Coeur Mining - Earnings Call - Q4 2020

Transcript

Speaker 0

Good morning, and welcome to Core Mining Fourth Quarter twenty twenty Financial Results Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. Now I'd like to turn the call over to Mr.

Paul Departu, Director of Investor Relations. Please go ahead.

Speaker 1

Thank you, and good morning. Welcome to Core MINES fourth quarter and full year earnings conference call. Our results were released after yesterday's market close, and a copy of the 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 2030 ks.

Now I'll turn it over to Mitch, Mick Canton.

Speaker 2

Thanks, Paul, and good morning, everyone. 2020 was quite the year. Obviously, COVID-nineteen was the main headline for everyone, and of course, we were no exception. COVID had a big impact on the first half of our year by sharply driving down prices and forcing a government mandated shutdown in Mexico, which impacted us at our Palmarejo mine. Of course, prices have strengthened considerably since their April lows and Mexico allowed mining to resume in the second quarter.

And together with solid production and effective cost and balance sheet management, we delivered a strong 2020, which Mick and Tom will talk more about shortly. I first wanna take a minute to recognize our people for how they've risen to the occasion over the past twelve months. We've asked a lot of everyone, and our entire organization has responded incredibly well to the challenges. I can't help but have immense pride for how well our culture has served us, the talent we've attracted, the ESG leadership we've established, and the overall performance we delivered during such an unprecedented year. So thank you to everyone.

Now starting off on slides three and four, there were a lot of highlights and accomplishments last year that led to adjusted EBITDA jumping over 50% to $263,000,000 and free cash flow climbing to $49,000,000. For starters, we achieved production guidance at all of our sites and unit costs were at or below full year guidance ranges at each of our primary gold operations. Palmarejo's results were truly remarkable the way they ramped back up mid year and really never looked back. And Kensington And Wharf also had fantastic years with both operations breaking their previous free cash flow records. Rochester finished the year much stronger than it started with fourth quarter silver production increasing nearly 40% and gold production up almost 50% quarter over quarter.

And just to add a bit more color on Rochester, the big highlight last year was kicking off the expansion and providing the details of this project late in the year. The updated mine plan reflects a reserves only eighteen year mine life with an NPV of $634,000,000 and an anticipated IRR of 31%. Production rates are also expected to double driving average free cash flow to over $100,000,000 per year. Until this expansion is completed late next year, Rochester will remain in a state of transition while we balance near term performance with gathering and applying key learnings to ensure Rochester's long term success. During this time, we'll also remain focused on further expanding Rochester's silver and gold reserves beyond the 5865% growth we saw last year.

That's a good segue to the highlights from our $50,000,000 exploration investment that we made last year, which are summarized on slides ten and eleven and were included in our press release we issued yesterday morning. It was the largest drilling program in our history, and it was wildly successful. Gold reserves grew by over 20%, and silver reserves increased by over 40% to the highest levels in company history. We've now dramatically increased our overall average mine life from just over seven years in 2015 to well over twelve years currently. And with over $65,000,000 allocated to exploration this year, we expect to see this number extend out even further.

These investments in exploration rank among our most attractive capital allocation priorities and should help drive higher returns on invested capital going forward. On top of our reserve success, we made a new discovery in Southern Nevada called Seahorse located in the Crown District, which has the potential to become a significant asset for the company. We included several recent drill holes in yesterday's release from Seahorse, including one that was over 216 meters averaging just about a gram per ton of oxide gold. An aggressive drilling program has already begun at Seahorse this year, and we plan to invest approximately $10,000,000 to continue growing this new discovery. Another big success from last year's exploration program was the substantial resource growth at Silvertip in British Columbia.

With only around half of the assays back at the end of the year, total resource tons increased over 40, and we more than tripled the strike length of the high grade deposit to over three and a half kilometers. We plan to invest roughly $14,000,000 in exploration at Silvertip this year aimed at further expanding the resource and beginning to convert some of this material to reserves. And sticking with Silvertip for a minute, we ended 2020 feeling confident in the resource and in our ability to continue expanding Silvertip's mine life with further drilling. We also have identified and expect to lock down the flow sheet for a straightforward seventeen fifty ton a day process plant that can reliably deliver consistent recoveries and generate high quality concentrates. The team is now focused on optimizing capital costs, the mine plan, and operating costs to incorporate everything we learned from last year's PFS.

