Coeur Mining Inc (CDE) 2020 Q2 法說會逐字稿

Good morning. And welcome to the Coeur Mining Second Quarter 2020 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 second earnings -- second quarter earnings conference call. Our results were released after yesterday's market close and a copy of our press release and slides are available on our website.

I would like to remind everyone that our press release, slides 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 second quarter 10-Q and 2019 10-K.

Now I'll turn it over to Mitch.

Thanks, Paul, and good morning, everyone. Thanks for joining our call. I'd first like to introduce everyone to Mick Routledge, who joined us last month as our Chief Operating Officer. As we show on Slide 3 in today's presentation, Mick is an accomplished leader and brings a lot of great experience to the company, which will help us improve our operational planning and execution. Later in the call, he'll give you his initial thoughts on the operations, touch on some of the highlights from the quarter and summarize the key operational priorities looking ahead. Terry Smith is also on the line and has now transitioned to his new role as Chief Development Officer, where he is overseeing our major projects and helping to advance our longer-term growth pipeline. And in addition to Mick and Terry, Tom Whelan and several other members of the management team are also on the line.

Second quarter cash flow was stronger than the first quarter despite losing 45 days of production and cash flow from Palmarejo, our largest operation, due to the Mexican government's mandated suspension of mining activities as a result of the COVID-19 pandemic. However, the rest of our operating portfolio, all located in the U.S. continued operating and two of them, Kensington and Wharf, delivered strong quarters and allowed us to generate some solid overall results and achieved several meaningful accomplishments that I'll quickly highlight and are summarized on Slide 4.

We successfully and safely restarted Palmarejo and expect it to generate strong free cash flow during the remainder of the year. As I mentioned, our Wharf and Kensington gold operations both had very strong quarters. Kensington's free cash flow more than tripled and Wharf's free cash flow increased nearly ninefold on the back of a higher gold price and a 60% increase in production. We expect both assets will continue delivering strong gold production and free cash flow throughout the second half of 2020. Out in Nevada, we're set to break ground at Rochester next month on the POA 11 expansion. Construction is scheduled to be largely completed in late 2022, at which point Rochester should become the largest primary silver mine in the U.S. More importantly, we expect Rochester's free cash flow to exceed $100 million annually post completion, which is a major step change over the past 3-year average free cash flow of about $2.5 million.

We remain focused during the quarter on carrying out the largest exploration program in the company's history that is targeting new discoveries and resource growth to further extend our mine lives. Quarterly exploration investment increased 60% quarter-over-quarter and nearly doubled year-over-year. And we're excited to share the results of the program so far this year with you next month. Tom will cover our liquidity position and balance sheet in a few minutes. With cash up quarter-over-quarter, debt down and adjusted EBITDA continuing to climb, we feel really good about our financial flexibility as we move into the second half of the year.

Before handing the call over to Mick, I want to quickly call your attention to a set of slides that highlight our best-in-class corporate governance, proactive ESG programs and priorities, and our focus on fostering diversity and inclusion at our company and in our communities, starting on Slide 15. Finally, I want to highlight a few upcoming disclosures we're planning for the rest of the year. The first one is the exploration update that I touched on earlier, which we plan to publish in mid-August, and then later this fall, we'll have the results of the updated technical report for the Rochester expansion. And finally, we plan to end the year with a virtual Investor Day to provide you with a more fulsome overview and outlook.

We're all very excited about how we have positioned the company and we look forward to updating all of you on our progress along the way.

With that, I'll go ahead and turn it over to Mick.

Good morning, everyone. Before going through operational results, I'd like to start off by sharing my perspectives on the company after being here for just about 60 days. First, I want to highlight what a strong and balanced team I've joined. Everyone at Coeur works extremely hard and collaborates well to make the company's strategy clear to the workforce with strong alignment across the leadership team.

