Coeur Reports First Quarter 2019 Results

01.05.2019  |  Business Wire

Coeur Mining Inc. (“Coeur” or the “Company”) (NYSE: CDE) today reported first quarter 2019 financial results, including revenue of $154.9 million, adjusted EBITDA¹ of $26.1 million and cash flow from operating activities of $(11.8) million. Prior to changes in working capital, cash flow from operating activities totaled $21.5 million. Including a non-cash write down of $15.4 million taken in the quarter, the Company reported GAAP net loss from continuing operations of $24.9 million, or $0.12 per share. On an adjusted basis¹, the Company reported a net loss of $23.0 million, or $0.11 per share.

The Company is reaffirming full-year 2019 production guidance of 334,000 - 372,000 ounces of gold, 12.2 - 14.7 million ounces of silver, 25 - 40 million pounds of zinc and 20 - 35 million pounds of lead. In addition, full-year cost guidance is being reaffirmed.

Key Highlights

• Production on-track to achieve full-year guidance ranges - Full-year financial and operational results expected to benefit from higher second half production driven by the anticipated impact of high-pressure grinding roll (“HPGR”) technology at Rochester, higher recovery rates and production levels at Palmarejo, and improved plant performance and higher grades at Silvertip
• Strong operating cost performance across the Company’s portfolio - First quarter adjusted costs applicable to sales (“CAS”)¹ at each operation either below or in-line with full-year guidance ranges. Site-level unit costs expected to trend lower due to higher expected second half production levels
• Installation of HPGR unit at Rochester on-track - Despite unseasonably high snowfall levels, commissioning of the HPGR unit remains on-budget and on-schedule. Commissioning activities now underway and impact on silver recovery rates expected to be seen beginning mid-year
• Improved results at Silvertip with continued focus on achieving positive cash flow - Although slower than originally expected, results at Silvertip improved quarter-over-quarter. March 2019 represented the strongest month of performance since acquisition with revenues more than doubling in the first quarter. Current areas of focus include (i) sustaining consistent levels of mill availability to allow for recovery rate optimization, (ii) accelerating underground development rates to enhance mining flexibility and access to higher grade ore, and (iii) workforce training and retention initiatives
• Kensington now shifting focus at Jualin from development activities to production - Mining activities at Jualin transitioned from development to production during the first quarter, with the high-grade deposit contributing approximately 10% of Kensington’s production at an average grade of 0.41 ounces per ton (“oz/t”). Jualin is expected to account for approximately 20% of Kensington’s total production in 2019. Higher mining rates from Jualin are expected to contribute to higher production levels and lower unit costs throughout the remainder of 2019
• Continued commitment to success-based exploration program - Following last year’s strong reserve and resource increases, 2019 drilling programs commenced by investing a total of $6.6 million in resource expansion and conversion drilling targeting Palmarejo and Kensington as well as the new Sterling and Crown deposits
• Cash and cash equivalents as of March 31, 2019 of $69.0 million - $135.0 million currently drawn on the Company’s $250.0 million senior secured revolving credit facility, the terms of which were amended subsequent to the end of the first quarter to enhance near-term financial flexibility. Liquidity levels expected to climb during the second half of 2019 due to higher anticipated production levels and lower unit costs

“First quarter operational and financial results were consistent with our expectations,” said Mitchell J. Krebs, President and Chief Executive Officer. “Although Silvertip’s ongoing ramp-up remains a near-term drag on our free cash flow and liquidity levels until it achieves steady-state, our balanced portfolio of operations are advancing several key initiatives that are expected to help us achieve our objective of returning to positive free cash flow in 2019.”

Financial Results

First quarter revenue increased 8% to $154.9 million compared to $143.8 million in the fourth quarter of 2018. The Company sold 85,326 ounces of gold and 2.6 million ounces of silver during the quarter, representing an 8% increase and 14% decrease, respectively, compared to the prior period. Zinc and lead sales totaled 4.7 million and 2.7 million pounds during the first quarter, or 81% and 93% increases, respectively, quarter-over-quarter.

Average realized gold and silver prices for the quarter were $1,251 and $15.22 per ounce, respectively, or 3% and 4% higher quarter-over-quarter. The average realized gold price during the quarter reflects the sale of 8,803 gold ounces at a price of $800 per ounce pursuant to Palmarejo's gold stream agreement. Average realized zinc and lead prices, net of treatment and refining charges, for the quarter were $1.19 and $0.86 per pound, respectively, or 43% and 8% higher compared to the prior quarter.