We're also working through how best to slot in a potential expansion and restart to maximize the likelihood of success without distracting us from our Rochester expansion. Our goal is to end the year with a solid compelling business case to justify a decision to move forward at Silvertip. Our three year outlook reflects strong returns and a step change in production and cash flow. If you didn't get a chance to listen to our Investor Day in December, I encourage you to go to our website, look at the materials or watch the replay to find out more about our culture, strategy, and outlook. Before passing the call to Mick, I wanna quickly highlight slides eighteen and nineteen, which provide a good high level overview of our deep rooted community relationships.

We strive to maintain strong relations with all of our partner communities and other local stakeholders with the goal of attaining mutual long term prosperity. With that, I'll turn it over to Mick.

Speaker 3

Thanks, Mitch. Wow. What a great quarter and a strong finish to the year. Before diving into the operational highlights, I wanna take the opportunity to thank our workforce for the progress made in health and safety performance and their ongoing dedication and commitment to pursuing a higher standard. Building on our momentum, we expect to deliver another strong year from our operations in 2021.

Now taking a look at slide six and seven and beginning with Palmarejo. Strong results during the second half helped us finish the year on a high note despite being down for roughly forty five days in the second quarter. Full year gold production finished above the high end of its guidance range, while silver production was in line with expectations. Additionally, the team did an excellent job balancing operating and financial results during the year, which resulted in the unit costs for both gold and silver to come in below the low end of their guidance ranges. Together, these great accomplishments helped to generate nearly $93,000,000 of free cash flow, Palmarejo's largest free cash flow year since 02/2017.

Looking at the year ahead, we plan to increase our mining and throughput rates to help offset some lower grades and expect Palmarejo to have another great year in 2021. Turning over to Rochester, we've begun to see positive results from our revised stacking plan, which leverages interlift liners to maximize the placement of HPGR crushed ore on shallower portions of the leach pad. This strategy directly led to higher production during the 2020 helping us to achieve the low end of our production guidance for both silver and gold. Unit costs came in slightly higher than expected largely due to additional cyanide dosing as well as higher metallurgical outside services costs for the modeling, the test work and the consulting support we used to drive the improvement program in the second half. Going forward, we are continuing to focus on performance enhancements and driving sustained improvements in our results.

Before moving on, I want to quickly highlight two important items for Rochester in 2021. We plan to swap out the existing secondary crusher in the second quarter to further optimize gradation of crushed material at higher throughput rates. This will give us the opportunity to daily in the new unit before it goes into the expanded crusher corridor as part of PUA eleven. We also plan to begin crushing overliner material for the new stage six leach pad during the second half of the year, and we have solid plans for both of these projects to mitigate some of the operational impacts. It's important to remember that we are effectively using in the lift liners and the existing crushing circuit as a full scale test bed to optimize performance, helping to derisk our ability to achieve the expected results from the expansion in this coming years.

Switching over to Kensington, 2020 was an excellent year for the operation. The team's diligent focus and efforts helped us achieve our full year production and cost gains, which led to a record $60,000,000 of free cash flow. We expect another strong performance average cost around $890 per ounce. More importantly, Wolf generated $73,000,000 of free cash flow, shattering its previous record by over 25%. Looking ahead, we plan to move some additional tons during 2021.

While this is expected to result in marginally higher costs, we anticipate Wolf will have another great free cash flow year. With that, I'll pass the call over to Tom. Tom? Thanks, Mick.

Speaker 4

Slide five highlights our fantastic financial results. As Mitch and Mick mentioned, strong performances from Palmarejo, Kensington and Wharf along with higher realized prices led to significant improvements in our annual financial results. Margin expansion from top line growth and prudent cost management helped us generate over $260,000,000 in adjusted EBITDA and nearly $150,000,000 in operating cash flow. Both metrics were over 50% higher year over year. These results showcase the power of our portfolio, especially during the 2020 when our assets generated $86,000,000 of free cash flow.

