Coeur Mining Inc (CDE) 2012 Q2 法說會逐字稿

Good afternoon my name is Rashawna, and I will be your conference operator today.

At this time I would like to welcome everyone to the Coeur d'Alene Mines second-quarter earnings conference call.

(Operator Instructions)

After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions)

I would now like to turn the call over to your host, Ms. Wendy Yang. Ma'am, you may begin your conference.

Thank you. Welcome to our second-quarter conference call. I am Wendy Yang. I am Vice President of Investor Relations. This call is being webcast on our website at www.coeur.com, where we have also posted the second quarter's 2012 financial results presentation to accompany our remarks.

Telephonic replay of the call will be available on our website until August 14, 2012. We will be discussing some forward-looking information today, and we caution our audience that such statements involve risks and uncertainties that could cause actual results to differ materially from projections.

Please refer to the cautionary statements shown on Slide 2 of our financial results presentation and review the risk factors, including some that are unique to our industry, also described in our latest annual and quarterly financial reports filed with the US SEC and Canadian regulators.

On our call today we have Mitchell Krebs, Frank Hanagarne, Leon Hardy, Randy Buffington, and Don Birak. With that I will turn it over to Mitch.

Thanks, Wendy. Hello and thanks for participating in our second-quarter call. We delivered strong operating results during the quarter, which led to very robust free cash flow. We expect this performance to continue throughout the second half of the year and allow us to achieve the high end of our 2012 production guidance and the low end of our cash operating cost guidance.

Second-quarter silver production remained consistent with the prior quarter, and quarterly gold production was up 44%, thanks to rising output from our Kensington mine in Alaska, and our Rochester mine in Nevada.

These strong operating results are driving solid financial performance and generating significant free cash flow for our shareholders, which are the primary factors that led to the unprecedented decision by the Company's Board of Directors, to authorize $100 million share repurchase program, which represents approximately $5.5 million, or just over 6% of the Company's outstanding shares. This program reflects the Board's and management's confidence in the Company's underlying cash flow and the long-term value the Company represents for shareholders.

Controlling cost is a challenge throughout the mining industry. During the second quarter our cash operating costs per ounce of silver were flat compared to the prior quarter, and our cash operating cost per ounce of gold declined by 50%. Although we are seeing cost pressures in areas such as labor, contractor cost, and consumables, including cyanide and grinding media, we are offsetting these increases through operational efficiencies for the most part.

We are pleased with the success of our exploration program which is the largest in the Company's history. We identified a new zone at Palmarejo, located near the existing processing facilities, and we continue to expand the Guadalupe deposit, which is located six kilometers away from the Palmarejo mine. At Kensington we completed more definition drilling in the first six months of the year than we did in all of 2011, which is increasing our confidence level in the ore body we're mining at Kensington.

We also reported an updated resource estimate for the Joaquin silver and gold project in Argentina, as we said we would do. There have been some negative events in Bolivia over the past few months, regarding nationalization activities, that are worth addressing.

First, the actions the Bolivian government recently took with other companies were not a result of any federal initiative or strategy to nationalize the natural resource sector. Rather, the Bolivian government has stated that their actions were taken to resolve conflicts specifically related to those mines in those communities.

Secondly, our San Bartolome mine is a very unique operation. Unlike the high-grade underground mines that makes up the majority of the historic silver mining industry in Bolivia, San Bartolome is a high-volume, low-grade operation that uses a high-tech leaching process to recover the silver contained in dumps and deposits found on the surface of the Cerro Rico Mountain. San Bartolome is also unique because it produces value-added, high-quality dore product on-site, versus shipping concentrate out of the country for further refining.

Finally, and probably most importantly, we continue to have very positive and constructive relationships with the local community and with the cooperatives with whom we are partners at San Bartolome. In turn, the cooperatives are strong supporters of the Morales administration. We have been successfully operating in Bolivia for over four years now, and because of these factors, we believe we will continue to successfully and responsibly operate in Bolivia going forward. Now Frank will take us through the second-quarter financial highlights.

