Coeur Reports Fourth Quarter and Full-Year 2021 Results
February 16, 2022 at 16:30 PM EST
Provides Full-Year 2022 Guidance
Coeur Mining, Inc. (“Coeur” or the “Company”) (NYSE: CDE) today reported fourth quarter 2021 financial results, including revenue of $208 million and cash flow from operating activities of $35 million. The Company reported GAAP net loss from continuing operations of $11 million, or $0.04 per share, which included a non-cash unrealized loss of $8 million on strategic equity investments, primarily related to Coeur’s 18% equity ownership of Victoria Gold Corp. (“Victoria”) during the quarter. On an adjusted basis1, Coeur reported EBITDA of $49 million, cash flow from operating activities before changes in working capital of $38 million and net loss from continuing operations of $12 million, or $0.05 per share.
For the full year, Coeur reported revenue of $833 million, cash flow from operating activities of $110 million and GAAP net loss from continuing operations of $31 million, or $0.13 per share. On an adjusted basis1, the Company reported EBITDA of $211 million, cash flow from operating activities prior to changes in working capital of $146 million and net loss from continuing operations of $1 million, or $0.01 per share.
“Solid contributions from our diversified portfolio led to Coeur’s strongest annual revenue in nearly a decade,” said Mitchell J. Krebs, President and Chief Executive Officer. “Achieving our annual production guidance for both gold and silver was particularly gratifying in light of the global economic disruptions that continue to impact our industry.
“Through it all, our focus remained squarely on advancing the POA 11 expansion project at Rochester in northern Nevada. Comprehensive development and planning work during the fourth quarter has provided significant clarity on costs and timing. We believe the decision to proceed with pre-screens as an expected accretive scope change to the existing project flowsheet will contribute further to Rochester’s overall flexibility. The updated Rochester capital schedule envisions a long-lived linchpin of sustainable production and free cash flow with compelling opportunities for further organic growth.
“We also continued our successful multi-year exploration program by executing the largest drilling campaign in Coeur’s history. Our commitment to delivering organic growth through the drill bit led to further extension of mine lives at Wharf and Palmarejo as well as enhanced understanding of geologic models in all our operating districts. We also made important new discoveries at our Silvertip property in northern British Columbia and Crown property in southern Nevada.
“We have taken advantage of the higher metal prices in recent years to invest in the attractive returns available from brownfield expansions and exploration to position the Company as America’s premier, growing precious metals mining company with a diversified, North American asset base capable of generating attractive returns and sustainable cash flow over the long-term.”
Fourth quarter 2021 revenue totaled $208 million compared to $208 million in the prior period and $228 million in the fourth quarter of 2020. The Company produced 88,946 and 2.6 million ounces of gold and silver, respectively, during the quarter. Metal sales totaled 88,930 ounces of gold and 2.6 million ounces of silver. Average realized gold and silver prices for the quarter were $1,652 and $23.17 per ounce, respectively, compared to $1,645 and $24.18 per ounce in the prior period and $1,663 and $24.21 per ounce in the fourth quarter of 2020.
Coeur generated $833 million in revenue during 2021, representing a 6% increase year-over-year and its highest annual revenue in nearly ten years. Full-year gold and silver production totaled 348,529 and 10.1 million ounces, respectively, compared to 355,678 ounces of gold and 9.7 million ounces of silver in 2020. Metal sales in 2021 included 350,347 and 10.1 million ounces of gold and silver, respectively. Average realized gold and silver prices for the year were $1,652 and $25.06 per ounce, respectively, compared to $1,641 and $20.79 per ounce in 2020.
Gold and silver sales accounted for 71% and 29% of quarterly revenue, respectively. For the full year, gold and silver sales accounted for 70% and 30% of revenue. The Company’s U.S. operations accounted for approximately 61% and 62% of fourth quarter and full-year revenue, respectively.
Costs applicable to sales2 remained consistent quarter-over-quarter at $137 million while increasing 16% year-over-year to $512 million. Higher costs during the year were due primarily to increased maintenance and consumable costs driven by inflation.
General and administrative expenses for the fourth quarter and full-year totaled $10 million and $40 million, respectively, compared to $9 million and $34 million in the prior periods, and at the low end of Coeur’s 2021 guidance range of $40 - $45 million. Higher general and administrative expense in the fourth quarter and full-year primarily reflects increased employee-related expenses.