The strong second half more than offset the slower start to the year, leading to nearly $50,000,000 of free cash flow in 2020, our highest annual figure since 2017. Looking ahead, as highlighted on Slide 15, we issued our 2021 guidance, consistent with our recent Investor Day outlook. These guidance ranges signal another solid year of operating cash flow and EBITDA. I do want to flag that we are anticipating a relatively weaker first quarter driven by one, our mine plans, production profile and buildup of inventories on our leach pad secondly, timing of tax payments in Mexico combined to be roughly $30,000,000 to $35,000,000 of cash outflow and third, annual incentive payouts across the company. Turning over to Slide 13, I wanted to emphasize a few key takeaways from our balance sheet.

We bolstered our financial flexibility during the fourth quarter by fully repaying our revolving credit facility borrowings and expanding the capacity of the revolver to $300,000,000 Together with our significantly improved cash position, this led to nearly $360,000,000 of liquidity at the end of the year. Looking at our leverage levels, both total debt and net debt to EBITDA decreased steadily during 2020. Particularly our key leverage metric, net debt to EBITDA was cut in half year over year ending 2020 at 0.7 times. We are targeting a net debt to EBITDA ratio of under two times while maintaining at least $100,000,000 of liquidity over the next two years as we complete major construction at Rochester. By using a combination of cash on hand, operating cash flow and debt capacity, we are confident in our game plan, leaving us very well positioned to fund this phase of significant capital investment.

I'll now

Speaker 2

pass the call back to Mitch. Thanks, Tom. Slide 14 shows our top priorities for 2021. And by following this roadmap, we believe we can deliver solid results over the short, medium and long term from our balanced portfolio of North American precious metals assets. With that, let's go ahead and open it up for any questions.

Speaker 0

We'll now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. First question comes from Michael Dudas, Vertical Research Partners.

Please go ahead.

Speaker 5

Enjoying the winterland out there in Chicago.

Speaker 2

Hey, Mike. Yeah. We're we're a hearty bunch here.

Speaker 5

Of course. We're getting hearty over here in the Northeast as well. Yeah. Let's Anyway, yes, a couple of questions. First, maybe you could maybe Mick can address a little bit on the 2021 cost guidance for the mines.

You did a good job improving in the second half of last year. And I guess there's some conservatism there, but some of the drivers, I know some grade issues at some of the mines. Is there also like a general inflation, labor, some catch up costs that you didn't have in 2020 that are gonna flow through '21? Just get a little sense of that and how that may play through the year as you roll out.

Speaker 2

Yeah. I'll start there on that one and turn it over to Mick. I think, yeah, a couple come couple things come to mind. For example, at Wharf, you know, there was some waste stripping in 2020 that didn't get done due to some labor availability challenges relating to COVID. So we'll be doing some of that here in in 2021.

And and so I know that's that's a factor in in in worse costs here this this year. Nick, do you wanna maybe pick up from there and and cover any other sort of give Mike some color on on the cost guidance at each of the assets?

Speaker 3

Certainly. Overall, the the that cost position for 2021 is driven by the life of main plans. So there is some changes to 2020, but a but a few adjustments. You know, we moved a lot of, run of main material in 2020 at, Rochester, and we're gonna do a little bit of that again in 2021. And then there's a little bit of some adjustment with the optimization program that we have around, getting the best out of our heap leach pads.

So the cyanide costs are gonna be up a little bit higher at Rochester as we, increase the from about about 1.5 pounds per ton to 2.5 pounds per ton for a while on the on the heap leach. And so they're the main drivers at Rochester at at at Kensington as a few bits and bobs there. Really, it's a it's across the board. There's a little adjustment on royalty and management fees, a little bit of G and A. And but then, we're pushing the the throughput at, Kensington as well to maximize the benefits of that operation so the processing costs will be a little bit higher.

