Coeur Mining Inc (CDE) 2012 Q3 法說會逐字稿

Good afternoon. My name is Matthew and I will be your conference operator today. At this time, I'd like to welcome everyone to the Coeur D'Alene Mines Corporation third quarter 2012 quarterly financial results 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. Wendy Yang, you may begin your conference.

Thank you, Matthew. Welcome to our third-quarter conference call. I am Wendy Yang. I'm Vice President of Investor Relations. This call is being webcast on our website at www.Coeur.com where we have also posted the Third Quarter 2012 financial results presentation to accompany our remarks. Telephonic replay of this call will be available on our website until November 20.

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 statement shown on slide 2 of our financial presentation and review the risk factors, including some that are specific to our industry, that are also described in our latest annual and quarterly financial results filed with the US SEC and Canadian regulators. On the call today we have Mitchell Krebs, Frank Hanagarne, Leon Hardy, Randy Buffington and Don Birack.

With that I'll turn it over to Mitch.

Hello, and thanks for participating in our third quarter call.

The Company's performance through the first time months has been strong, with silver production totaling 14.2 million ounces and gold production exceeding 165,000 ounces. But, we did have a disappointing third quarter at our two largest operations.

Palmarejo's production was down due to unexpected underground challenges that were encountered in September in high-grade area of the mine and to a transition phase in the open pit that negatively impacted grades. It's important to stress that what impacted third quarter production in the 76 Clavo in Palmarejo's underground operation is a timing issue and is temporary in nature. No reserves are lost or at risk, and the area where poor ground conditions were encountered comprise less than 10% of this specific area of the underground mine. We are still mining in some areas of the 76 Clavo and will go back and mine the secondary stopes in this area that impacted the third quarter. Once we complete some additional backfilling and previously mine primary stopes.

In the meantime, we will rely more on the fully developed 108 Clavo in the underground mine. At San Bartolome the operation lost five days of production in late August due to power disruptions which reduced the number of tons processed and increased cost on a per ounce basis. Our other two operations performed well during the quarter. Our Rochester mine in Nevada and our Kensington mine in Alaska both delivered higher production at lower costs.

Company wide, we expect 2012 production to total 18.5 to 19 million ounces of silver, and between 215,000 and 225,000 ounces of gold. We expect cash operating costs to be approximately $7.50 per ounce of silver. As we look ahead to 2013, we expect silver and gold production levels to be consistent with 2011 and with what we expect to produce here in 2012. We will be providing more specific 2013 guidance early next year.

During the quarter, we acted on the $100 million share repurchase program that our board authorized in June, by repurchasing $10 million of our common shares, and we've reduced outstanding debt by nearly $100 million over the past 12 months. Which has left just $48 million of remaining debt on the balance sheet, compared to total shareholders equity of $2.1 billion. In addition to reducing debt, we continue to invest in the Company's future through aggressive exploration, pursuing capital projects that help ensure the sustainability of our operations, and by making strategic investments in promising non-producing companies.

Now, Frank will take us through the third quarter financial highlights.

Thank you.

The table on slide 6 shows the metal sales totaled $230.6 million, down 9% from the second quarter. Adjusted earnings for the quarter totaled $25.8 million or $0.29 per share, while third quarter EBIDTA was $86.8 million. Prior to changes in working capital, core generated $77.3 million in operating cash flow in the third quarter. Ending with $143.6 million of cash, equivalents, and short-term investments for the quarter.

Slide 7 shows lower silver ounces sold in the third quarter, due primarily to lower production rates at Palmerejo. Gold ounces sold remained relatively flat. It's important to point out that the Company sold an abnormally large amount of metal in the third quarter 2011, 6.2 million ounces of silver and over 67,000 ounces of gold, compared to metal sales in a normal quarter which for us are around 4.5 million silver ounces and 55,000 to 60,000 ounces of gold.

Consolidated cash operating costs were $9.05 per silver ounce, compared to $6.41 per silver ounce in the second quarter. This increase, on a per ounce basis, was driven more by lower production rates than by increased spending. On a dollar spend basis, we are actually doing quite well. That said, we did see temporary increases at Palmarejo and mining costs associated with additional underground support measures, maintenance cost, and waste haulage cost related to the transition in open pit operations.