Coeur invested approximately $18 million ($14 million expensed and $4 million capitalized) in exploration during the quarter, compared to roughly $20 million ($15 million expensed and $5 million capitalized) in the prior period. For the full year, the Company invested approximately $71 million ($51 million expensed and $20 million capitalized), compared to roughly $51 million ($43 million expensed and $8 million capitalized), reflecting completion of the largest exploration program in Coeur’s history and within the Company’s 2021 guidance range of $65 - $75 million. See the “Operations” and “Exploration” sections for additional detail on the Company’s exploration activities.
Operating costs related to COVID-19 mitigation and response efforts remained relatively steady quarter-over-quarter at $1 million, bringing the full-year expense to approximately $7 million. These costs were primarily driven by employee-related expenses at Kensington and Palmarejo, and are included in “Pre-development, reclamation, and other expenses” on the Company’s income statement. Coeur has maintained rigorous health and safety protocols across its operations aimed at limiting the exposure and transmission of COVID-19 which has led to minimal business interruptions.
The Company recorded income tax expense of approximately $1 million and $35 million during the fourth quarter and for the full year, respectively. Cash income and mining taxes paid during the period totaled approximately $10 million, bringing the full-year figure to $57 million. Cash taxes paid in 2021 primarily reflect income and mining tax payments in Mexico. Additionally, Coeur expects to pay approximately $20 - $25 million in cash taxes during the first quarter of 2022 primarily as a result of its annual tax filings in Mexico.
Quarterly operating cash flow totaled $35 million compared to $22 million in the prior period, largely driven by favorable changes in working capital resulting primarily from the timing of payments. The Company satisfied the remaining $8 million obligation under its prepayment agreement at Kensington and exercised an option to receive an additional $15 million prepayment, resulting in a net cash inflow of approximately $7 million in the fourth quarter. For the full year, operating cash flow decreased 26% to $110 million largely driven by lower profitability at Rochester, Kensington and Wharf.
Capital expenditures increased 42% quarter-over-quarter to $101 million, bringing the full-year total to $310 million and within Coeur’s 2021 guidance range of $280 - $310 million. Higher quarterly capital expenditures were driven by increased investment across the Company’s portfolio. Expenditures related to the POA 11 expansion project at Rochester totaled $47 million and $148 million during the quarter and full-year, respectively. Sustaining and development capital expenditures accounted for approximately 32% and 68%, respectively, of Coeur’s total capital investment in 2021.
Capital Projects Update
As previously disclosed, the Company began seeing inflationary pressures on bids for remaining unawarded contracts on the POA 11 expansion project at Rochester during the second half of 2021, most notably on two structural, mechanical, piping, electrical and instrumentation (“SMPEI”) construction contracts for the Merrill-Crowe process plant and crushing circuit, respectively. Coeur recently selected TIC - The Industrial Company, a subsidiary of Kiewit, as the general SMPEI contractor for construction of the Merrill-Crowe process plant and crusher corridor based on a revised commercial approach from the previous lump-sum commercial model to a single contract. SMPEI work under the initial contract is beginning to advance.
Coeur has also advanced work related to implementation of pre-screens as part of the POA 11 expansion project and has elected to proceed with this scope change enhancement. As previously disclosed, the Company plans to integrate pre-screens into the current crushing system at Rochester, which is expected to drive improved performance while providing valuable operating experience and knowledge that can be applied to the new crushing circuit as part of the POA 11 expansion. Coeur has commenced detailed engineering for pre-screens and intends to align construction of the pre-screens with the completion of the crusher corridor. Installation of pre-screens on the existing crusher system is scheduled for the first half of 2022 with commissioning expected to begin around mid-year.
In connection with the items discussed above, the Company has conducted a comprehensive re-baselining of the overall schedule and costs associated with the original scope of POA 11. Updates to key elements of the project timeline including commissioning are highlighted below:
Coeur now estimates the total construction capital for POA 11 to be approximately $597 million, which includes the 10-15% previously announced potential cost escalation as well as $70 - $80 million related to pre-screen implementation and additional project contingency to reflect ongoing COVID and schedule risk. As of December 31, 2021, the Company has incurred approximately $236 million in the expansion and 61% of the capital is now committed (excluding the recently-awarded SMPEI contract, which is expected to be formalized in the first quarter).
Excluding capital leases, Coeur forecasts capital expenditures related to POA 11 to be approximately $217 - $257 million and $131 - $171 million in 2022 and 2023, respectively. Additional details on expected production and capital expenditures for Rochester can be found in the Technical Report Summary filed by the Company with the U.S. Securities and Exchange Commission on February 16, 2022 and summarized below.
