Coeur Mining Inc (CDE) 2018 Q3 法說會逐字稿

Good day, and welcome to the Coeur Mining Third Quarter 2018 Financial Results Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Paul DePartout. Please go ahead.

Thank you, and good morning. Welcome to Coeur Mining's Third Quarter Earnings Conference Call. Our results were released after yesterday's market close, and a copy of the press release and slides for today's call are available on our website.

I would like to remind everyone that our press release and some of our comments today include forward-looking statements from which actual results may differ. Please review the cautionary statements included in our press release and presentation as well as the risk factors described in our recent 10-Qs and 2017 10-K.

Now I'll turn it over to Mitch.

Thanks, Paul, and good morning. With me here are Peter Mitchell, Frank Hanagarne, and Terry Smith, along with a handful of other members of our management team. And Hans Rasmussen has dialed in as well.

Overall, our third quarter results reflected lower metals prices and onetime events at Palmarejo and Wharf that led to lower quarterly production and cash flow. However, Rochester delivered a strong second quarter -- third quarter, excuse me, and we bolstered the quality of our assets with 2 portfolio-enhancing acquisitions. We lost 17 operating days at Palmarejo during the quarter due to the unfortunate fatalities that occurred and because of a nearby road blockade that halted the delivery of supplies to the mine. At Wharf, abnormally wet and severe weather disrupted operations and impacted leach pad recoveries. Those challenges are now behind us, and we're on track for a strong fourth quarter, with October results validating our expectations for a strong end to the year. As a result, we are reaffirming our full year production and cost guidance.

As you likely saw, our third quarter results included a total of $30.7 million in noncash write-downs. The largest component of that total was about $19 million of a noncash adjustment to reflect changes in the deferred consideration received when we sold our Bolivian subsidiary earlier this year. Slide 16 in the presentation materials provides more details on these modifications, which we reported on September 25. We also took a $9 million lower of costs for market adjustment on Silvertip concentrate. And we wrote down the carrying value of the in-pit crusher at Rochester by $3.5 million that was decommissioned, which was part of the process of transitioning over to the first HPGR unit in the first quarter of next year.

Sticking with Rochester for a minute. Slide 9 summarizes the operation's strong third quarter production and cost performance. It also provides additional detail on the crusher upgrades taking place. Rochester's third quarter silver equivalent production increased 17% quarter-over-quarter and 26% year-over-year, while costs declined by a full $1 per ounce year-over-year to $11.42, which remains below the full year guidance range of $12 to $12.50 an ounce. The team decommissioned the 15,000 ton per day crusher during the third quarter, which will result in fewer tons crushed in the fourth quarter but also have a positive impact on fourth quarter unit costs. The installation of the initial HPGR unit remains on schedule for the first quarter of next year, with silver recoveries expected to improve beginning as early as the second quarter.

Turning over to the Silvertip mine in British Columbia, which is summarized on Slides 10 and 11. We acquired Silvertip last October for $200 million of initial consideration. We commenced mining and processing activities in March, and we reached commercial production on September 1. We remain very positive about Silvertip and the impact we expect it will have on the company over many years. It's extremely high grade and will be a source of high-margin, low-cost production and cash flow and should generate a good return. It's in a good jurisdiction, and the deposit is underexplored and very prospective. We bought Silvertip for that deposit, its quality and its potential to significantly expand with further drilling. We didn't buy Silvertip because of the processing plant.

Production levels and concentrate sales are running about 4 to 5 months behind where we'd like to be mostly due to downtime required to address repairs and maintenance items in the process plant. However, as we've made our way through that list, mill performance has materially improved. During October, the plant ran all but 2 days, and we've seen availability, throughput, recoveries and concentrate grades reach their highest levels since starting the processing plant up in March. We anticipate these trends to continue in November and December, and we still expect to average 750 tons by year-end.

