Coeur Mining Inc

NYSE:CDE

Earnings Call Analysis

Coeur Mining's Strong Q2 2024 Performance and Future Plans

In the second quarter of 2024, Coeur Mining successfully ramped up operations at Rochester, increasing silver and gold production by nearly 40%. The company's quarterly adjusted EBITDA surged 136% due to a 10% year-over-year price increase in commodities. Palmarejo and Wharf exhibited steady performance, while Kensington is positioned for strong free cash flow next year. The acquisition of new concessions from Fresnillo will enhance exploration at Palmarejo. Coeur is transitioning to positive free cash flow with plans for aggressive debt reduction, targeting a total debt to EBITDA ratio of 1x. The company anticipates higher production levels and a robust finish to 2024.

Rochester's Ramp-Up and Production Gains

Coeur Mining is witnessing remarkable progress at its Rochester operation. During the second quarter of 2024, Rochester significantly increased its silver production to 973,000 ounces and gold production to over 8,000 ounces, primarily driven by the ramp-up of its new crushing circuit. The throughput rates have now reached an impressive range of 90,000 to 100,000 tons per day, positioning Rochester to achieve crushing and placement rates between 7 million to 8 million tons per quarter for the second half of the year and into 2025. This performance reflects the company's commitment to stabilizing and now optimizing its operations, paving the way for higher production levels and lower costs.

Solid Performance Across Other Operations

In addition to Rochester, Coeur's other mining operations are also performing well. The Palmarejo mine produced over 25,000 ounces of gold and nearly 1.6 million ounces of silver in the second quarter. Positive developments at Kensington indicate that operational enhancements are yielding results, establishing a solid foundation for positive free cash flow in the latter part of next year. Wharf also delivered strong performance with a production of 22,000 gold ounces and a significant reduction in cash operating costs (CAS) to $822 per ounce, demonstrating the effectiveness of ongoing business improvement initiatives.

Financial Improvements and Future Guidance

Coeur Mining's financial metrics have shown marked improvement, driven by a combination of higher gold and silver production and favorable metals prices, alongside reduced capital spending at Rochester. The company reported an impressive 136% increase in adjusted EBITDA year-over-year. For 2024, Coeur is directly on track to meet its production guidance, while it has made specific adjustments to its cost guidance. Notably, CAS for Palmarejo has been decreased due to higher grades and easing inflation, while Kafka is anticipating an increase at Rochester due to early additional trucking costs. The company is also on track to realize positive free cash flow in the second half of the year, transitioning towards aggressive debt repayment strategies.

Strategic Acquisitions and Exploration Opportunities

The recent acquisition of two key concessions from Fresnillo has enhanced Coeur's land position at Palmarejo, providing access to high-margin opportunities for mine life extension. This land acquisition, combined with an aggressive exploration program at Silvertip and the development work underway at Kensington, reinforces Coeur's commitment to growth and resource expansion. Drilling programs are planned for early 2025, and the exploration of the new concessions is expected to yield new resources in the near term, positioning the company well for future success.

Debt Reduction Plans and Financial Outlook

As cash flows begin to accelerate in the latter half of 2024, Coeur Mining is focused on debt reduction. The management aims for a long-term target of total debt to EBITDA of 1x and net debt to EBITDA of 0. Currently, the company's net debt to EBITDA ratio is below 3x for the first time in over two years, creating a pathway to gradually eliminate its drawn balance on the revolving credit facility and establish a financially healthier balance sheet. With projections of substantial cash flow, Coeur is setting the stage for a solid financial future, highlighting their operational efficiencies along with robust performance across its portfolio.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and welcome to the Second Quarter 2024 Financial Results for Coeur Mining Conference Call. [Operator Instructions] Please note this event is being recorded.

I would like now to turn the conference over to Mr. Mitchell Krebs, President and CEO of Coeur Mining. Please go ahead.

[Mitchell J. Krebs, executive]

Hello, everyone, and thanks for joining our call. Before we start, I want to point out our cautionary language regarding forward-looking statements in today's slide deck and refer you to our SEC filings on our website.