The average realized price per ounce of silver was $30.09 and $1654 per ounce of gold in the third quarter. These were fairly flat compared to the second quarter, but were down 21% and 2% respectively, compared to last year's third quarter. Silver contributed 59% of the Company's total metal sales during the third quarter 2012, compared to 68% during the third quarter of 2011.

The graph on slide 8 shows that the Company has kept its share count level the past two years, and has now reduced its outstanding shares by approximately 0.5 million shares due to the repurchase program implemented in June. Coeur also repayed the remaining $72 million outstanding balance of the Kensington term loan facility, the largest piece of our long-term debt resulting in total remaining debt of $47.4 million. Additionally, we have put in place an undrawn, $100 million four-year revolving credit facility that provides us with additional financial flexibility.

With that, I will turn it over to Leon.

Thank you, Frank.

In (technical difficulties) production levels at our Kensington gold mine increased 13% over the second quarter. Recovery rates continue to improve as a result of process improvements at the mill. We remain focused on further improvements at Kensington to deliver a higher and sustainable level of production through year end and into 2013. We are now attacking Kensington's cost structure and expect these efforts to be reflected in 2013 performance.

Rochester had a very strong third quarter, laying the foundation for what we expect to be an even stronger fourth quarter. Year-to-date 2012 silver production was up 94% and gold production was up 507%, the result of the new leads pad that began production in the fourth quarter 2011. We expect to see continued higher production and lower cash costs at Rochester, through the fourth quarter.

As Mitch mentioned, in September, we encountered unfavorable ground conditions at Palmarejo in a high-grade area of the underground mine. This has required additional ground support and maintenance work limiting our short-term ability to advance the high-grade secondary stoping area, also slowing the third quarter production.

In addition, we transition to a new phase in the open pit, which also had a negative short-term impact on ore grades. Cash operating cost per ounce increased over the second quarter cost as a result of lower production. Silver production at our San Bartolome mine was level with the second quarter at 1.5 million ounces. Unit operating costs were up from the second quarter, however, we expect these cost to decline in the fourth quarter. Looking at slide 11, silver and gold production was down from the second quarter, due mostly to lower production at Palmarejo, which caused costs per ounce to increase.

Randy will now take us through a brief overview of each of our mines.

Thank you, Leon.

Total silver production at Palmarejo was 1.8 million ounces, down from 2.3 million ounces in the third quarter of 2011. Gold production was 23,702 ounces, compared to 29,815 ounces a year ago. Cash operating cost increased to $3.75 per ounce. We expect cash operating cost to remain high in the fourth quarter, as we complete underground support and maintenance work. And continue moving waste material in the open pit to position the mine for 2013. As previously reported, the Guadalupe deposit located approximately six kilometers from the main Palmarejo mine is expected to begin contributing ore to the mill late in the first quarter of 2013.

Turning to slide 14, silver production at the San Bartolome remained steady at 1.5 million ounces in the third quarter. Production costs were down from the same quarter a year ago, due to lower volumes of ounces sold. Total cash operating costs per ounce in the third quarter were $12.13, up from the last quarter, largely as a result of lower mill production rates due to a power interruption in August from our commercial supplier, which caused temporary unplanned mill downtime.

Moving to slide 15. On the heels of a solid second quarter, with resumption of full-scale operation in April, Kensington produced 24,391 ounces of gold, up 13% from second quarter. Kensington generated $36.5 million in sales and $7.3 million in operating cash flow. Cash operating cost per ounce at Kensington declined 4% from the same quarter -- from the second quarter to $1298. Cash operating cost per ounce are expected to be approximately $1350 for 2012 and declining to less than $950 per ounce in 2013.

Slide 16 illustrates the steady increase in production and the decrease in cash operating cost per ounce we saw at our Rochester mine due to the expansion that took place in 2011. Rochester delivered stellar results in the third quarter, producing 819,349 ounces of silver, and 10,599 ounces of gold. 15% and 5% higher than the second quarter, respectively. Cash operating costs declined from the second quarter to $9.58 per ounce. We expect production at Rochester to continue to rise through the end of the year.