Thank you, Mitch. The table on Slide 6 illustrates the increased sales, growing cash balance, and solid operating cash flow achieved in the second quarter. Total metal sales increased 24% over last quarter and 10% over the second quarter of 2011, to $254.4 million. Adjusted earnings for the quarter totaled $28 million or $0.31 per share, which beat the analyst's coverage on Bloomberg by $0.20. Second-quarter EBITDA is $102.6 million, up 5.8% over the first quarter.

Net income totaled $23 million, compared to $4 million in the first quarter, a 475% increase. Included in the second-quarter net income was $4.8 million impairment charge reflecting our business decision to end production at Martha later this year. Net cash from operating activities totaled $113.2 million up 566% over last quarter. Cash, cash equivalents, and short-term investments totaled $200.3 million, up 31% over the last quarter and 87% over the second quarter a year ago.

Slide 7 shows the increase in silver and gold ounces sold in the second quarter and a significant reduction in cash operating costs per gold ounce. Silver ounces sold totaled $5.6 million, up 30% from the first quarter, and 37% over second quarter of 2011. Gold ounces sold increased 53% over last quarter at 59,579 ounces, up 19% over the second quarter of 2011.

Consolidated cash operating costs per silver ounce were relatively flat in the second quarter compared to the first quarter. Cash operating costs per silver ounce were higher in the first half compared to the first half of 2011, due primarily to the increased cost of consumables at San Bartolome, higher maintenance costs at Palmarejo, and increased costs at Rochester in 2012, due to the resumption of active mining late in 2011.

Cash operating costs per gold ounce at Kensington were $1,348, 50% lower than the first quarter. The average realized price per ounce of silver was $29.28, which is down 10% from the first quarter and 25% from the second quarter of 2011. The average gold price per ounce was $1,610, 5% lower than the first quarter and 7% higher than second quarter 2011. Silver contributed 63% of the Company's total metal sales in the quarter compared to 69% a year ago.

The graph on Slide 8 shows that the Company has kept its share count level for nearly two years. As part of our commitment to generate value for shareholders, we implemented a $100 million share repurchase program, reflecting the confidence we have in Coeur's ability to generate cash flow and in the Company's long-term value.

Additionally, Coeur has finalize a $100 million four-year revolving credit facility and provided a notice to repay the remaining outstanding balance of the Kensington term loan facility from existing cash. With that, I'll turn it over to Leon.

Thanks, Frank. As Mitch mentioned at the top of the call, all four of our operating mines are performing according to plan, which is leading to strong operational performance. Our Kensington gold mine returned to full production in the second quarter with the completion of all major improvement projects. We are now focusing on consistent and sustainable production levels. Similarly, at our Rochester mine, both silver and gold production increased over the first quarter, while cash operating costs declined compared to the first quarter.

Production at Palmarejo mine remains strong and consistent at 2.4 million ounces of silver and 31,258 ounces of gold. Cash operating costs per silver ounce were slightly higher in the second quarter, primarily due to increased maintenance costs. Silver production at San Bartolome mine was consistent with the first quarter at 1.5 million ounces.

Looking at Slide 11, silver production remained the same as the first quarter, while gold production increased 44%. Cash operating costs per silver ounce increased slightly from $6.29 per ounce in the first quarter to $6.41 per ounce in the second quarter. Cash operating costs per gold ounce at Kensington dropped dramatically by 50% from the first quarter, with our resumption of full production in April. Randy will now take us through a brief performance overview of each of our sites.

Thank you Leon. On Slide 13, second-quarter production at Palmarejo remained strong and consistent. Tons processed declined compared to prior quarters, but was offset by higher silver recoveries and higher grades from underground operations. Underground operations contributed one third of total tons mined, which is in-line with prior quarters.

We achieved record silver recovery rates at an average of 84% during the second quarter. Costs were higher than prior quarters, due primarily to consumable costs and additional waste tons moved in the open pit to benefit the 2013 production plan.

Heading into 2013, as Guadalupe becomes a new source of ore, Palmarejo will begin shifting more and more to primary underground production. Development in advance of the Guadalupe [twin declines] progressed as planned during the second quarter. Guadalupe is on schedule to meet our initial production start up for early 2013.