As Mitch said on Wharf, we're moving a little bit of catch up material and stripping at Wharf and to make sure that we're well ahead. We don't anticipate any impact on the production for Wharf for 2021. We should be able to move that material as per the plan. And so overall, bits and pieces across the the piece, not too many concerns. And, we'll always look to optimize those costs through 2021.

But at the moment, yes, good distribution and nothing particularly significant for something in there

Speaker 2

Then Palmarejo, just more more of a grade driven

Speaker 6

Yeah. Denominator, right, on a Yeah. Basis?

Speaker 3

Yeah. Exactly. We're gonna we're gonna we're gonna process a lot more tons at Palmarejo, and there's a there's a a drop as per the life of main plan in grade. At Palmer Eagle and the team there doing a fantastic job at increasing the production rates to more than compensate for that in 2021.

Speaker 2

Does that help, Mike?

Speaker 5

Excellent. Yeah. It helps a lot. Thank you for that, Mick. And my follow-up would be on Rochester, your CapEx guide of 155,000,000 to 195,000,000 So certainly, is it the sense of how quickly you move through some of the projects that you have that's gonna generate either more or less spending this year?

Is it just like robbing 22 into 21? Or how's that how's that played through? Or is there any more just, you know, productivity or or cost issues that might flow into that, how that number flows through relative to the long term outlook on getting Rochester started up?

Speaker 2

Yeah. So you're right. Rochester is is the expansion is upon us. Major construction activity started off on schedule on January 15, And and and most of the spend will be wrapped up, you know, late next year. Tom, do you wanna talk maybe a little bit about the shape of of the spending as we see it this year and next year at Rochester?

Speaker 4

Yeah. So so so two items. Yeah. I mean I mean, we we have as as you can appreciate with a big large capital project like this, you know, we we are well down the path and and committed to spending a lot of this money. Construction contracts have been signed, procurement has been made, etcetera, etcetera.

Again, you'll see a significant ramp up here in the first quarter versus the fourth quarter. And then the real spending kicks in in Q2, Q3, Q4. And just the one item I'd want to note is on that CapEx guidance, that is net of some planned capital leases that we intend to have to help fund the overall Rochester capital spend.

Speaker 5

That makes sense. And, Tatik, can you remind me what the contingency that you guys have set forth in that budget overall?

Speaker 4

Yes. It's 32,000,000

Speaker 5

Great. Terrific. Thanks, gentlemen.

Speaker 2

Yes. Thanks, Mike. Cheers.

Speaker 7

Thank you. And the next question

Speaker 0

is from Ryan Thompson of BMO. Please go ahead.

Speaker 6

Hey, guys. Good morning. Thanks for the update. Hey, Mitch. Just a couple of questions.

Maybe I'll start with Wharf and just on the reserve and resource update that you guys put out yesterday morning. Looks like there was a pretty good uptick in measured and indicated both tons and ounces. Can you just talk a little bit about that increase and what sort of needs to be done to get that that material into the into the mine plan?

Speaker 2

Yeah. I'll start, and then I'll turn it over to you, Hans. And then, Mick, if you have anything to add on on Wharf. We expanded the boundary there at Wharf, which allowed us to bring in that material, Brian, that you mentioned. Probably takes it'll take some time on the permitting community consultation to to get that ultimately into into reserves, but we're optimistic about that.

I think the probably the the quicker opportunity to pull in some some additional mine life in reserves is probably is where we're focusing our infill budget at Wharf this year, which is by far our biggest program ever since we've owned Wharf. Hans, do you wanna talk a little bit about about that and and and and and just what what we're doing at Wharf on the exploration front?

Speaker 8

Yeah. Hey, Ryan. The what Mitch mentioned with the boundary affects the Green Mountain Pit, and it looks like a big number because our MNI was quite small at Wharf, and we did no drilling. So not really much added to to convert. Ended up being about 230,000 ounces or so that were added as a result of that move of the boundary.

But, yeah, this we're we're expecting to spend about 4 and a half million dollars on this infill program. We already started in the winter, which is also a new precedent for Wharf. Should it should finish in August, and what that does is gives us a jump start on the Portland Ridge Flossy area. And if things go well with the drilling, the modeling, and the permitting, we should be able to start laying back in February next year. That's why we jumped on that right away.