Year-to-date, we've spent approximately $74 million in total at Silvertip. This is broken out at the bottom of Slide 10 where you can see that CapEx has totaled $56 million. $34 million of that total reflects capitalized pre-commercial costs, while the remainder is comprised of investments we've made in underground development, capitalized drilling, a 220-person camp and new mine equipment. These spending levels are roughly in line with what we had expected. Our original 2018 CapEx guidance range was $37 million to $42 million, which assumed commercial production in May.

Given we declared commercial production in September, Silvertip's 2018 CapEx will be higher than this range by about $20 million, which reflects 4 additional months of capitalized pre-commercial costs. Even with this change due to the timing of when we declare commercial production, we still expect to be within our

companywide full year CapEx guidance range of $130 million to $150 million. We plan to file the initial technical report for Silvertip later this quarter. Early in the year, we had suggested we'd wrap up the TR in late October, but we decided to extend it until December given the volume of additional technical work taking place here with the recent acquisition activity, preparation of year-end reserves and resources and 2019 budgeting. It also gives us an opportunity to incorporate some additional drill holes into the resource model.

Final comment on Silvertip. We expect to receive approval for the permit amendment application to operate at 1,000 tons per day year around in early 2019. We had originally estimated we'd receive this amendment around year-end, but we've been working closely with the regulators in B.C. to incorporate their feedback into our submission, which is the reason for the slight movement in expected timing. Our existing permit provide sufficient coverage and flexibility to operate, according to our plans, until this amendment is approved.

Switching over to our recent acquisition activities, which are summarized starting on Slide 13. We remain committed to upgrading the overall quality of the company's assets. Over the past few years, we've divested 10 individual assets and have acquired 8 new higher-quality assets. These 2 recent acquisitions are consistent with this objective of continually enhancing the portfolio.

In early October, we completed the Northern Empire acquisition, which gives us control of a very large land position in Southern Nevada that includes the Sterling Gold Project, which is one of the highest-grade gold oxide projects in the Americas, plus 3 nearby deposits known as the Crown Block that offer additional exploration potential, along with 17 untested targets identified by the Northern Empire team that are all located on this highly prospective district. As highlighted on Slide 13, we intend to spend approximately $1 million to $2 million per year on drilling at Sterling and another $4 million to $5 million per year on drilling at the Crown Block. Restarting Sterling, likely in 2021, will allow us to add near-term, high-margin production and cash flow, with minimal expected upfront capital, while the significant exploration potential at the Crown Block offers the opportunity for a second larger operation.

We also announced the acquisition of a property package next to Rochester, which is expected to close in the fourth quarter and is summarized on Slide 14. The package includes the Lincoln Hill Project, which is only about 4 miles west of Rochester and contains gold grades that are over 4x higher than Rochester's. This close proximity to infrastructure and higher grades should allow us to generate high-margin, low-cost cash flow with minimal incremental capital.

Overall, we remain on track to achieve our full year guidance. Slide 17 summarizes our third quarter and year-to-date results compared to the full year guidance ranges and highlights the key fourth quarter trends and assumptions from each operation and for each cost component. As you can see, we do have our work cut out for us at Kensington, at Wharf and at Silvertip, but we have plans in place to achieve the full year objectives.

And just focusing on Kensington quickly. The team has done a terrific job there addressing the water issues in Jualin that had slowed our development activities. Jualin is now dry, and we're advancing on 3 separate levels at much faster rates. Late in the third quarter, we mined about 4,400 tons of development ore from Jualin, which yielded nearly 2,100 ounces of pre-commercial production at a grade of 0.48 ounces per ton or about 16.5 grams per ton. We anticipate mining rates in Jualin to decline throughout the fourth quarter, leading to full year production of approximately 10,000 ounces from this high-grade ore source. This high-grade material from Jualin is expected to help boost full year production and drive unit cost down to levels in line with our full year guidance.

Finally, I want to briefly highlight a series of slides in today's presentation that summarize the key elements of our ESG priorities. These slides provides several examples of our environmental stewardship, such as greenhouse gas emissions and the amount of recycled water we use at our operations; our support of local communities and development of our people, such as the 287 community groups we supported last year companywide; and our best-in-class corporate governance practices. Our ESG programs are a key component of our strategy, are central to who we are as a company and are fundamental to our overall success as an organization and something we'll continue highlighting going forward.