I'll kick off with some highlights on Slide 3 before turning the call over to the team, and then we'll open it up for questions.

The main focus during the second quarter was getting Rochester ramped up and positioning the company to make the transition to positive free cash flow in the second half of the year. We were successful in that effort, with Rochester now consistently crushing and placing around 90,000 tons per day, which should drive sharp production increases and unit cost reductions in the second half. Rochester's silver and gold production both jumped nearly 40% in the second quarter, which was a great sign that the team out in Nevada is building momentum, heading into the back half of the year. Mick will provide some additional details on Rochester in a few minutes.

Our 3 other operations are also on track for solid years as we pass the midway point. Palmarejo generated another strong free cash flow quarter. Wharf remained consistent and on plan. And Kensington is now establishing a good rhythm after a couple of years of elevated investment and implementing several operational enhancements, which Mick will cover in greater detail.

Our leading leverage to higher prices was on full display during the quarter. Prices in the second quarter were about 10% higher year-over-year, yet our quarterly adjusted EBITDA jumped 136%, and our LTM adjusted EBITDA increased 90% to $192 million.

On the back of Rochester's ramp-up, Kensington is set to have its own free cash flow inflection point in the second half of next year. The elevated levels of underground development and drilling over the past 2 years are expected to drop off mid-next year, leaving Kensington positioned to deliver positive free cash flow with greater operational flexibility and a longer mine life. Mick and Aoife will both touch on the progress at Kensington.

It was great to close the acquisition last month of 2 key concessions from Fresnillo and consolidate the land package to the east of Palmarejo. Aoife will talk in a couple of minutes about our plans and priorities for this large prospective land position that sits outside the Franco-Nevada gold stream boundary and provides a whole new set of higher-margin mine life extension opportunities at Palmarejo. Aoife will also cover the objectives and progress from the summer exploration program underway at Silvertip.

We continue to believe that the convergence of all of these catalysts, higher commodity prices, a ramped-up Rochester, a stable suite of U.S.-centric mines full of organic growth opportunities, and a world-class Canadian exploration project, along with our impending transition to positive free cash flow, followed by a period of aggressive debt reduction, sets us apart from our peers and leaves us in a great place heading into the second half.

Mick, over to you.

[Michael Routledge, executive]

Thanks, Mitch. Rochester's successful ramp-up and consistent contributions from across our portfolio have the company well positioned at the midway point of 2024. More importantly, Coeur's deeply embedded safety culture continues to show through in our overall safety performance. I'm pleased to report that a clean slate at Wharf in June marked 1 year of the operation without a lost time incident. Also in June, 7 individuals at Rochester were honored with safety awards by the Nevada Mining Association. Congratulations to the team there for their contributions to pursuing a higher standard in safety.

Turning to our second quarter results on Slide 4 and kicking off with Rochester, sliver production in the second quarter increased to 973,000 ounces, while gold production increased to over 8,000 ounces, driven by more crushed tons placed with the new circuit. As reported on July 11, placement of ounces during the second quarter was lighter than initially planned, but Rochester remains on track to deliver on 2024 production guidance.

Over the first several weeks of the third quarter, throughput rates have regularly achieved or exceeded expected average running capacity of 88,000 tons per day, and the team continues to take full advantage of down periods to optimize and refine the operation. We crushed and placed nearly 2 million tons in July, and we remain well positioned to deliver crushing and placement rates of 7 million to 8 million tons per quarter in the second half and into 2025. Concurrent with delivering these higher crushing and placement rates, our focus in the second half of 2024 will be on working down material crush size towards a targeted 0.625 inch in order to maximize recoveries.

Moving on to Palmarejo, the mine followed up a very strong first quarter with another solid 3 months delivering over 25,000 ounces of gold and nearly 1.6 million ounces of silver. In June, the team broke ground on a third access portal at Hidalgo, which is expected to significantly enhance our underground mine development and exploration efforts at this future ore source, located just north and west of Independencia. Following the completion of the transaction with Fresnillo, the operating team is working closely with the exploration team on plans to pursue near-term development opportunities, which Aoife will discuss further in a moment.