Speaker 6

And Gotcha. Thanks. That that's helpful. And maybe just a

Speaker 2

Brian, I'll just me just change the plug there on Wharf for you know, it's great to hear about these opportunities to further extend that mine life. You know, 2015, we we bought that for $99,000,000. We've harvested $245,000,000 of free cash flow. It had a six year mine life when we bought it. It has a six year mine life now.

And, you know, with what Mick and Hans are doing out there, you know, there's there's some opportunity to further further extend that. So it's it's a great great piece of the of the portfolio. Sorry. I cut you off there. You're gonna ask a question.

Speaker 6

Yeah. Yeah. No worries. No. It's definitely been a good acquisition for you guys.

And just as a a follow-up. So I think you guys had a sort of satellite property under option there, Richmond Hill, I think it was called. Can you just give an update on on that option as well? Yeah.

Speaker 2

We're we're doing more drilling. That option, I think, has an expiration in the third quarter, maybe September.

Speaker 3

Yep.

Speaker 2

So we'll finish up the drilling, see what the results look like, and then and then make a decision whether to go go forward there or not. So that that decision remains still to be made probably middle middle part of the year. Richmond Hill. Yeah. Okay.

Speaker 6

Thanks. And then maybe just one one more for me, and I'll I'll I'll turn it over to other callers. But just switching over to Silvertip, obviously, the the messaging sounds, constructive there, and it sounds like you guys are feeling more confident about what you're finding. Can you maybe just touch on what a potential restart would look like in terms of timing if you if you do get to that that positive decision in capital and just how we should sort of be thinking about that?

Speaker 2

Yeah. Yeah. Great question. It's a it's a constant topic around here. Because, you know, on one hand, you know, we wanna make sure we're moving forward in a deliberate, disciplined way and not rushing to get to a a result that we, you know, all want.

At the same time, you know, we we don't want to you know, you look at the outlook that we put out in our investor day. 2023 and beyond look really good for this company. And, you know, we we we really would not like to see Silvertip expansion delay that or defer that that that free cash flow profile. And so, you know, between those constraints and those that sort of those goalposts, you know, that's kind of the timetable that we're working on. But, you know, we we we we are prioritizing Rochester, you know, that's that's job number one.

And we're prioritizing, you know, getting this thing right. High confidence, derisk, go forward with confidence, and do it in a way that, you know, is going to have the outcome that we all that we all want there. Does that does that give you a little bit of context, Ryan?

Speaker 6

Yeah. No. That that that's that's helpful. I appreciate the the added color. And yes, like I said, I think I'll turn it over to other callers, but appreciate the update, guys.

Speaker 2

Yes. Thanks, Ryan. Cheers.

Speaker 0

Our next question is from Joseph Rego of ROTH Capital Partners. Please go ahead.

Speaker 7

Good morning, guys. Congrats for the strong finish to the year.

Speaker 2

Hey. Thanks.

Speaker 7

So just kind of a point of clarity. On Rochester, are you guys expecting Q2 stacking rates to be impacted at all by the swap out of the secondary crusher? Or is that part of the 38,000 tons? Is that already included in there, the 38,000 ton per day planned?

Speaker 3

Nick, go ahead. Yeah. So it's built into the plan already that's swapped out for the budget. And that budget looked like it was gonna be about a thirty day swap out. Already looking at about eighteen days for that swap out now.

So we're a little bit ahead of the game and continue to optimize that. And as said, we're we're looking to minimize that impact continually. But at the moment, that swap out's being really well planned and built into the budget and And guidance range. And the guidance range. Exactly.

Speaker 7

Okay. Okay. Fair enough. Then a lot of my other questions already asked, but I guess I'll touch on the Crown Block Seahorse discovery. Your neighbors to north have had some higher grade intercepts.

They're taking slightly different approach to drilling part of land that they have there. Do you guys expect that as you have drill from different pads that you might take a similar approach? I think they're drilling more west to east back into the structures or you guys could continue to use, like, the single pad, you know, multidirectional drilling kind of plan.