Turning to Slide 14. Although higher than prior quarters, San Bartolome's costs are 14% below budget year-to-date. The mine is performing consistently and according to the mine plan, producing 1.5 million ounces of silver in the second quarter. We expect production to be slightly higher in the second half of the year, with the completion of several infrastructure related projects.

Moving to Slide 15. As Leon mentioned, Kensington returned to full production in the second quarter, resulting in a dramatic jump in production over the first quarter, to 21,572 ounces of gold and significantly lower cash operating costs of $1,348 per gold ounce. We remain focused on achieving sustainable production levels at Kensington and expect cash operating costs per ounce to decline further to $900 per gold ounce by the end of the year.

The mill is performing well, with a strong recovery rate of 94% and the backfill pace plan is performing above plan, which is bringing important flexibility to the operation.

Slide 16. The expansion completed late in 2011 at Rochester resulted in significantly higher second quarter metal production. The mine produced 712,706 ounces of silver, a 61% increase over the first quarter. Gold production increased 91% to 10,120 ounces, and cash operating costs declined 58% from the first quarter to $9.83 per silver ounce. We expect to see production continue to rise during the second half of the year.

Now, Don will take us through the exploration highlights.

Thank you, Randy. We continue with our aggressive drilling and sampling campaign this quarter that began in the second half of 2011. At the peak we had up to 17 drills and sampling crews in operation at all our mines and exploration sites. As we advance this large program our teams continued to emphasize working safely. That commitment was recognized this quarter by the receipt of three awards from International Society of Mine Safety Professionals.

The Palmarejo district continues to be the primary focus of our exploration efforts in investment. One of the most exciting areas at Palmarejo is Guadalupe. The deposit's mineral resource tonnage is now over 60% measured and indicated, and over 2.5 kilometers long from southeast to northwest, with significant potential to grow by upgrading and expanding mineral resources further.

Our main goal in the first half of this year was to upgrade Guadalupe's mineral resources, especially those near where we plan to begin mining. And we continue to receive good results from infill drilling. For the remainder of the year, we will focus our efforts on exploring for more resources at Guadalupe and other targets in the district. Early in the second quarter we commissioned a team of exploration and mine geologists to established new drill targets near our Palmarejo mill.

Slide19 illustrates the progress we are making at one of these new targets called La Blanca Norte, located 500 meters northwest of the mill. We are seeing encouraging results from 5 of the additional 13 core holes drilled at this site, all of which intersected silver and gold bearing quartz vein. We believe these holes represent the upper part of a typical, Palmarejo-style mineral system. The next drilling phase at this zone will test the mineralized quartz rich structures, deeper and on strike to the northwest. This area has not been drilled in the past.

We completed a helicopter-borne geophysical survey over the full Palmarejo property to assist target generation. This survey data will be used for years to come, and has already yielded targets that are being evaluated on the ground.

Finally, we are evaluating the potential of the La Patria deposit, situated Southwest of Guadalupe. It could be a standalone operation, to provide additional ore to the Palmarejo mill, or both. Towards this end we commenced a Phase I metallurgical program recently. Results from this metallurgical work will be used to design more detailed second-phase tests and further exploration drilling.

Slide 20 illustrates the results of ongoing exploration at the Joaquin project in Santa Cruz, Argentina. The goal of the 2012 program was to upgrade inferred mineral resources to measure and indicate confidence levels.

Here we represent the results of an updated mineral resource estimate for Joaquin. Measured and indicated silver resources now stand at 39.7 million contained ounces, while inferred silver resources totaled 31.4 million contained ounces. The new estimate incorporates 16,707 meters of core drilling and 123 new core holes. Data from an additional 6,231 meters of infill drilling will be used to update Joaquin's mineral resources again.

Mitch?

Heading into the second half of the year, we'll maintain our focus on achieving our plan and on generating even more free cash flow as both Kensington and Rochester continue to accelerate production rates. We'll remain committed to our aggressive drilling program designed to increase reserves and resources at year-end, and we will opportunistically repurchase shares. This execution is what gives us confidence in our ability to achieve the high end of our 2012 silver and gold production guidance and the low end of our cash operating costs guidance.