Silvertip Expansion and Restart
As previously disclosed, the Company received preliminary capital estimates for an accelerated expansion and restart which were higher than originally anticipated and reflected overall inflationary pressures as well as supply disruptions and labor market tightness consistent with broader macroeconomic themes.
Coeur continues to generate positive results from ongoing exploration as highlighted by the 62% year-over-year increase in inferred resource tons. The Company continues to evaluate various opportunities to enhance the economics of a potential expansion and restart of Silvertip. Exploration investment in the fourth quarter and full-year totaled approximately $4 million (substantially all expensed) and $19 million ($15 million expensed and $3 million capitalized), respectively.
Up to seven core drill rigs were active during the quarter (five on surface and two underground) focused on expansion drilling at southern portions and deeper extensions of the Southern Silver, Discovery South and Camp Creek zones. A total of approximately 337,000 feet (102,725 meters) were drilled during the year, including roughly 75,100 feet (22,875 meters) drilled during the fourth quarter.
Recent surface drilling from south of the Southern Silver zone has cut 11 horizontal manto-style massive sulfide horizons with greater than 10% sphalerite, further suggesting the mineral system extends to the south. Similarly, surface drilling at the Camp Creek zone discovered a new chimney-style massive sulfide zone west of the Camp Creek fault, an area that remains completely open to expansion. At the end of 2021, all of the extensions from Discovery South, Southern Silver and Camp Creek ore bodies remain completely open for expansion. In 2022, Coeur plans to continue the resource growth program and follow-up drilling activity on the newly discovered zones. Additionally, ongoing metallurgical test work is continuing to validate the Company’s assumptions on potential recovery rates and concentrate qualities.
Ongoing carrying costs at Silvertip totaled $6 million in the fourth quarter, compared to $6 million in the prior period. For the full year, ongoing carrying costs totaled $25 million. Capital expenditures during the fourth quarter totaled $26 million compared to $15 million in the prior period as Coeur completed mill decommissioning and planned early civil works construction during the quarter. For 2022, capital expenditures are expected to be approximately $18 - $24 million, primarily focused on underground development and infill drilling as well as study work to evaluate additional opportunities to enhance the economics of a potential expansion and restart.
The Company ended the year with total liquidity of approximately $257 million, including $57 million of cash and $200 million of available capacity under its $300 million revolving credit facility (“RCF”)5. The aggregate borrowing capacity under the RCF may be increased by up to $100 million. Additionally, the Company had $132 million of strategic investments in equity securities and the full $100 million available under its at-the-market common stock offering program established in April 2020 (“ATM Program”).
The Company did not execute any additional hedges during the fourth quarter. Coeur continues to proactively monitor market conditions to potentially layer in additional hedges on up to 70% of expected gold production in 2022 to provide greater assurance of expected cash flow during this period of elevated capital expenditures. The Company’s silver price exposure remains unhedged. An overview of the hedges currently implemented is outlined below:
The Company values its strategic investments in equity securities as of the end of each reporting period. The estimated fair values of the Company’s equity investments in Victoria Gold Corp. and Integra Resources Corp. were $124 million and $8 million, respectively, at December 31, 2021 compared to $131 million and $9 million, respectively, at September 30, 2021, resulting in a non-cash unrealized loss of $8 million during the fourth quarter of 2021. This figure is included in “Fair value adjustments, net” on the Company’s income statement.
Rochester LCM Adjustment
Coeur reports the carrying value of metal and leach pad inventory at the lower of cost or net realizable value, with cost being determined using a weighted average cost method. At the end of the fourth quarter, the cost of ore on leach pads at Rochester exceeded its net realizable value which resulted in a lower of cost or market (“LCM”) adjustment of $8 million (approximately $7 million in costs applicable to sales2 and $1 million of amortization).
Fourth quarter and full-year 2021 highlights for each of the Company’s operations are provided below.
The fourth quarter marked the end of a record-breaking exploration year for Coeur, wrapping up an industry-leading exploration program. During the fourth quarter, Coeur drilled roughly 251,300 feet (76,600 meters) for a total investment of approximately $18 million ($14 million expensed and $4 million capitalized), compared to roughly 326,700 feet (99,575 meters) for a total investment of approximately $20 million ($15 million expensed and $5 million capitalized) in the prior period. The decrease in drilling activity was largely driven by the seasonal wind-down of exploration activities across the Company’s portfolio toward the end of the year.