Next, and in particular, I want to mention Coeur's health and safety standards. The company has great pride in taking care of its people. I look forward to building on this platform and working closely with leadership in the field. When we get healthy safety rate, strong production performance follows. From outside the company before starting this call, I couldn't easily see the upside potential. What I see now as part of the team are exciting long-term opportunities we are developing into a robust, executable 5-year strategic plan. Now along with the team, we have a ton of excitement about the assets in our portfolio and the potential to generate meaningful value. We have work to do, and we're confident in our ability to execute those plans with the goal of unlocking all of that value for our stockholders.

Now turning to the operational results on Slide 6, beginning with Palmarejo. The team did an excellent job shutting down and then ramping up in a safe manner, starting with low-grid stockpile ore to balance the process plant. We are now maintaining solid performance and seeing good results over the past few weeks. Our workforce capacity is currently limited to 85% based on government guidelines that aim to protect our more vulnerable employees. Right now, we are running just over 4,600 tons per day through the mill, which is close to the 5,000 tons per day normal run rate. We intend to follow the mine plan and partially offset the lower tonnage with higher grades and better recoveries. This is expected to drive production in line with full year guidance ranges and generate strong free cash flow.

Turning to Rochester. Dilution impacted our results. However, we recently designed and implemented a new stacking plan to help counterbalance this headwind. As highlighted on Slide 8, the new plant utilizes an inter-lift liner, allowing us to place or close to plastic, shortening the recovery cycle and giving us good visibility of our improved performance from HPGR. We'll also leverage separate collection systems to better monitor the solution grids coming off the pad and validate our expectations for this new plan.

The team brought in some of the best heap leach experts in the world, and they are continuously helping us revise our models. We are already beginning to see encouraging results after having the new liner down for only a few weeks. We are confident in our ability to increase production in the second half and carry this momentum into 2021.

Going back to Slide 6 and looking at Kensington. Production remains strong as we continue to see positive grade reconciliations from the Kensington main deposit. We also mined more Jualin material during the quarter. Most of that material was development ore, providing access to higher grade store ore during the second half of the year. We expect Kensington to finish the year strong and be the largest free cash flow mine in our portfolio. At Wharf, gold production increased significantly, driven by improved weather conditions and higher grades. We also had much better crusher performance during the quarter as we enhanced our maintenance strategies. Impressively, the team was able to stack nearly 50% more tons quarter-over-quarter. With this strong performance, we are now caught up on placement rates and have demobilized the third-party crusher contract there.

Before passing the call over to Tom, I want to thank the team for continuing to operate safely during the pandemic. Let's stay disciplined, keep up the good work and finish the year with a very strong second half.

Tom?

Thanks, Mick. Looking at Slide 5, our second quarter financial results reflect strong performances from Kensington and Wharf, which helped to partially offset the 45 days of production we lost at Palmarejo. Together with a higher gold price, this led to $154 million of revenue and $42 million of adjusted EBITDA, both of which were down only 10% quarter-over-quarter. By sustaining higher margins, our LTM EBITDA has increased nearly 80% to over $200 million versus $116 million just 12 months ago. We incurred $6 million of incremental operating costs associated with COVID-19 during the quarter and expect these costs to total approximately $10 million to $12 million for the year. Despite losing Palmarejo for 45 days, operating cash flow was $18 million higher, and free cash flow improved by over $20 million quarter-over-quarter. We expect both operating and free cash flow to be considerably stronger during the second half of the year, consistent with our updated production and cost guidance.

Before moving on, I want to hit on something that we discussed during our last call, our decision not to defer any of our capital projects, including the expansion of Rochester or our significant investments in exploration in the wake of the uncertainty related to COVID 19. The combination of improved financial results and the anticipation of a strong second half makes us confident this was the correct decision.

Turning over to Slide 11. We continue to have a very sound balance sheet with no near-term maturities and over $240 million of liquidity. If you recall, we took a precautionary revolver draw of $100 million back in April as a result of our downside scenario planning for COVID-19. I'm happy to report that we repaid $90 million before the end of the second quarter. We expect to repay the revolver in full by year-end and hopefully, sooner at current gold and silver prices. Additionally, we have not utilized the ATM, and it remains in place for now during this unprecedented time of volatility and uncertainty.