Gold and silver sales accounted for 69% and 26%, respectively, of first quarter revenue, while zinc and lead sales contributed 4% and 1%, respectively. The Company’s U.S. operations accounted for approximately 59% of first quarter revenue, down from approximately 62% in the prior period primarily due to increased sales from Silvertip, which totaled $10.9 million during the quarter.

Quarterly costs applicable to sales were $131.7 million compared to $116.6 million in the fourth quarter of 2018, reflecting higher operating costs at Palmarejo, Kensington and Silvertip. First quarter general and administrative expenses were $9.5 million compared to $7.1 million in the prior period driven by higher employee-related and legal expenses.

Quarterly exploration expense was $3.7 million, or 10% lower quarter-over-quarter. The Company focused on near-mine targets at Palmarejo and Kensington, while commencing drilling activities at the Sterling and Crown exploration properties in southern Nevada. See page 11 for further details.

During the first quarter, the Company recorded an income tax benefit of $8.7 million, largely attributable to lower taxable earnings during the quarter. Cash income and mining taxes paid during the quarter totaled $9.7 million. In April 2019, the Company paid $9.3 million in cash taxes related to its acquisition of Northern Empire Resources Corp. (“Northern Empire”). The cash outflow will be reflected in the Company’s second quarter financial results and will allow Coeur to utilize its U.S. net operating loss carryforwards against any future income generated from the Sterling and Crown properties.

Operating cash flow of $(11.8) million in the first quarter was impacted by unfavorable changes in working capital, primarily due to an inventory adjustment at Silvertip. Excluding these changes, first quarter operating cash flow was $21.5 million¹.

First quarter capital expenditures totaled $27.4 million, compared to $17.8 million in the fourth quarter 2018. Higher capital expenditures were driven primarily by higher investment levels at Palmarejo, Rochester and Silvertip. Sustaining and development capital expenditures accounted for approximately 79% and 21%, respectively, of the Company’s capital expenditures in the first quarter.

On April 30, 2019, the Company amended its credit agreement with respect to its senior secured revolving credit facility. The amended terms of the credit agreement provide the Company with additional financial flexibility during the remainder of 2019 while ramp-up activities continue at Silvertip and anticipated production levels increase across the Company’s portfolio during the second half of the year.

Operations

First quarter 2019 highlights for each of the Company’s operations are provided below.

• First quarter gold and silver production decreased 26% and 32%, respectively, to 23,205 and 1.3 million ounces compared to the prior quarter. Year-over-year, gold and silver production decreased 22% and 37%, respectively
• Lower production levels were primarily driven by temporarily lower grades and recoveries due to mine sequencing and are expected to increase in subsequent quarters
• First quarter adjusted CAS¹ for gold and silver on a co-product basis increased 14% and 22% to $713 and $9.66 per ounce, respectively, compared to the prior quarter. These increases were due to lower quarterly production levels, but remained within full-year guidance ranges
• Free cash flow¹ of $(2.8) million during the first quarter was driven by lower operating cash flow from lower production levels and by higher capital expenditures. Capital expenditures were focused on mine development, including at the La Nación deposit, and on infrastructure projects, including the new thickener
• Underground development at the La Nación deposit, located between the Independencia and Guadalupe underground mines, remains on-schedule. Production is expected to commence in the second half of 2019, adding approximately 400 tons per day (“tpd”) of additional mill feed
• Installation of the new thickener at a cost of approximately $4.5 million remains on-budget and on-schedule for completion during the third quarter. The project is expected to increase gold and silver recovery rates by approximately 2% each and have an estimated one-year payback
• Full-year 2019 production guidance remains unchanged at 95,000 - 105,000 ounces of gold and 6.5 - 7.2 million ounces of silver
• Guidance for CAS and capital expenditures also remains unchanged. CAS are expected to be $650 - $750 per gold ounce and $9.00 - $10.00 per silver ounce. Capital expenditures are expected to be approximately $40 - $45 million

