of that zone and we also see potential to expand La Negra to the east and of course the depth extensions of both, particular La Morocha, look quite good, but I still remain very excited about this property. It's a large property and we've really only explored the southeast portion of this large property.

Okay, excellent. Thanks a lot, Don.

Thank you, John.

Adam Brooks.

Yes, real quickly, can you maybe give us the progress in the Coeur as far as terms at Palmarejo was down a little bit sequentially, maybe you could tell us how things performed from January to February to March, maybe even into April?

Adam, it's Mitch here. I'll ask Leon to take that. In terms of Palmarejo?

Okay, thanks. Actually, we went into the first quarter with a strict blending plan where we actually restrict the tons going through the mill. As we came out of the quarter, our tons have been growing steadily. We're on target for April and we expect the rest of the year to be the same.

All right, thank you.

And your next question is from Andrew Kaip.

Hi, Mitch, just one further question. Can you remind us what metal price assumptions you are using for your estimate of $500 million of operating cash flow?

Yes, sure, Andrew. It's $36 an ounce for silver and $14.24 for gold.

All right, thank you.

Yes.

And at this time there are no further questions in the queue.

Thank you, operator. We would like to thank all of you for joining us as we report Coeur's first quarter results today. And we look forward to keeping you timely advised of major developments within the Company and look forward to having you join us for the next quarterly conference call. Thanks again.

Thank you, ladies and gentlemen. This does conclude today's conference call. Thank you for participating. At this time, you may now disconnect.