Total and net debt leverage ratios at quarter end were 1.7x and 1.3x, respectively. We expect our leverage ratios to continue trending downward over the remainder of the year. Over the last 18 months, we have increased liquidity, materially reduced debt and significantly lowered leverage, leaving us very well positioned for our upcoming growth initiatives.

Before handing the call back to Mitch, I wanted to quickly touch on our hedging program, highlighted at the bottom of the slide. We continue to utilize zero-cost collars to achieve downside price protection, targeting up to 50% of expected gold production in 2021 and 2022 with a minimum price floor of at least $1,600 per ounce. We believe it is prudent to underpin cash flow generation during the construction of POA 11.

I'll now pass the call back to Mitch.

Thanks, Tom. Slide 12 outlines our key objectives for the second half of the year. First and foremost, it's essential that we maintain our rigorous health and safety protocols to continue protecting our workforce, their families and members of our communities. Secondly, we need to develop the future of our business by sustaining our higher level of investment in exploration and by successfully executing on our internal growth projects. And finally, it's critical that we execute our plans to deliver consistent operating and financial results from each of our assets. We see a very compelling future for our company, and we'll get there by continuing to pursue a higher standard and by executing our strategy to protect, develop and deliver from our North American-based precious metals assets.

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

(Operator Instructions) Our first question comes from Mark Mihaljevic with RBC.

I guess I'll start with Mick. And obviously, kind of new to the role here just kind of give us a few highlights of what you think you might change or things you might -- opportunities for improvement that you see in your first few months on the job.

Good question. Mick, you want to go ahead and take that?

Yes. For sure. I'm really excited. I've been out to a couple of the sites already. And obviously, with COVID restrictions, that travel is a challenge, but we're working out how to do that. But what I see is strong teams already there and good assets. And what we're doing in this initial phase, we're joining up that strong exploration work that Hans and his team are doing, and we're lining that up with our strategic plan, and then we have to get on and execute that. I see that being the best opportunity for us is to draw that picture over the long game and then execute well in the short game. And I think we'll have the team to do that. And we'll certainly have the assets to use to do that. And there's a little bit of upside in the process in the process assets and the equipment. And so I think it's a great opportunity going forward.

Okay. And then I guess, digging into some of the results here, obviously, Rochester, you had some challenges in Q2 and are making some changes. But can you just give us a sense of really what was different to plan? I mean, I guess you guys were expecting to be stacking at these higher list and higher areas of the pad. So kind of what was different than what you were expecting in the actual performance?

Yes. I'll start, Mark. And then Mick, maybe you can jump in on the yields of a couple of comments for me. You go back to rewind to the first of the year, priority #1 was really dialing in that new crusher configuration and getting that running consistently which we've been able to do. And then kind of transitioning into the second quarter, the real focus turned to that stage 4 leach pad kind of model calibration to align with the past 6 months and then starting to make some adjustments to this new stacking plan and putting this interstage liner into play to obviously get ounces out faster and further validate the HPGR. So it's kind of been a step-by-step learning process and then making adjustments as we go. And I feel like we've learned a lot over the last few months. I think now we've gained the knowledge that we can apply to set us up well for this expansion phase that we'll be going into now the next 24 months or so. But Mick, do you want to go into a little more detail in terms of some of the learnings and tweaks that we've made here mid-year through the year?

Yes, for sure. So particularly Pad 4, when we look at how long that pad has been in operation, it's been quite a period and so it's been irrigated for a long time and was particularly exhausted. So when we put the material on the top, we certainly expected some dilution but didn't quite expect as much as we saw in the end and the models we had didn't predict that as well as we'd like. But now the new models are predicting that well, and that's encouraging us with our new plan to install even potentially additional inter-lift liners to support the one we have in play right now, and that allows us to implement a short interval control and optimize our production process all the way back from the mine and blasting through the crusher circuits and HPGR and under the heat and then to fine-tune that to get the best recovery that we can get from that heat. So yes, it was not as predictable as we thought, but now much more predictable and the view going forward is a strong one.

