Q1 2024 Earnings Summary
- Rochester mine ramp-up is progressing well, with the company reaching end of second quarter milestones and expecting a more normalized basis of operation thereafter. The expansion is on track to reach full run-rate by the end of Q2, and the company anticipates optimizing mining and processing rates, leading to a significant drop in cost structure in the second half of 2024.
- Coeur Mining has substantial Net Operating Losses (NOLs) totaling over $630 million in the U.S., which will allow the company to avoid federal income taxes for the foreseeable future. This means that the increased cash flow from operations, especially as Rochester ramps up, will be available for debt repayment and investment, enhancing shareholder value.
- Exploration at Palmarejo outside the Franco-Nevada royalty area presents exciting opportunities to increase production and cash flow in the next few years. The company is seeing strong exploration results, with potential for new sources of production that are not subject to the existing royalty agreements, which could materially supplement production and cash flow within the next 3 years.
- Uncertainty in achieving optimal crusher size at Rochester: The company acknowledged that there is still significant optimization work to be done at the Rochester mine, particularly around achieving the desired crush size of 5/8-inch average product size. They admitted they are unsure how quickly they can dial into this optimal size, which could impact recovery rates and overall performance.
- Dependence on prepaid sales agreements to manage working capital: In the first quarter, there was a $55 million impact from deferred revenue due to prepaid gold sales, which the company used to manage short-term working capital needs. This reliance on prepayments may indicate potential liquidity concerns, especially as they await the ramp-up at Rochester.
- Exposure to commodity price volatility due to lack of hedging beyond Q2 2024: The company has no plans to hedge metal prices beyond the second quarter, which could expose them to potential downside risk if metal prices decline. This decision comes after a period where hedging served as an "insurance policy" during capital-intensive phases, and discontinuing it may leave the company vulnerable.
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Rochester Ramp-Up and Productivity
Q: How is productivity normalizing at Rochester post-expansion?
A: We're targeting an average rate of 88,000 tonnes per day in Q2, already seeing we can run higher. Optimizing crush size and dialing in operations will reduce costs significantly due to volume increase. By 2025, with tweaks behind us, we expect further improvements in productivity and costs. -
Palmarejo Exploration Opportunities
Q: Are there opportunities outside the royalty boundary at Palmarejo to include in the mine plan?
A: Yes, we see near-term extensions east of the Franco-Nevada boundary, medium-term opportunities from the Guazapares area acquired from Paramount Gold & Silver, and longer-term drill targets in between. Mapping and sampling over the last two years reveal significant prospectivity. -
Rochester Grade Upside
Q: Where is the upside in grade at Rochester beyond this year?
A: We've increased our exploration budget to $9 million in 2024 to explore regionally for higher-grade material. We've doubled our land position after acquiring land from Alio Gold. Potential exists east of the pit, at Nevada Packard to the south, and in the area called "the wedge" under the old leach pad, which could convert 40 million tons of waste into higher-grade ore. -
Hedging Plans
Q: What are your thoughts on hedging going forward?
A: We had hedges during the Rochester expansion as an insurance policy, but currently have nothing beyond Q2 and no plans to add any. Once the ramp-up is complete, we don't intend to hedge. -
U.S. NOLs and Taxes
Q: How will U.S. NOLs affect taxes as Rochester ramps up?
A: We have over $630 million of net operating losses, so we won't pay federal income tax in the near future. Expect zero federal income taxes, though we will pay some state taxes in Nevada and at Wharf. -
Deferred Revenue Impact
Q: What drove the $55.2 million deferred revenue impact in Q1 cash flow?
A: This was due to gold prepay arrangements used to manage short-term working capital during the expansion. We paid back $55 million at year-end and drew it again to cover lumpy Q1 payments. Expect these balances to decrease in the second half as free cash flow starts and we begin delevering. -
Labor Tightness at Rochester
Q: Are you experiencing labor tightness at Rochester like others in Nevada?
A: We've added staff with the expansion but haven't had significant difficulties filling roles. Skilled trades like electricians are challenging, but overall we've increased headcount by only 20%, managing well. -
Future LCM Adjustments
Q: What should we expect for LCM adjustments going forward?
A: Without the positive offset, LCM would have been $10–$12 million higher. We might have an LCM in Q2, depending on silver prices and ramp-up, but from Q3 onward, we expect to be out of the LCM business. -
Guidance Update at Rochester
Q: Will you update Rochester's guidance later this year?
A: Yes, after achieving the run rate in Q2, we plan to refresh full-year guidance, likely when we discuss Q3 results. -
Recovery Rates at Rochester
Q: When will you achieve steady-state recovery rates at Rochester?
A: We expect to reach steady state in 2025 for both silver and gold recoveries. We'll have more data to share in Q3 and at year-end. -
LCM Adjustment at Rochester
Q: Was the positive revaluation on legacy leach pads included in Q1 LCM adjustment?
A: Yes, we added 900,000 ounces of silver and 6,000 ounces of gold to our model as a change in estimate in Q1. This reduced the LCM adjustment that would have been higher otherwise.