• First quarter silver and gold production decreased 35% and 48%, respectively, to 1.0 million and 8,256 ounces compared to the prior quarter. Year-over-year, silver and gold production decreased 17% and 28%, respectively
• Lower production was driven by lower ore placement rates due to abnormally high snowfall levels, which had a comparatively larger impact on gold production. Silver production was partially offset by higher residual leaching rates from the Stage III leach pad
• First quarter adjusted CAS¹ for silver and gold on a co-product basis each increased 19% to $12.83 and $1,092 per ounce, respectively, quarter-over-quarter. The increases were primarily due to comparatively lower production levels during the quarter, but were within full-year guidance ranges
• Free cash flow¹ of $(5.6) million was driven by lower operating cash flow due to lower production levels and by higher capital expenditures, which were primarily related to the installation of the HPGR unit and new secondary crusher
• Installation of the HPGR unit remains on-budget and on-schedule with commissioning activities underway in May. Crushing rates and silver recoveries are anticipated to increase beginning mid-year with full ramp-up expected during the third quarter
• The Company is maintaining full-year 2019 production guidance of 4.2 - 5.0 million ounces of silver and 40,000 - 50,000 ounces of gold; installation of the HPGR unit and the new secondary crusher is expected to result in higher production during the second half of the year compared to the first half
• CAS in 2019 are also unchanged and expected to be $12.50 - $13.50 per silver ounce and $1,000 - $1,100 per gold ounce
• The Company is maintaining its guidance for capital expenditures, which are expected to be approximately $17 - $20 million, including approximately $12 - $15 million associated with the HPGR unit and new secondary crusher

• Commercial production at Jualin was declared on December 1, 2018. The figures shown in the table above exclude pre-commercial production
• First quarter gold production of 29,973 ounces represented a 5% increase quarter-over-quarter and a 15% increase compared to the same period the prior year. Mining activities at Jualin shifted focus from ore development to full production, allowing for longhole stope production at Jualin in future quarters
• Ore from Jualin accounted for approximately 10% of Kensington’s gold production during the quarter and had an average grade of 0.41 oz/t. Jualin is expected to account for approximately 20% of Kensington’s total production in 2019
• Adjusted CAS¹ for the first quarter increased 17% to $990 per gold ounce compared to the prior quarter. The quarterly increase was driven by higher mining and employee-related expenses
• Free cash flow¹ of $(3.2) million was driven by lower operating cash flow, partially offset by lower capital expenditures. Capital expenditures were largely attributable to underground development and capitalized infill drilling
• Full-year 2019 production guidance remains unchanged at 117,000 - 130,000 ounces of gold
• Full-year CAS and capital expenditures are also unchanged. CAS are expected to be $950 - $1,050 per ounce; capital expenditures are expected to be $20 - $25 million

• Gold production remained relatively flat quarter-over-quarter at 16,902 ounces in the first quarter and decreased 6% year-over-year
• Production levels reflected the impact of lower grade tons placed in the prior quarter. Production was above target and is expected to increase throughout the remainder of the year
• Adjusted CAS on a by-product basis were relatively flat quarter-over-quarter and remained within the full-year guidance range of $850 - $950 per ounce
• Free cash flow¹ of $3.8 million was driven by higher operating cash flow and lower capital expenditures
• Since acquiring the operation in February 2015 for $99 million, Wharf has generated $139.5 million of free cash flow¹
• The Company is maintaining full-year 2019 production guidance of 82,000 - 87,000 ounces of gold
• Coeur is also maintaining its full-year 2019 guidance for CAS and capital expenditures. CAS are expected to be $850 - $950 per ounce and capital expenditures are expected to be approximately $3 - $5 million

• Silvertip achieved commercial production on September 1, 2018. The operating and financial metrics shown in the table above exclude pre-commercial production
• First quarter silver, zinc and lead production increased 68%, 21% and 85%, respectively, to 0.2 million ounces of silver, 3.7 million pounds of zinc and 3.1 million pounds of lead compared to the prior quarter
• Higher production was driven by higher tons milled, which increased 60% quarter-over-quarter. The mill exceeded 1,100 tpd (1,000 metric tonnes per day (“mtpd”)) intermittently in March and averaged approximately 843 tpd (765 mtpd), excluding two days of scheduled maintenance
• Average head grades, recovery rates and concentrate grades are expected to continue trending higher as mill availability improves and newly-mined higher grade material is processed
• First quarter adjusted CAS on a co-product basis were $13.73 per silver ounce, $1.18 per payable zinc pound and $0.88 per payable lead pound, compared to $17.68, $0.95 and $1.02, respectively, in the prior quarter
• Free cash flow¹ of $(18.0) million was primarily driven by higher operating cash flow, compared to the prior quarter
• The permit amendment application to operate at a year-round mining and milling rate of 1,100 tpd (1,000 mtpd) is expected to be received late in the current quarter
• The new 220-person camp facility was completed and opened to employees in early March 2019
• Full-year 2019 production guidance is unchanged at 1.5 - 2.5 million ounces of silver, 25 - 40 million pounds of zinc and 20 - 35 million pounds of lead
• Full-year 2019 guidance ranges for CAS and capital expenditures are also unchanged. CAS are expected to be $14.00 - $16.00 per ounce of silver, $1.00 - $1.25 per pound of zinc and $0.85 - $1.05 per pound of lead; capital expenditures are expected to total $20 - $25 million