Okay. Perfect. And I think you probably gave the answer already, but just to confirm, with the inter-lift liners, you should -- given where you're placing them, we shouldn't assume that you're losing any material pad inventory that you won't be able to irrigate anymore, you're only kind of stacking on a portion of it, and it has already largely been under lease for a long time, so not much inventory left. Is that the way to think about it?

Yes. Go ahead, Mick.

Yes. So yes, that's the correct assumption. There may be some slight impacts, but we're working on those plans as well to ensure that we can recover that material over time. And the material that we already had on the pad was under irrigation. We're already seeing some benefits from that coming in the forms, but it's just going to take a little bit longer for that historic and that more recent material to give us the metal, but it is there. And it will just take a little bit longer to come out. And we're optimistic that, that will support us as we go forward.

Okay. Perfect. And then, I guess, not much commentary around Silvertip on the call today. Kind of any updated thoughts and kind of how do the current silver prices adjust your thinking on the asset? Or kind of where do you sit on it right now?

Yes. Yes, fair question. Second quarter, there was a lot of heavy lifting done at Rochester on that expansion. Third quarter will be a lot of heavy lifting, I think, on the Silvertip, PFS, kind of pulling the different pieces together. We're starting to get different components of the work that's been going on since February. And so we'll be kind of fitting those different pieces together, whether it's on the metallurgy, flow sheet, a potential expansion of that milling facility. That work is starting to come to an end. Meanwhile, we're continuing to drill the exploration program there that's intended to give us confidence in a much larger, longer mine life to support any potential restart. That we'll have more to say about during that exploration update here in a couple of weeks.

And then the third piece that sits outside of our control, obviously, is the zinc and lead concentrate markets primarily. You mentioned the silver price that obviously will be one factor that will go into the analysis. But I want to make sure that we, despite all of our strong desires to get Silvertip right, that we don't rush too fast that we adhere to a disciplined process. We go through those steps. We assess the business case thoroughly, the underlying technical fundamentals and then look at the returns, look at the timing, how does it fit in or not with our other priorities and then make a sober, clear-eyed decision on Silvertip once we have more bits of information. So not a lot to say at this point, more to say in the coming months, and we'll obviously keep you posted.

Perfect. And then I guess just last one for me. And obviously, you guys are going to be putting out a bigger, more comprehensive exploration update next month. But are there any highlights you'd like to share with us today? And kind of what parts are really going to be the most exciting that we should be watching out for?

I mean, I wish Hans was in my -- in the room with me right now, so I could pull the reins in on him because he would love to talk a lot about, I think, I'm expecting, Silvertip will be a big theme, a big story. Rochester and the drilling that's going on to support this updated 43-101 that we'll have finalized later this year, along with updated capital, updated mine plan and hopefully, more tons as a result of this drilling and then down in Southern Nevada, there's a lot going on there at the Crown project. It's a busy neighborhood down there. There's a lot of excitement, a lot of activity. And so we're looking forward to highlighting that as well. Those are the ones that stick out to me. Hans, did I leave any off without stealing or under completely?

Mark, thanks for the question. Like Mitch said, I'm jumping up and down, excited about our program this year. Even though we did have a slowdown at Palmarejo, we're still seeing excellent new results there, too, for growth. This is a year for resource growth and discovery with 80% of the budget focused on that and one of our largest budgets ever. So the news release will demonstrate that we have been successful at achieving that. With a few new discoveries that will be discussed in the news release, you've gotten a taste of one of them from Corvus's release on July 16, one of our holes cut some mineralization on their property adjacent to ours, which gives you a taste of a part of our project called C-Horst at Crown, where we have 18 holes drilled, and that's one of them. For the news release, we'll only have 6 back from the lab. But yes, a super-exciting year. And pretty much all sites are delivering on their programs. It's almost like we had a bunch of pent-up demand in geologic targets. And once we got approval from the Board to drill this year, the drills are put in the right place.

Perfect. That's great to hear. And looking forward to the update in August.

Yes. Thanks, Mark.

Our next question comes from Michael Dudas with Vertical Research Partners.

Welcome aboard, Mick.

Thanks.