At Kensington, the operation continues to regain momentum where significant improvements have been realized in long-haul drilling capacity, pace placement and getting more [ stock feed ] to the surface. As Mitch mentioned, the Kensington team have gone the hard yards to position the operation as a long-lived, revitalized source of free cash flow generation, starting in the second half of next year. The multi-year capital development investment continues to advance well, with progress ahead of schedule, with additional funds being allocated to the program to provide more operating flexibility and to access new ore zones. The program now stands about 82% complete for the current scope of the project.

Finishing up with Wharf, strong grades drove increased gold production to 22,000 ounces in the quarter, while adjusted CAS decreased 29% compared to the first quarter to an impressive $822 per ounce. When Wharf was acquired by Coeur in 2015, reserves stood at approximately 560,000 ounces. At year-end 2023, 9 years later, Wharf's gold reserves stood at over 760,000 ounces, with even further exploration upside. The team there has recently identified 2 new opportunities near existing mining areas, aimed at substantially extending Wharf's already long life. The 2 targets, North Foley and Juno, will be drill tested over the remainder of 2024 and 2025 to demonstrate the scope of the potential opportunity.

With that, I'll pass the call over to Tom.

[Thomas Whelan, executive]

Thanks, Mick. I'll begin with a brief review of our second quarter financial results before spending a moment on our refreshed cost guidance, as we hit the midway mark of 2024. And I'll finish with an update on our plans for delevering the balance sheet on the back of Rochester's and the overall company's return to free cash flow.

As detailed on Slide 10, Coeur's rapidly improving financial results are due to the 3-way combination of stronger gold and silver production, higher metals prices, and declining levels of capital spending at Rochester. With Rochester continuing to settle into steady-state operation and the rest of the portfolio delivering 100% unhedged gold and silver production, that free cash flow inflection point is upon us.

We remain on track to achieve 2024 production guidance at each of our operations and have made the following refinements to our 2024 cost guidance. At Palmarejo, higher grades, combined with easing inflationary pressures and a weaker Mexican peso, have resulted in a reduction in its 2024 CAS guidance. 2024 CAS guidance at Wharf has also been reduced as a result of better-than-expected crusher performance and mining efficiencies due to ongoing business improvement initiatives. At Rochester, we increased our CAS guidance to reflect excess trucking capacity used during the first half of the year to place profitable but higher-cost run-of-mine material, which helped to offset the lighter-than-planned tons placed on Stage 6 through the first half of the year.

In addition, overall 2024 CapEx and exploration guidance has also been adjusted to reflect the following. At Rochester, we have increased the full year capital guidance to reflect an earlier-than-planned final payment to our major contractor from the recently-completed expansion. We also accelerated equipment purchases to lock in savings, and there were a handful of post-start-up modifications. At Kensington, we increased our full year capital range to reflect accelerated underground mine development and exploration investments, which reflect higher-than-planned productivity by both our underground mine development and drilling contractors. And at Wharf, we increased our full year exploration guidance to reflect drilling we plan to carry out at the recently-identified opportunities that Mick just mentioned. This allocation of capital is consistent with our capital allocation framework, as highlighted on Slide 13.

Turning to the balance sheet on Slide 12, we ended the quarter with approximately $275 million drawn on our $400 million revolving credit facility. Our balance sheet ratios have already seen significant improvements since the high watermark 1 year ago, and we now sit below 3x net debt to EBITDA for the first time in over 2 years. We expect to begin aggressively paying down the revolver, as cash flows begin to accelerate over the second half of the year, as we drive towards our long-term leverage targets of total debt to EBITDA of 1x and net debt to EBITDA of 0.

I will now pass the call to Aoife.

[Aoife McGrath, executive]

Starting at Palmarejo on Slide 8, the newly-acquired concessions from Fresnillo provide us with full access to the 4 northwest trending mineralized belts in the district. Of these belts, the mine trend has seen the most historic exploration, with a high percentage of resource and reserve ounces coming from deposits here. The new Independencia Sur claim block, highlighted in the red oval in the center of the map, contains the southeast extension of the mine trend. It sits directly adjacent to our existing mining infrastructure and contains the continuation of a number of key veins, including Independencia and La Nacion.