Looking ahead, we believe the backdrop for metals prices remains positive over the long term. We believe accomodative monetary policies around the world will eventually lead even higher silver and gold prices. We expect that there will be a renewed focus on the magnitude of the structural fiscal issues here in the US once we get past the upcoming elections, and once Congress works through the year-end tax and fiscal issues facing the country, which we believe will eventually weaken the US dollar and be good for gold and silver.

We anticipate growing investment and industrial demand for silver and gold from the world's emerging economies, and we see some significant potential new sources of supply of gold and silver being delayed or deferred, which should also benefit prices. And finally, we anticipate central banks will keep being buyers of gold.

We'll continue down a path here at Coeur d'Alene Mines that is focused on strategic planning, execution, and discipline, which will keep generating substantial free cash flow. Over the long term, we're convinced these efforts will produce the levels of returns for shareholders that we all expect to see. Thanks again for your time today, and Operator, we are now ready for any questions.

Operator?

(Operator Instructions)

Michael [Dudas].

Good morning, everybody. Well done so far for the first half. Two thoughts, Mitch. First, maybe if you could revisit or talk about the Company's actions earlier this quarter to attempt to raise debt financing, and what was the reasons and thought process behind it? And again, how it got pulled?

I guess to follow on to that, how you are thinking, given all the issues in the mining industry with attention to capital costs and royalties, and governments, and etc., your capital allocation towards companies, assets, shares in companies -- is it going to be, without giving up too much information, is it going to be more of a major big targets? Or are you going to try to cultivate a lot of smaller targets away from your core businesses at Coeur? And is that one of the reasons, why -- so you can tie that into what you needed the money for?

Yes, okay. Taking the first question, our intent with the proposed notes offering was to add a very conservative amount of low-cost flexible capital on to the balance sheet to help accelerate some growth initiatives within the Company. It was entirely opportunistic and what we experienced when we did enter the market with that proposed offering, was a set of market conditions that, at that time, were not receptive to that offering. We weren't going to chase a deal; we wanted to maintain discipline in terms of what we would be willing to do, and so we made the decision to withdraw the offering at that time. And that was left about a month ago. That was sort of the intent and the thinking. The market just was not there at the time, and because we don't need the funds, it wasn't something we were willing to be a price-taker on.

As we look forward to your second point, capital allocation and how we think about investing in new opportunities, as you well know there are, as we look across the landscape, there a lot of opportunities out there now, that do represent very attractive growth opportunities for a Company our size. We are a Company that is not too small, but yet not too big, to where transactions and opportunities that can move the needle for us, there are plenty of those out there, and we are constantly evaluating those.

We do think that the large type of projects where the capital, the risk profile, those kinds of opportunities are not of the top of our list. We see there being plenty of opportunities that are more of a bite-size nature that fit in strategically with our business, that will pass the test in terms of return, rigor and criteria that have very accretive metrics associated with them. And there are enough of those to where those of the kinds of things that we are looking at externally, to not only grow the business, but to grow it in an intelligent way that we think will generate value for shareholders.

All right, I appreciate your color, thanks Mitch.

Andrew Gates.

Morning, guys. Look, I've got one question, specifically with Palmarejo, I noticed that the silver recoveries came up quite considerably in the quarter, and I'm just wondering is that something that we should expect moving forward? Or, was that a fact of operations during the quarter?

Leon? Do you want to take that?

Sure. As you realize, as we going deeper in the deposit we are getting out of the oxide areas, and as we do that both in the surface and to a certain extent underground, we are getting into the material that has a -- much cleaner and goes through the mill with a much better recovery. Plus we have gotten more operating time, and just better at -- keep making the changes and the blending happen.

Okay, that is something we should show, based on your internal expectations? I mean, should be looking at recoveries in the mid- 80s now?

Yes, I would say --

Lower to mid- 80s.

Okay, that is great. Thanks very much.

We will now turn the call back over to Mr. Krebs.

Operator, would you poll again please for questions, if there are any? And we will just give it a few moments?

Okay.

(Operator Instructions)

Okay, well, it sounds like there is no other questions. With that I just want to thank you again for taking your time. I know there is a lot going on today, and I appreciate your time and interest, and have a good rest of the day, and we will talk to you at the end of the third quarter. Thanks.

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