Mitch, maybe you could further share -- you talked about COVID, share some comments on how successful the ramp-up had been at Palmarejo. But looking internally and at your all your operations, I'm sure the COVID protocols are still, as you mentioned, are still in place. How you think productivity, how well it's worked out for the organization? And in Mexico, certainly, there's been some concern about wave 2 that could come by. And how does labor, the community, the government officials are fitting in and thinking about it relative to that potential as you look through Palmarejo's ramp up and hopefully maintaining its output during the second half of the year?

Yes. Sure. Obviously, a top area of focus for us, and there's as everyone on the call can attest to a lot of layers, a lot of complexities, a lot of moving parts. And Tom, maybe after I give some comments, Tom, if you want, you can talk more about the financial impacts as we see it. Starting with just the footprint of our assets has served us well for the most part, with 3 of our 4 operating mines being in the U.S. under the Department of Homeland Security. A designation of mining has been an essential or critical business has really given us kind of that license to continue operating, obviously, with a lot of new protocols and procedures in place here in the U.S. Some adjustments -- some more adjustments at Kensington than maybe the other sites, just given the location up there in Southeast Alaska, a requirement to quarantine coming in from the Lower 48 before going out to the mine. So we've had to adjust some rotations and work schedules and things like that. Mexico has been probably the -- not only because of the 45 days that we lost at Palmarejo, but just the logistics there of our workforce, camp setup, people coming from all over Mexico, some of whom live in higher-risk areas and not able to travel back. Mexico, as Mick mentioned, has designated this vulnerable section of their population, whether it's age or pre-existing conditions. And that's kept us about 120 people short of a full roster there. So we've been managing through that and doing the best that we can with what we have. I'm particularly proud of the fact that we have, I think, been very proactive in the testing infrastructure that we've put in place, the technology that we've put in place. We've now tested 100% of our population, PCR tests, other than a couple of rotations who have yet to come to site. I think one at Kensington, maybe one at Palmarejo. So we've been very -- I'm very proud of what our team has been able to put together in a short period of time to get that testing done for thousands of people.

We have had some positive tests. Almost all of them, I think it's with the exception of one have been asymptomatic but the important thing is we're catching these cases through our test -- proactive testing, through those procedures and protocols that we have in place before anybody enters a site, and we've got robust contact tracing and all the other things that everyone talks about around the screening and the sanitizing and the distancing. Here in Chicago, we're still mostly remote. People can come back to the office under a certain set of criteria and health procedures. But for the most part, we're maintaining our productivity at the headquarters despite everybody -- mostly everybody being remote. I think just -- it goes without saying probably, but just not letting our guard down. And with COVID fatigue maybe setting in, we need to resist that urge to take our foot off the gas and continue to maintain the discipline that we've had around these procedures and protocols that seem to have served us well so far. So I don't know, Mike, if that helps.

Yes, it does. Just how do you think from the Mexican government standpoint and how they're thinking about if things were to get -- is there more sensibility of a more essential aspect to the mining versus what we had in early in the case? Is there any sense or any observation on that front?

I feel like it took the Mexican government a little while there in late March, April as they were kind of quickly putting in place some mandates, some decrees but then in May, when they came out and designated mining to be an essential industry or an essential business. Since then, things have been pretty straightforward. Obviously, we're putting a lot of effort into implementing the kinds of requirements that they issued in conjunction with that designation of our industry being essential. And so we want to obviously maintain a safe and healthy workforce. We've got very strong screening and testing procedures down there, complying with everything that the government has rolled out. But since that designation was put in place in May, we have had a much more straightforward experience down there, and it's allowed us to get back up and going with those obvious restrictions still in place.

I appreciate those, obviously. One follow-up. Welcoming to see these higher gold and silver prices, for sure, certainly, this is going to improve cash flow and balance sheet metrics dramatically here assuming they maintain near these levels. Are you -- is that how you guys are thinking about just kind of setting up and maybe have a better position to implement the spending program at the Rochester or are you chain thinking we're beginning to think about other things that might be mitigated or enhance the -- if things start to continue to be at a reasonable rate going forward? And including on the hedging policy and how you -- how that maybe changes now versus what it was maybe a month or 6 weeks ago?