Fresnillo conducted drilling on this block, and we are hopeful that with additional exploration, we can outline new resources in the very near term. Mapping is already well underway, and relogging of Fresnillo core and incorporating it into Coeur's database and geological models are immediate aims, with drilling planned for early 2025.

The new Guazapares block of concessions, outlined in the large red oval on the top right of the map, is the most easterly northwest trending belt of mineralization at Palmarejo. It surrounds multiple advanced exploration targets containing significant drilling and historic resources that were added to Coeur's portfolio through the 2015 acquisition of Paramount Gold and Silver. This new block of Fresnillo concessions allows full access to these historic resources and opens up significant down dip and along strike opportunities. Validation of these historic resources and extension along strike and down dip is a short to medium-term exploration focus.

Between the northwest trending mine and Guazapares trends of mineralization exists the Camuchin - Escondida trend. This is the third of 4 identified belts at Palmarejo and has a number of key exploration targets that are expected to span the short to long-term exploration focus.

Other key news for the quarter includes commencement of the largest summer program ever at Silvertip. We are undertaking a three-pronged approach this year, including near-mine extensions to known mineralization via underground drilling, larger step-outs on known structures to rapidly add resources via surface drilling, and regional scale exploration to identify Silvertip lookalikes and larger structures with potential to host larger ore bodies. We look forward to providing an update on the program later in the year.

At Kensington, the multi-year program is progressing well and is outlining new zones in upper and lower Kensington and is showing continuity of mineralization between Elmira and Elmira South. We continue to be very [ encouraged for ] ongoing mine life growth throughout this program.

With that, I'll hand the call back to Mitch.

[Mitchell J. Krebs, executive]

Thanks, Aoife. Before moving to the Q&A, I want to quickly highlight Slide 14 that summarizes our top priorities for the remainder of the year. We're looking forward to delivering a strong and safe second half, highlighted by higher production levels, positive free cash flow and lower debt levels, as we build up momentum heading into what should be a fantastic 2025.

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

[Operator]

[Operator Instructions] Our first question comes from Joseph Reagor of ROTH Capital Partners.

[Joseph Reagor, analyst]

So, first thing on Rochester, you guys adjusted the cost guidance there, and there was some note about that being related to placement timing. Can you give us a little more color on that, like, what exactly is driving that, and if there was any changes to your expectations as far as costs excluding that item?

[Mitchell J. Krebs, executive]

Yes, sure. I'll take a crack at it. And then, Mick, maybe you can follow up. It's really, Joe, a function of the denominator versus the numerator. So, no real changes at all in any of the inputs. It was really a function of timing of ounces placed out onto Stage 6. In the second quarter, we took a few more downs than planned to knock out some items that had been identified during the ramp-up to try and make sure we've got a good, clean second half ahead of us. And so, just by a function of the timing of tons being put out there on Stage 6, that's really the driver behind what we decided to do with the cost guidance in the back half of the year for Rochester.

Mick, anything you want to add?

[Michael Routledge, executive]

Yes, we're really happy with the ramp-up. And as Mitch said, we took the opportunity to really do the work so that once we got up to that nameplate capacity and run rate, we could stay there, while in the second half, optimizing the size PSD, so we can get those recoveries up. So everything is going the way we expected it to. Just a little bit delayed on a few of those [ ounces to the pad ].

[Mitchell J. Krebs, executive]

And I guess, just to follow up, one last thing, Joe, there. It was, I think, in the comments we made or maybe in the release. Just with some of that -- the downtime, then we took the opportunity to -- with the trucks to haul some run-of-mine material. So, that was also a part of the equation, as we thought about second half cost guidance for Rochester.

[Joseph Reagor, analyst]

Okay. That's helpful. On the land that was acquired near Palmarejo, when do you think the earliest time frame would be where you pull your first ounce out of the ground there?