Now, Don will take us through the exploration highlights.

Thank you, Randy.

The third quarter was a busy one on the exploration front. We completed over 147,000 feet of drilling and sampling. With up to 16 rigs and crews operating at the peak of the quarter. Again, the primary focus of our expiration efforts was on Palmarejo, where we saw encouraging results in the Palmarejo mine area and the Guadalupe Norte. We also completed the first phase of metallurgical testing on La Patria, which is located about 7 kilometers south of the Palmarejo mine, and are pleased with the initial test results. More work is planned there.

As announced in August, we expanded the silver measured and indicated resources at the Joaquin silver project in southern Argentina and filed a new technical report on the results. We have plans to update the mineral resources there again. Over half the Company's drilling conducted in the third quarter was accomplished at the Palmarejo mine, split between idiot surface and underground mine area, and other exploration targets. Including Guadalupe, where we expect to show expanded reserves and resources in preparation for mining to begin next year.

Slide 19 shows the Main mine area. The five main zones of mineral reserves and resources, and two other exploration areas. In underground drilling we tested the new Inter-Clavo zone, which is located between Rosario and 76 zones. And from the surface we are testing La Union zone. These are both new targets which could potentially add to underground and surface mineral resources with further drilling.

Slide 20 shows a map of the Kensington mine area with the mine and nearby notable gold occurrences identified. We conducted both surface and underground exploration in the third quarter to discover and define new gold metallization around the mine. Two drills were engaged with the most significant results coming from the Elmira and Kensington South targets. In our drilling at Elmira, the first by Coeur, located about 2000 feet east of the mainline, we cut six separate gold mineralized structures. We have also seen exciting drilling results from Kensington South, including the best drilling intercept at that this target to date of 10 feet grading over 1.7 ounces per short ton.

Mineralization in this area has geologic similarities to the main Kensington mine and we believe that -- we believe we have intersected only the edge of a potentially large mineralized area at Kensington. More drilling is planned here, which may include driving an underground riff to set up more efficient underground drill platforms for next year and beyond. We shifted our exploration transient sampling at San Bartolome from in-filling of inferred mineral resources to exploration for new resources this quarter.

Slide 21 illustrates a new target we explored called Pucka Loma. Nearly half of the transients excavated and sampled at Pucka Loma did not reach the bottom of the mineralized gravel, or pallaco, indicating potential for additional mineralization at depth. More work is planned on this encouraging new target.

Thanks, Don.

Although are not pleased at all with the third quarter performance, the issues are short-term in nature and are being addressed. As we move into the last quarter of the year, we are focused on improving the operating performance at Palmarejo and driving production rates higher at Rochester and Kensington. We are focused on establishing solid mine plans for each of our operations that will guide us into the future, while we seek to reduce costs at all of our mines.

At the same time, we will keep up the pace on our drilling programs in an effort to increase Company-wide reserves and resources at year end. Looking ahead, the outlook for silver and gold prices remains positive, which should translate into strong cash flow for the Company. We will maintain our commitment to running the Business in a strategic and disciplined way, as we seek to create value and deliver consistent results for our shareholders. Thanks again for your time today. Operator, we are now ready for eight questions.

( Operator Instructions)

Michael Dudas, Sterne Agee.

Good morning, gentlemen and Wendy. So, the topic of the day. Could you follow on to your prepared remarks, Mitch, on the 76. How has remediation gone? How has October looked, so far? How much support, maintenance costs--are they going to dissipate by year-end? Is that something to think about moving into the first part of next year? As you see, your development and the other parts of the mine and what you're looking at, has the mine plan changed, dramatically, in your view? Even though you are probably not probably finished with it. What are you thinking about in 2013?

Yes. I will answer those that I can and, Leon, feel free to jump in. Some of the impact of what we saw in September has -- did spillover into October. We look like we are now back on budget in November and December, at Palmarejo. So, that is certainly positive.