Exploration

During the first quarter, Coeur’s exploration activities focused on resource expansion and infill drilling at Palmarejo and Kensington as well as the Sterling and Crown projects, which were acquired in October 2018 as part of the acquisition of Northern Empire. The drill programs at Rochester and Silvertip are scheduled to resume in the second quarter. During the first quarter, the Company completed 27,724 feet (8,450 meters) of resource expansion drilling, a decrease of approximately 36% quarter-over-quarter. During the quarter, Coeur also completed 62,402 feet (19,020 meters) of resource infill drilling, an increase of approximately 72% quarter-over-quarter.

Total feet drilled during the first quarter was approximately 13% higher compared to the prior period, reflecting Coeur’s continued commitment to its success-based exploration program. For the first quarter, expensed resource expansion drilling and capitalized infill drilling were $3.7 million and $2.9 million, respectively, compared to $4.1 million and $1.5 million during the fourth quarter 2018.

At Palmarejo, up to seven surface and underground core rigs were active during the first quarter. Drilling activities were focused on the La Nación, Guadalupe, Los Bancos, Zapata and Valentina veins. Expansion drilling delineated a potential new zone of silver-gold mineralization at Valentina, which is located 5,250 feet (1,600 meters) west of Guadalupe. Similarly, expansion drilling has extended the Zapata vein northwest towards Valentina, such that there is a 2,950-foot (900-meter) gap where no drilling exists between the two drill stations. The Company plans to utilize two drills to focus on expansion drilling to explore this zone in the second quarter. Infill drilling during the quarter focused on the La Nación and Guadalupe veins.

At Kensington, three underground core drill rigs were active at the Kensington Main Zone 30, Lower Raven and Elmira. Exploration efforts in these zones were focused on capitalized resource infill drilling.

At the Sterling and Crown exploration properties located in southern Nevada, one reverse circulation rig was active during the first quarter. Exploration activities were initially focused on both infill and expansion drilling at the Sterling property. In March, the rig was moved to focus on expansion drilling at the South Daisy resource, which is contained in the Crown Block. Surface exploration mapping and sampling at the Crown Block has resulted in two new drill targets. As a result of this newly sampled area, new drill pads are being permitted for testing in the second quarter. Drilling is planned to continue with one rig focused on the Daisy and SNA deposits in the Crown Block until the third quarter. Coeur expects to add additional rigs at the Crown Block later in the year.

Note: The Company’s guidance figures assume $1,275/oz gold, $15.50/oz silver, $1.15/lb zinc and $0.95/lb lead as well as CAD of 1.30 and MXN of 20.00.

Financial Results and Conference Call

Coeur will host a conference call to discuss its first quarter financial results on May 2, 2019 at 11:00 a.m. Eastern Time.

Hosting the call will be Mitchell J. Krebs, President and Chief Executive Officer of Coeur, who will be joined by Thomas S. Whelan, Senior Vice President and Chief Financial Officer, Terry F. D. Smith, Senior Vice President of Operations, Hans J. Rasmussen, Senior Vice President of Exploration, and other members of management. A replay of the call will be available through May 16, 2019.

About Coeur

Coeur Mining Inc. is a U.S.-based, well-diversified, growing precious metals producer with five wholly-owned operations: the Palmarejo gold-silver complex in Mexico, the Rochester silver-gold mine in Nevada, the Kensington gold mine in Alaska, the Wharf gold mine in South Dakota, and the Silvertip silver-zinc-lead mine in British Columbia. In addition, the Company has interests in several precious metals exploration projects throughout North America.