Speaker 2

Yeah. Great question. It's a lot a lot of excitement, a lot still to learn out there. Early days, but the the drilling has been going, you know, exceptionally well. Hans, you wanna take that?

Speaker 8

Yeah, Joe. How much time do you have?

Speaker 7

Fair question.

Speaker 8

We we're we're employing some real high level geologists to understand what we've got at Seahorse because it's different than anything we've seen in the district for sure. By by contrast to our neighbors to the north, their geologist comes from Bullfrog, his experience as Bullfrog. All the high grade mineralized structures from the Bullfrog mine dipped to the West, so they drilled to the East, and they've hit some great results. They've done a great job in oxidized to depth just like what we're seeing. And use as you alluded to correctly, we've been restricted by a five acre permit, and so we stuck to four or five pads and done fans off of those, limiting the the attack angle on these west dipping structures.

We are gonna start stepping out and testing those. We expect to see the higher grades like they've got from theirs. And based on some of the high powered geologists we've employed, you know, they expect to see much higher grades when we hit what's called the feeder structure for these systems. Now we interpret our mineralization totally different. Oxide disseminated, hosted by the bullfrog formation.

While structures are important, the host rock is actually giving us these larger tonnage in thicker intervals like Mitch alluded to from our news release, 710 feet of point o three ounce per ton. So as we get an amended drill permit this year, we've got a 300 acre drill permit to to disturb 300 acres. We needed to amend that because we didn't have the seahorse discovery when we got that, and we should get that in March. We'll start building pads south and west to test these structures and to test the growth of seaboard to the south. But it's looking really good.

Pure gold. Nothing else but pure gold oxide. Normally, these systems, you see things like arsenic and other things. So it's given us a lot of confidence this is gonna turn into something economic in the future.

Speaker 7

Okay. Thanks for the color there. And then one final thing. You're kinda thinking about capital spending over the course of the year. If the balance sheet gets late at any point, because you have some bigger you have, especially Rochester, a big project this year, would you just draw on the revolver?

Is that the plan? Or is there any chance you guys, you know, if silver catches a bit again would, you know, tap the equity markets?

Speaker 2

Well, that one is bottom of the list, in terms of any equity. I think between and Tom and his team have done a tremendous job, I think, of not only putting us in a position to to fund this, but also have identified a, you know, pretty wide spectrum of of other alternatives that we could pursue if if we felt like we needed to. Tom, do you wanna give a little more color?

Speaker 4

Yeah. Again, Joe, we've, you know, we've got between our cash on hand, the operating cash flow from the existing mines and the debt capacity, we've we've got the ability to keep keep to that guide those guardrails that we've set for ourselves of a net debt debt to EBITDA of of less than two times. And and so we'll we've got some capital leases that we've I've already mentioned at Rochester. The revolver is fully fully available and and again, we'll we'll, we'll delay drawing drawing upon it as as late late as possible. In terms of head in terms of hedging, look, you know, that recent run up on silver price absolutely caught caught our eye.

And and so as I think it's prudent to always be looking and understanding what what's available and the like. And And on

Speaker 2

the gold side, we have about half of this year's production with a $1,600 floor. Correct. So that gives us another sort of extra buffer in there. I don't know, Joe. Does that give you give you some Yeah.

Speaker 7

No. That that's good. I I'm mostly you know, the some of your peers are slightly smaller companies have been being opt opportunistic on the equity front, and it didn't seem like you guys needed to be, and I just wanted to confirm it.

Speaker 2

Yep. No. Fair enough.

Speaker 7

Thanks, guys. I'll turn it over.

Speaker 2

Alright. Thanks, Joe.

Speaker 0

This concludes our question and answer session. Now I'd like to turn the conference back over to mister Mitchell Krebs for closing remarks.

Speaker 2

Okay. Well, hey, we appreciate everybody's time this morning. I know it's a busy reporting day, and we look forward to speaking with you again in the spring. Hopefully, the snow will be gone, and we'll talk about our first quarter results. So have a good good rest of the week.

Thank you.

Speaker 0

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