Yes. Sure. I'll take a shot. Tom, feel free to chime in on anything I miss. We have that capital allocation framework. I think that slide is in the deck today. And we keep kind of preaching that here that we got to follow the framework, fund things according to returns and stick to the plan, organic growth, exploration to the extent there's excess free cash flow and there's debt -- further debt reduction opportunities, capital can -- excess capital can flow there. And if there's still excess capital beyond that, which is probably going to be more likely on the back of the expansion. Rochester then returning any excess back to stockholders becomes a very relevant discussion and topic. And so we're not deviating from that framework. Maybe we spend more on -- a little bit more on exploration, for example, as long as there are good business cases made to justify it. But that's how we're continuing to think about how do these higher prices impact our decision-making.

And then I'd just say around the hedging question. Look, our rationale there is that this Rochester expansion is a very -- for us, it's a large project. It's an important project in 2021 and 2022 is the capital spend. We think it's going to generate a really great return and fundamentally change the company. And in that process, we think it's going to unlock a bunch of value for stockholders. And we don't want to fund that thing with external issuing shares or dilution or anything like that.

It's important to us that we self-fund that project and that means relying on free cash flow. And by relying on free cash flow, I think it's important to have a floor or have that underpinned with a minimum price. As we think about it, the risk reward, the downside versus upside there's almost like -- it's almost asymmetric. Like, what Rochester should deliver in terms of fundamental cash flow and value should far outweigh should we give up a few dollars an ounce on the gold price on the upside ensuring that we've got funding sufficient from internal sources is our -- kind of our first and highest priority. And then just the last thing I'd say is we talk about up to 50% of '21 and '22 gold production. Remember gold is 70%, 75% of our total revenue, so that's up to 50% of that portion. No doing anything with silver that's still awfully volatile, awfully expensive. And letting silver do what it's going to do is still our frame of mind as it relates to silver and any kind of hedging. But that's how we are thinking about that. Tom, did I miss anything? Or anything you want to add?

No, I'd just say 90 days ago, we confidently stated, we plan to fund POA 11 with the -- with our existing operating cash flow and the existing debt capacity that we've got. And here we are 90 days later feeling that much more positive around it. And we've got that downside protection underpinned and ready to roll. So I think we're feeling really comfortable with the balance sheet and the entire team knows this capital allocation framework is in our DNA. We've actually changed our long-term incentive to have return on invested capital. So this is -- like, we're -- it's more than just something you see on the slide. We're living it every day at Coeur.

That's well said, gentlemen. Thanks for your thoughts. Appreciate it.

Thanks, Mike.

Our next question comes from Joseph Reagor with ROTH Capital Partners.

I guess kind of following on the questions about the free cash flow. Given current gold and silver, do you guys have a rough estimate where -- what you think you can generate for free cash flow for the rest of the year?

Good question. A tricky one to answer without any kind of -- with the guidance that we have out there, the new -- the revised guidance, I shouldn't say undoubtedly, but positive, I can point to that. Tom, do you want to give any more general direction?

Yes. Look, again, we try and be pretty transparent with the guidance to give you what the CAS is. And we kind of leave it to everyone on -- for themselves to figure out what gold price they want to plunk in there. But certainly, as we did our second quarter forecast, we used actually $1,650 and $1,650. Keep it simple, $1,650 gold and $1,650 silver to plan out our updated forecast. And we had an upside which shows that we intend to repay our revolver throughout the rest of the year. So it's really -- we leave it to the analyst to figure out what side they want to -- or what price they want to use to figure out free cash flow, but we feel confident that we'll have the revolver paid. So that gives at least some indication of how much free cash flow we expect to generate.

Okay. And can you remind us what's remaining on that?

$60 million.

Okay. And then switching gears. So at Palmarejo, the cash cost for the first half of the year have been low. I realized it's really 1.5 quarters not 2 full quarters. But it kind of suggests either higher costs in the second half of the year or that the cost guidance is a little bit higher than maybe it could be. Can you give me any additional color there?

Yes. Mick, do you want to take a crack at that one?