Cautionary Statements

This news release contains forward-looking statements within the meaning of securities legislation in the United States and Canada, including statements regarding anticipated production, costs, capital expenditures, recovery rates, exploration expenditures, expenses, cash flow, expectations regarding Silvertip, including but not limited to timing of receipt of permits, grades, exploration and development efforts, the timing and impact of installation of HPGR units at Rochester, and operations at Palmarejo, Rochester, Wharf, Kensington and Silvertip. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause Coeur’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, the risk that Silvertip will not obtain necessary permits on the expected timeline or at all, the risk that HPGR units will not be installed at Rochester on a timely basis or the anticipated benefits thereof will not be achieved, the risk that anticipated production, cost and expense levels are not attained, the risks and hazards inherent in the mining business (including risks inherent in developing large-scale mining projects, environmental hazards, industrial accidents, weather or geologically related conditions), changes in the market prices of gold, silver, zinc and lead and a sustained lower price environment, the uncertainties inherent in Coeur’s production, exploratory and developmental activities, including risks relating to permitting and regulatory delays (including the impact of government shutdowns), ground conditions, grade variability, any future labor disputes or work stoppages, the uncertainties inherent in the estimation of mineral reserves, changes that could result from Coeur’s future acquisition of new mining properties or businesses, the loss of any third-party smelter to which Coeur markets its production, the effects of environmental and other governmental regulations, the risks inherent in the ownership or operation of or investment in mining properties or businesses in foreign countries, Coeur’s ability to raise additional financing necessary to conduct its business, make payments or refinance its debt, as well as other uncertainties and risk factors set out in filings made from time to time with the United States Securities and Exchange Commission, and the Canadian securities regulators, including, without limitation, Coeur’s most recent reports on Form 10-K and Form 10-Q. Actual results, developments and timetables could vary significantly from the estimates presented. Readers are cautioned not to put undue reliance on forward-looking statements. Coeur disclaims any intent or obligation to update publicly such forward-looking statements, whether as a result of new information, future events or otherwise. Additionally, Coeur undertakes no obligation to comment on analyses, expectations or statements made by third parties in respect of Coeur, its financial or operating results or its securities.

Christopher Pascoe, Coeur’s Director, Technical Services and a qualified person under Canadian National Instrument 43-101, approved the scientific and technical information concerning Coeur’s mineral projects in this news release. For a description of the key assumptions, parameters and methods used to estimate mineral reserves and resources, as well as data verification procedures and a general discussion of the extent to which the estimates may be affected by any known environmental, permitting, legal, title, taxation, socio-political, marketing or other relevant factors, Canadian investors should refer to the Technical Reports for each of Coeur’s properties as filed on SEDAR at www.sedar.com.

Non-U.S. GAAP Measures

We supplement the reporting of our financial information determined under United States generally accepted accounting principles (U.S. GAAP) with certain non-U.S. GAAP financial measures, including EBITDA, adjusted EBITDA, adjusted EBITDA margin, free cash flow, adjusted net income (loss), operating cash flow excluding changes in working capital and adjusted costs applicable to sales per ounce (gold and silver) or pound (zinc or lead). We believe that these adjusted measures provide meaningful information to assist management, investors and analysts in understanding our financial results and assessing our prospects for future performance. We believe these adjusted financial measures are important indicators of our recurring operations because they exclude items that may not be indicative of, or are unrelated to our core operating results, and provide a better baseline for analyzing trends in our underlying businesses. We believe EBITDA, adjusted EBITDA, adjusted EBITDA margin, free cash flow, adjusted net income (loss), operating cash flow excluding changes in working capital and adjusted costs applicable to sales per ounce (gold and silver) and pound (zinc and lead) are important measures in assessing the Company’s overall financial performance. For additional explanation regarding our use of non-U.S. GAAP financial measures, please refer to our Form 10-K for the year ended December 31, 2018.

Notes

1. EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income (loss), operating cash flow excluding changes in working capital and adjusted costs applicable to sales per ounce (gold and silver) or pound (lead and zinc) are non-GAAP measures. Please see tables in the Appendix for the reconciliation to U.S. GAAP. Free cash flow is defined as cash flow from operating activities less capital expenditures and gold production royalty payments. Please see table in Appendix for the calculation of consolidated free cash flow.
2. Includes capital leases. Net of debt issuance costs and premium received.

(1) Excludes amortization.

(2) Due to rounding, the sum of net income per share from continuing operations and discontinued operations may not equal net income per share.

⁽¹⁾ Less net cash provided by (used in) discontinued operations includes the following cash transactions: net subsidiary payments to parent company of $1,748, during the three months ended March 31, 2018.

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For Additional Information
Coeur Mining Inc.
104 S. Michigan Avenue, Suite 900
Chicago, IL 60603
Attention: Paul DePartout, Director, Investor Relations
Phone: (312) 489-5800
www.coeur.com