So hopefully, the takeaways from today's call are the third quarter reflected lower prices and lower production and cash flow for reasons that are now in the rearview mirror. And despite that, we are reaffirming our full year production and cost guidance ranges. Rochester had a great third quarter, is expected to do even better in the fourth quarter and is positioning itself for the next leg of growth, driven by crusher enhancements. And although production rates have been slower than expected, Silvertip is coming along and is heading in the right direction after a much stronger October. We expanded our revolving credit facility to provide additional balance sheet flexibility, we've added new high-quality growth assets via incremental acquisitions at attractive valuations, and we remain focused on allocating capital, according to our framework that is summarized on Slide 12.

Looking ahead, we anticipate solid fourth quarter performance from each of our operations and are positioning the company to deliver cash flow and production growth in 2019 from our balanced 100% North American platform of precious metals assets.

With that, let's go ahead and open it up for any questions.

(Operator Instructions) Our first question today will come from Joseph Reagor of Roth Capital Partners.

A couple of quick items. One, on the former San Bartolomé mine, the concessions you made there, is that more related to silver price? Or are they still having operational issues similar to what you guys dealt with when you last had it?

I think it's more of the former. As we saw in the last year or so operating San Bartolomé, with the cost structure there, $14 silver is tough. There is a plan, I know, in place that they started off with there that can help bring those costs down further. I know they're working through that, and these modifications were intended to give them a little more breathing room to continue to execute on that plan given the lower price environment. But most of that really is driven by the lower silver price.

Okay. On that thought process with Silvertip, do you guys think you have any room to renegotiate the 2 remaining payments there given the silver price has pulled back since you made that acquisition, and there has been additional capital costs and slower ramp than expected, more maintenance needed at the plant, et cetera? Do you think you can do a similar thing to what is going on with San Bartolomé and maybe get those numbers down? Or is there no wiggle room there?

Just really not in our thought process, Joe. I feel like we -- in our diligence, we knew this was a plant that had been sitting there for a while. It was under 2 stop-work orders. So kind of like buying a new -- or a used car that you can't start up until after you buy it, you have to just work through the things that arise once you do get in there and fire it up. None of them are significant. There are small things that sit -- that's a long list of them, and we're working through those. And we're going to be fine there. So I don't think there's really any need to or thought at all of going back and revisiting the terms of the deal. Like I said, we're happy with the acquisition. We love the asset. We just need to finish getting through these repairs and maintenance items in the plant.

Okay. And then just one final thought on guidance. Obviously, guidance has been a bit of an issue over the last 2 years. And you guys tend to provide, let's call it a tighter range and more mine-specific updates than some of your peers. Do you guys have any intention of kind of changing your policies there going forward, maybe providing wider ranges or maybe providing less updates on a mine-by-mine basis to 3 year? What can you guys do there to kind of lessen the volatility on what is onetime items?

No, appreciate the question. If you and your peers are okay with that, we would love to provide less guidance. We have been trying to be more transparent and more granular, sort at the request of the analyst community and investor community, which does admittedly create a lot of numbers out there from a guidance perspective. I think if you go back over the last 4 years, we have close to 60 individual pieces of guidance that we've had out there, both on a company wide basis and asset specific. And that's -- that is, I think, too much. So dialing that back as we get into 2019 and setting guidance for 2019 is definitely in our thoughts. And as we get to that point, yes, I think we'll look to have a little bit of a more general approach and a wider approach to guidance.

(Operator Instructions) Showing no further questions, this will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to Mitchell Krebs for any closing remarks.

All right. Well, Joe, appreciate your questions. Quick call. We appreciate everyone who's dialed in for taking the time, and we look forward to speaking with you again in February to discuss our fourth quarter and full year 2018 results. Have a good day, and thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.