[Mitchell J. Krebs, executive]

Good question. We'll probably start seeing some drilling first part of next year, particularly in that nearer section that's outlined on that slide in the materials. Of course, a lot of the underground development then will have to come on the heels of defining mineralization further there, really on the southeastern extension of both Independencia and Nacion, which would probably put us into 2026, as far as the first window of seeing some ounces out of that near area that we just acquired from Fresnillo.

Aoife, Mick, anything you want to add?

[Michael Routledge, executive]

Yes. The main thing is that underground, it's close to infrastructure. It's already areas that we're mining. So it's really extensions of those areas. So, as Mitch said, there's some work to do. We have to characterize it, and we have to develop towards it, but it's not too far away.

[Aoife McGrath, executive]

Yes. The first program that we're going to undertake there is some relogging of that old Fresnillo core, and that's going to happen imminently. We've been mapping and sampling throughout that total land package this year. And we would aim to get the drills in there pretty early next year.

[Joseph Reagor, analyst]

Okay, sounds good. And then, last thing, as cash flow increases, and you guys are able to focus on debt repayment, what's the cash balance you guys would like to cover, and how much debt would you guys like to wipe out over the next couple of years?

[Mitchell J. Krebs, executive]

Yes. Tom, do you want to talk about how we see the balance sheet and where we're trying to get over the longer term?

[Thomas Whelan, executive]

Yes. I'd just go back to our comments. We're always aiming for a total debt to EBITDA, long term, of 1x and a net debt to EBITDA of 0. And so, to get there, when you look at where our senior notes balance looks like right now, just under a shade of -- a shade under $300 million, that kind of marries up to what we think long-term EBITDA of the company is going to be on a go-forward basis. So, once the free cash flow starts happening here in the second half of the year, it's all going to be geared towards repaying that revolver. How fast could we get that revolver paid? How fast could we get to those -- that long-term goal? I think it would be a stretch to say we'd have it done by the end of '25, but certainly in '26. It's not out of the question, though, in '25, if the commodity prices were to bounce back up and stay at levels just a little bit higher than this.

And in terms of the minimum cash, we probably want to always have at least $50 million on the balance sheet. Operating in 3 jurisdictions, it's probably nicer to be maybe a little bit higher than that, but the bare minimum we need is $50 million.

[Operator]

[Operator Instructions] Our next question comes from Marc Ferrari of National Bank Financial.

[Marc Ferrari, analyst]

Just wondering how the Rochester crushing circuit is performing on a reliability basis and if you guys are seeing any problem areas.

[Mitchell J. Krebs, executive]

Yes. Mick, do you want to give an update on kind of July, August, and then how you see the back half of this year going and then into 2025?

[Michael Routledge, executive]

Yes. Really, we're seeing good things. We're still only 4, 5 months into what would be a longer ramp-up, and we hit the nameplate. We're really happy about that. We're seeing consistent numbers on a daily basis, running at sort of 90,000 to 100,000 tons per day. And so, last month, even with a few downs, we delivered nearly 2 million tons to the pad. Our expectation is north of that for the rest of the year, expecting to land between 7 million and 8 million tons per quarter. And that's really [ set to work ] well because during that period of 7 million to 8 million tons, we are continuing to optimize for size fraction. We're already seeing that getting dialed in a little bit. We're seeing some really good results coming from July and a good start to August. And so, it's given us a lot of confidence that we'll hit the 32 million tons in 2025, and we'll have that size fraction dialed into the [ 0.625 inch ] and be getting the recoveries that we expect going forward. So yes, overall, everything is doing what we said it would do, and we're pretty happy with the performance.

[Mitchell J. Krebs, executive]

Yes. The first half theme was stabilize. Now, the second half theme is optimize. And I think it's fair to say we're comfortably into that optimize mode there at Rochester.

[Michael Routledge, executive]

Yes. There's a few little jobs to do, but there's a day here, a couple of days there to fine-tune as we go through the back end of the year, and we'll optimize that size fraction.

[Operator]

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

[Mitchell J. Krebs, executive]

Okay. Well, we appreciate everybody's time today, and we look forward to talking again in November to discuss our third quarter results. Until then, have a good end of the summer and fall. Bye-bye.

[Operator]

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