Coeur Mining, Inc. (CDE) Q2 2024 Earnings Report, Transcript and Summary

Good day and welcome to the Second Quarter 2024 Financial Results for Coeur Mining Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would like now to turn the conference over to Mr. Mitch Krebs, President and Chief Executive Officer of Coeur Mining. Please go ahead.

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 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 three 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 two 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 two 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 leads us in a great place heading into the second half. Mick, over to you.

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 one year at the operation without the loss payment dilute. Also in June, 7 individuals at Rochester were honored with safety awards by the Nevada Manning 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. Silver production in the second quarter increased to 973,000 ounces while gold production increased to over 8,000 ounces, driven by more crush tonnes 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 reads have regularly achieved or exceeded expected average rolling capacity of 88,000 tonnes 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 tonnes in July, and we remain well positioned to deliver crushing and placement rates of 7 million to 8 million tonnes 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 5 years of an inch in order to maximize recoveries. Moving on to Palmarejo. Domain followed up a very strong first quarter with another solid three months, delivering about 25,000 meters of gold and nearly 1.6 million ounces of silver. In June, the team brought grown on a third access portal at Hidalgo, which is expected to significantly enhance our underground mine development and exploration efforts at this future or 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 Ita 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 fees to the service. As Mitch mentioned, the Kensington team have begun 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 multiyear 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 ores. 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 cash 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, nine years later, Wharf 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 two 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.

Thanks, Mick. I'll begin with a brief review of our second quarter financial results before spending a moment on our refresh 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 three-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 operations 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 cost guidance. 2024 cost 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 cost guidance to reflect excess trucking capacity used during the first half of the year to place profitable, but higher cost for run-of-mine material, which helped to offset the lighter than planned tonnes 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 are 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 one year ago, and we now sit below three times net debt to EBITDA for the first time in over two 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 one time and net debt-to-EBITDA of nil. I will now pass the call to Aoife.

Thanks, Tom. Starting at Palmarejo on slide 8. The newly acquired concession 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 expiration with a high percentage of resource and reserve assets 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 Nación. 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 or 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 Palmarejo Gold and Silver. This new block of Fresnillo concessions allows full access to these historic resources and opens up significant down depth and the long strike opportunities. Validation of these historic resources and extension along strike and down depth is a short- to medium-term exploration focus. Between the Northwest trending mine and Guazapares trend as mineralization exists the Camuchin- Escondida Trend. This is the third of four 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 include commencement of the largest thermal 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 unknown structures to rapidly add resources via surface drilling, and regional scale exploration to identify Silvertip local likes 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 multiyear program is progressing well and is outlining new zones in upper and lower Kensington and is showing continuity of mineralization between Elmira and Elmira set. We continue to be very encouraged for ongoing mine life growth throughout this program. With that, I'll hand the call back to Mitch.

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.

We will now begin the question-and-answer session [Operator Instructions] Our first question comes from Joseph Reagor of ROTH Capital Partners. Please go ahead.

Hey, Mitch and team, thanks for taking my questions.

Hi, Joe.

Okay. 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?

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 on to Stage VI. 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 VI, 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?

Yes, we're really happy with the ramp-up. But 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 expect it to, just a little bit delayed on a few of those answers to the pilot.

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 part of the equation as we thought about second half cost guidance for Rochester.

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?

Good question. We'll probably start seeing some drilling first part of next year, particularly in the -- 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 Southeast or an 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. If Mick, anything to add.

Yes. I mean the other thing is that underground, it's close to infrastructure. It's already areas that were mined, so it's really extensions of those areas. So as Mitch said, there's some work to do. We'll have to characterize it and we'll have to develop towards it, but it's not too far away.

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

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?

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?

Yes. Just -- I'd just go back to our comments, we're always aiming for a total debt-to-EBITDA long term of one time and a net debt to EBITDA of no. And so to get there, when you look at where our senior notes balance looks like right now just under 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 and in a second half of the year. It's all going to be geared towards repaying that revolver. I mean how fast can we get that revolver paid? How fast can we get to 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 2016. It's not out of the question to '25, it's the commodity prices were to bounce back up and stay at a level just a little bit higher than this. So -- 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 a fair minimum we need is $50 million.

Okay. Good stuff, guys. I'll turn it over.

Yes. Thanks, Joe.

[Operator Instructions] Our next question comes from Marc Ferrari of National Bank Finance. Please go ahead.

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

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?

Yes. Really, we're seeing good things. I mean, we're still only 4, 5 months into what would be a longer ramp up when we hit the nameplate. We're really happy about that. We're seeing consistent numbers on a daily basis, running at a sort of 90,000 to 100,000 tonnes per day. And so last not even with a few times, we delivered nearly 2 million tonnes to the pad. Our expectation is north of that for the rest of the year and expecting to land between 7 million and 8 million tones per quarter, and that's really set work well because during that period of 78 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 tonnes in 2025. And we'll have that size fraction dialed into the 5 years and be getting the recoveries that we expect going forward. So yes, overall, everything is due and what we said it would do and we're pretty happy with the performance.

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

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

Okay. Perfect. That's great color. That's all for me.

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

Okay. Well, hey, 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.

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