For the full year, Coeur drilled roughly 1,164,100 feet (354,825 meters) at a total investment of approximately $71 million ($51 million expensed and $20 million capitalized), compared to roughly 783,200 feet (238,725 meters) at a total investment of approximately $51 million ($43 million expensed and $8 million capitalized) in 2020. Total feet drilled was 49% higher year-over-year, representing a new annual record for the Company.
As a result, measured and indicated resources grew across several sites, specifically at Silvertip, as silver, zinc and lead increased roughly 51%, 33% and 44%, respectively. The Company also saw promising resource growth at Palmarejo with an approximate 71% increase in gold and a roughly 44% increase in silver as well as an increase of roughly 18% in gold at Kensington.
Three reverse circulation drill rigs were active at the Crown exploration property in southern Nevada during the quarter, primarily focused on the Daisy, Secret Pass and SNA deposits, while one core rig focused on exploration drilling at C-Horst. The Company drilled approximately 36,100 feet (11,000 meters) and 191,400 feet (58,325 meters) during the quarter and full-year, respectively, compared to approximately 50,300 feet (15,325 meters) and 124,000 feet (37,800 meters) in the prior periods. Results were encouraging at Daisy, SNA and C-Horst where Coeur believes resource expansion is expected based on step-out drilling at all three sites.
The Company plans to continue the same pace of exploration at Crown during the first quarter of 2022, with one reverse circulation rig scheduled to conduct resource expansion and scout drilling on new targets within its 300-acre disturbance permit and two core rigs focused on infill drilling at C-Horst and SNA for metallurgy purposes.
Additionally, an amended permit to expand the C-Horst discovery footprint is expected to be received by the end of the second quarter of 2022. Coeur has experienced significant delays from the local federal agencies overseeing the permit process. Despite these delays, once received, the Company plans to begin testing multiple targets at the Pipeline Gulch and Tates Wash areas (both located between C-Horst and SNA) where surface geology, geochemistry and geophysics all indicate gold mineralization could exist similar to C-Horst.
Gold and silver production is expected to remain roughly consistent with 2021 levels, characterized by lower planned average grades at each operation as well as mine sequencing at Wharf and process enhancements at Rochester. Overall cost guidance has increased compared to 2021 primarily driven by expected inflationary pressures on operating costs.
Financial Results and Conference Call
Coeur will host a conference call to discuss its fourth quarter and full-year 2021 financial results on February 17, 2022 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, Michael “Mick” Routledge, Senior Vice President and Chief Operating Officer, and other members of management. A replay of the call will be available through February 24, 2022.
Coeur Mining, Inc. is a U.S.-based, well-diversified, growing precious metals producer with four wholly-owned operations: the Palmarejo gold-silver complex in Mexico, the Rochester silver-gold mine in Nevada, the Kensington gold mine in Alaska and the Wharf gold mine in South Dakota. In addition, the Company wholly-owns the Silvertip silver-zinc-lead mine in British Columbia and has interests in several precious metals exploration projects throughout North America.
This news release contains forward-looking statements within the meaning of securities legislation in the United States and Canada, including statements regarding cash flow, capital allocation and investment, liquidity, exploration and development efforts and plans, resource growth, expectations regarding the potential expansion and restart at Silvertip, expectations and plans regarding the Rochester POA 11 expansion project (including post-completion results) and Silvertip, hedging strategies, the impact of inflation, anticipated production, costs and expenses, health and safety practices and operations at Palmarejo, Rochester, Wharf and Kensington. 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 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 or higher treatment and refining charge 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 and recovery variability, any future labor disputes or work stoppages (involving the Company and its subsidiaries or third parties), 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 access or insolvency of any third-party refiner or smelter to which Coeur markets its production, the potential effects of the COVID-19 pandemic, including impacts to workforce, materials and equipment availability, inflationary pressures, continued access to financing sources, government orders that may require temporary suspension of operations at one or more of our sites and effects on our suppliers or the refiners and smelters to whom the Company markets its production and on the communities where we operate, the effects of environmental and other governmental regulations and government shut-downs, 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 report on Form 10-K. 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. This does not constitute an offer of any securities for sale.
The scientific and technical information concerning our mineral projects in this news release have been reviewed and approved by a “qualified person” under S-K 1300, namely our Director, Technical Services, Christopher Pascoe. For a description of the key assumptions, parameters and methods used to estimate mineral reserves and mineral resources included in this news release, 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, sociopolitical, marketing or other relevant factors, please review the Technical Report Summaries for each of the Company’s material properties which are available at www.sec.gov.
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 before 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) 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, 2021.