As we look at the mine plans into 2013, no, we don't see a significant change, in terms of the underground and open pit components to the plan. The remediation work that is underway -- keep in mind, we are still mining in the 76 Clavo. It's in this one area where we saw ground conditions that didn't appear safe. Where we pulled back. We are now focusing on the backfilling in those areas, so that we can go back in and access those secondary stopes safely later this quarter and into 2013. Leon, do you have anything? I think I hit, Mike, most of those questions. But, Leon, anything to add to that?

No. The affected area that we are talking is about an 8 to 12 stope area. We have already mined the primary stopes in this area. The primary are principally all filled. The fold zone that is giving us the problems is really outside of the vein, and it's in the hanging wall.

Yes.

So, as we push the secondaries toward the hanging wall, we are getting a lot of ravelling out of the hanging wall. So, what our plan is, is to go back in. Refill some of the top portions of these primaries that didn't get jammed tight, and also to look at a grouting -- method of grouting the fault zone, so we that we don't get the ravelling. We could be mining these secondaries today and, I think we acted prudently in pulling out of this area for safety reasons. We want to make sure that when we go back in there, which we are looking at probably 30 days or so before we get the grouting completed, that we don't have this excessive ravelling in these stokes, which would lead to a loss of ore reserves, in the long run.

Just to follow up there, the 108 Clavo, which is fully developed is an area then that we have gone into to help supplement the underground mining that's still taking place in the 76.

That's encouraging. Appreciate those answers, Mitch and Leon. My one follow-up is regarding early look on capital allocation next year. Mitch, you talk about exploration development, CapEx, and strategic investment. Maybe as we look out to '13 -- I know the budgets aren't done yet. But, given where you are looking at a range or a direction on capital at the mines, itself. Is their going to be a significant change in what he would've thought, maybe three or six months ago?

Yes. Good question. We are in the middle of the budget process. Just directionally, CapEx next year looks to be quite a bit lower than the $120 million or so that will come in, come in here in 2012. Not a real change from where we thought, three or six months ago. But, you know, 120 down to -- I don't think it will be half that -- but it will have a meaningfully lower than 2012 levels.

Thank you, Mitch. I appreciate it.

No problem, Mike.

( Operator Instructions)

We are waiting patiently, here. Anybody else?

Sean Heberling, your line is open.

Okay. (multiple speakers)

Sean Heberling with Marion Street Capital.

Sean?

Go ahead with your question.

Matthew, did we lose Shawn?

He has been removed from the queue, yes.

Would you put him back on, please?

One moment, please. Sean, your line is open.

Hi. Just a quick question on the royalty obligation and the related fair value adjustment.

Yes.

Okay. Are you folks using quarter end metals prices?

Yes. That's correct. Everything for the period is adjusted based on the end of the quarter price.

As opposed to average metals price in the quarter?

That's correct.

Okay. Was the significant difference in the metals price this quarter, end of quarter versus beginning of quarter, the source of substantially all of that fair value adjustment?

No. The third quarter this year, we saw prices for gold rise, compared to the second quarter of this year. So, we did book for the third quarter, just a slightly higher obligation. When you compare year ago quarters, however, they are a little bit more equally spaced on the pricing. We saw a reduction in that obligation on the long-term portion on the balance sheet.

Okay.

From the end of the second quarter to the end of the third quarter the gold price is up just a little over 11%. So, pretty meaningful move in gold, which led to an increase in that estimated future liability that sits on our balance sheet related to that royalty.

I understand. Were there changes to any other assumptions other than the precious metals prices?

No. There weren't any other variables in that.

Okay, great. Thank you.

( Operator Instructions)

Chris, please introduce your company name. Your line is open. Chris, your line is open.

Matthew, let's go back to Chris later and take the next one up.

(Operator Instructions)

Anybody else?

We have no one else in queue, sir, that we have the information for.

Well, let's go ahead and wrap up. I appreciate everybody's time, today, on election day. We look forward to our next conference call, which will be in conjunction with our year-end results in February. Hopefully, between now and then, we will have a chance to talk or see each other. We will be out on the road quite a bit here, between now and then. I look forward to staying in touch. Thanks again for your time.

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