Yes. Yes. So overall, the team have worked very hard to maintain costs. And of course, with us being at 85% for the workforce, we'll have to watch that really closely. I'm confident that we'll maintain our current trajectory. Certainly, we'll expect it will move more tons throughout the second half of the year to spend a little bit more but the guidance that we've issued is based on a solid forecast for the year, and I think we'll deliver on that.

Okay. So is it -- I guess what I'm trying to get at, though, is for the analysts for modeling purposes, we should just model what we have to, to kind of get within that guidance range for the costs? Or is it possible to come in below it for the year?

I mean, I'd say it's -- sure, it's possible. We were very careful in setting those ranges to set us up for a high likelihood of meeting or beating. So that's the job that we have ahead of us here for the second half.

Okay. Fair enough, Mitch. One final thing. With the exploration update you're providing in August, what areas are we going to get drill results from? I mean, besides, I guess you guys already touched on 6 holes from Southern Nevada. But any other greenfield stuff?

Hans, do you want to take that?

No other greenfields specifically, but all the programs are reporting on expensed exploration. So resource growth. Silvertip, we're doing some big step-outs so that now we've got holes with mineralization, visual, 1 kilometer north of our prior resources and 1.5 kilometers south of our prior resources now. So these are almost greenfield step-outs at Silvertip. We wanted to start testing edges, and we still haven't found the edge. So that's good news. That's about it for the closer to greenfields type portion of the release. Everything else will be resource growth, expensed exploration discussions. Very little infill this year just at Palmarejo. That was it.

The only other thing I'd hop in to say not directly related to your question, Joe, but on the greenfields or earlier stage side, not that we're having any drilling to talk about in August, but I look now at that Alio Gold transaction that we did and other similar things like that in the past few years when markets and sentiment were very different. And we have a ton of drilling and growth ahead of us on that earlier stage side of exploration. And I know Hans and his team are out there on the ground, developing those targets, but you go west of Rochester and there's a series of projects and deposits there that we control. When we did that deal with Alio, I think we more than doubled our land package there at Rochester off to the West. And so there's a lot to do out there. And then Hans already talked about Crown and C-Horst. And then we have Sterling down there, all of that down in Southern Nevada. There's a lot of drilling ahead, and hopefully, a lot of new discovery and a lot of resource growth. So no shortage of exploration opportunity.

Okay. And if I could, just on your point of prior transactions, remind me, La Preciosa. So you don't get a lot of value, obviously, in the market for it. But with silver now in the -- approaching the mid-20s, is there any opportunity to either relook at that or maybe even vend it out to somebody who could do some work on it and capture some value there?

Yes and yes, really. We have had a process of kind of re-examining, optimizing La Preciosa kind of late last year, early this year. There's some ongoing work right now. And then you plop in current silver price, and that project as it sits today, look -- starts to look pretty interesting. Now does it fit in to our capital spend profile? How does it compete in terms of relative returns? That lies ahead. But your other point there about what else could we do with La Preciosa? It doesn't have to be 100% us. That's another angle that we're considering. And anything we can do to daylight some value there because I agree that we're not probably for good reason, at least up until recently, haven't been getting a lot of attention or value out of that big silver resource sitting down there in Durango.

Our next question comes from Adam Graf with B. Riley FBR.

Welcome, Mick. Congrats on the strong quarter. I think most of my questions have been asked and answered. A quick question for Hans. I know Mitch has got your hands tied, but the step-outs that you guys are doing at Silvertip, what's your feeling? Or what's your bet that's contiguous with the main ore body there?

The -- mind if I jump in, Mitch? You got me excited, Adam. Visually, the mineralization looks exactly the same on these big step-out holes. And stratigraphically, it's in the exact same horizon as the mineralization in the ore body. So all indications are, it should be a continuation, but we don't have really any -- we have zero holes in between in both cases of those step-outs I mentioned. So as a result of these successes, we'll fund a winter program that will include 3 rigs full-time through the winter on that Northern piece, that is a kilometer north of our discovery ore body, and that will essentially -- the reason we're doing the winter is we want to do as much step out now as we can in the higher terrain, higher elevations. And then once the snow hits, we'll be down closer to camp. The higher elevation hits down south on Silvertip Mountain are approaching a magnetic feature that we have always thought as the source of mineralization. So between now and when we shut this program down in mid-September, probably because of the snow, we anticipate 3 or 4 more holes in that area, including into that magnetic anomaly. And we should have a pretty good idea that, that is the source and that we've got X potential to grow based on that being the source in the future. That's been the enigma on the project ever since Silvercorp days even what is the source of mineralization. So to answer your question, I believe it will be continuous, but we have no evidence yet because we have no infra holes.

You're not seeing any gradation in the alteration or the mineral assemblage that would let you believe you're moving being in one direction or another -- you're closer or further from the source?

To the north, we're seeing more pyrite, but we've also seen more pyrite on the fringes of the Discovery East zone. So that's our only clue that we may be hitting closer to the northern edge up to the North, which is still 3.5 kilometers from that southern-most hole now. So quite large. Quite a lot of infill to do on that. That's about it. The hole to the south that we've just hit looks very strong alteration around the massive sulfide looks very strong, so. Yes, still -- we're still waiting for assays to compare actual mill grades.

Yes. Yes. Well great. Thanks for that. And you and I should follow-up offline because I've got experience for similar systems. Congratulations, again, guys on the strong quarter.

Thanks, Adam.

Our next question comes from Brian MacArthur with Raymond James.

I have 2 questions. Just first on Rochester, you made a comment you could make more than $100 million in free cash flow. Is that at the $1,650 gold price and $1,650 silver price? Is that sort of what you're assuming? And I realized it's a general number.

Yes. Generally speaking, yes. And then, obviously, you can play with the model and see how much torque there is at current prices. Yes, exactly.

Okay. That's going to be my second question. But just before I do that. And is that assuming -- I assume that's using tax pools going forward and things like that? Or is that just purely on a fundamental PA -- or sorry, fundamental study basis?

Well that would be using our NOLs. So it's an after-tax number. But taking into consideration the fact that we've got, I don't know, close to $500 million of U.S. NOLs.

Perfect. That's what I thought. Now the second part was -- I think you're going with this. I mean, philosophically, in the past, you have made a number of things to balance the portfolio. But as you look forward and when Rochester is up and running, it's -- I could make the case that it's a very significant asset and kind of dominates everything else. How do you -- and I realize it's out in the future. How do you philosophically think about that? Is 5 mines are right? Saying out then? Does it make more sense, take advantage of high prices that move something out right now, realize some value to fund this because it's so important? Or how are you just sort of thinking about that going forward? Because obviously, Rochester kind of, I would argue, dominates to a large degree going forward. Maybe that's philosophically wrong. Just like your comments on that.

Yes. No, you're thinking about it the right way between the POA 11 expansion and then all that potential to the West. Rochester is likely to be the dominant, call it whatever you want, cornerstone or what -- foundation for a long time. And sitting there in Northern Nevada is a great place, a place we've been for 30 years. So we've got very deep and meaningful relationships there with the state, with community. And then you look down south. And on an earlier stage basis, what we've got going down there with Crown and Sterling and the C-Horst thing that Hans mentioned. The Western U.S. kind of long-life, heap leach, gold-dominant type of assets work well for us. We know how to do that well. I think if we can have 5 to 7 assets, each of them generating in excess of $50 million of free cash flow a year, that sets us up nicely to be kind of an attractive, call it, senior intermediate or somewhere in there between the intermediate and the senior space where there, I think, is kind of a lack of good quality, especially U.S.-centric, U.S. domiciled and that's a pretty attractive-looking company, I think. And that's kind of how we're thinking about it and where we're trying to take the company from a high-level perspective.

This concludes our question-and-answer session. I would like to turn the conference back over to Mitchell Krebs for any closing remarks.

Okay. Well hey, thanks. We appreciate everybody's time and look forward to that exploration release here in a few weeks. So we hopefully would talk to you again then. And in the meantime, or if we don't talk then, I hope you all have a great rest of the summer. And stay healthy and safe. And thanks again for your time and interest. Bye-bye.

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