Good morning, and welcome to the Coeur Mining first quarter 2023 financial results conference call. All participants will be in a listen-only mode for the duration of the call. Should you need any assistance today, please signal a conference specialist by pressing the star key followed by zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw a question, please press star then two. Please also note that today this event is being recorded. I would now like to turn the conference over to the President and Chief Executive Officer, Mitch Krebs. Please go ahead, sir.
Good day, everyone. Before I begin, please note our cautionary language on forward-looking statements in today's slide deck and refer to our SEC filings on our website. I'll start with the main highlights on slide three before turning the call over to Mick and Tom. Our results were slightly ahead of expectations, driven by strong starts to the year at our Palmarejo, Rochester, and Wharf operations, which offset a weaker quarter from our Kensington mine. As we've said, the first quarter is typically our softest quarter of the year due to weather and one-time payments. Overall, we remain on track to deliver on our full year guidance, which reflects a much stronger second half. That stronger expected second half is mostly driven by the post-expansion ramp-up of our Rochester mine out in Nevada, which remains on track for a mid-year construction completion.
We're currently in the middle of the final quarter of elevated capital spending as we make the final push to wrap it up, and the balance sheet remains well-positioned to deliver what remains to be spent. Seeing the goal line at Rochester just ahead represents a key inflection point for the company as we anticipate capital outflows to decline, silver and gold production levels to rise, and cash flow to begin increasing. The Rochester expansion has represented a significant investment for the company and will result in one of the world's largest open pit heap leach operations. The team has done an amazing job, especially considering everything they've managed through.
The project kicked off in May of 2020, was advanced throughout COVID-related restrictions, faced constant logistical and supply chain disruptions, battled decades high levels of inflation and labor shortages, and most recently, experienced one of the most extreme winters in recent years in Northern Nevada. Despite all of that, the team achieved mechanical completion of the Merrill Crowe processing facility ahead of schedule during the first quarter, and even more impressively, the project is now approaching 2 million hours without a lost time incident. Turning to exploration for a few minutes. At Kensington, our development and drilling program that kicked off mid- last year is still in its early days, but is having the intended results of adding near-term mine life, accelerating the amount of underground development, and identifying new targets for future drilling.
Following an impressive 56% increase in gold reserves in 2022 that added a year and a half of mine life, recent drilling is indicating further extensions of several new zones in Upper Kensington, which bodes well for further mine life extensions. At Silvertip, the team completed the longest ever drill hole at the site during the first quarter, measuring about 1 km. Results, particularly in the final 250 m or so, have shown an increase in the occurrence of intrusive porphyry, suggesting the proximity of a heat source. It's also notable that we're seeing signs of other critical minerals, including indium, germanium, and gallium, as we continue enhancing our overall geologic understanding of the deposit. We believe the ultimate scale and nature of the Silvertip deposit is very exciting and represents significant potential value.
However, our near-term priorities are to successfully commission and ramp up Rochester, generate free cash flow, and de-lever the balance sheet. We believe this is the right sequencing of priorities and will give the Silvertip team time to further grow and better understand this world-class ore body. The ongoing exploration success at Kensington and Silvertip underscores the effectiveness of our multi-year drilling programs in which we've invested approximately $245 million over the past five years to extend mine lives and build the pipeline for future growth. That investment added roughly 2 million gold equivalent oz of reserves and just over 4 million gold equivalent oz of resources. Those ounce additions, delivered during a time much of the industry was under-investing in exploration, represent increases of 34% in reserves and 60% in resources.
Before passing the call to Mick, I want to briefly touch on the recently enacted changes to the Mexican Mining Law. We're still assessing the full impact. It's obviously drawn strong opposition and is likely to face legal challenges. It appears the changes relate to new concessions as opposed to existing concessions like those at Palmarejo. We will obviously continue to engage in discussions with the government as the regulations supporting these changes are developed in the coming months. I want to briefly mention our recently published ESG report, which outlines the results we're achieving to maintain Coeur's reputation as a leader in advancing environmental, social, and governance practices. I'll now turn the call over to Mick.
Thanks, Mitch. Before discussing the operational results, I want to quickly add to Mitch's comments on ESG. Always mindful of our mission to pursue a higher standard, we're committed to operating safely, maintaining best-in-class governance practices, being responsible stewards of the environment, and fostering strong relationships in the communities where we operate. The numbers in the latest ESG report back up that dedication. Coeur's three-year trailing average in Total reportable injury frequency rate decreased by 18% in 2022 to a record low. We achieved an 8.5% reduction in GHG emissions intensity compared to the baseline, on track to meet our stated goal of a 35% GHG emissions net intensity reduction by the end of next year.
These milestones and many others we achieved this year reflect not only our commitment to ESG principles, but highlight the overall improvement in every facet of our business. Turning over to our quarterly results, we're pleased with the start to the year and expect the company's 2023 production to be significantly weighted towards the second half, consistent with our production guidance we provided earlier this year. We guided towards a seasonally weaker first half in 2023 for the reasons Mitch mentioned earlier. Getting into more detail of the quarter on slide six and starting with Palmarejo. Production was ahead of expectations for the quarter, thanks to higher silver grades and a very strong contribution from La Nación. Easing diesel prices, coupled with mill feed optimization efforts that led to reduced consumable consumption, drove lower operating costs for the quarter.
A firming peso led to some upward pressure on costs in the latter part of the quarter. Overall operating costs decreased 10% on gold and 2% on silver. Palmarejo continues to focus on mining and plant efficiency programs aimed at further reducing costs and increasing recoveries while maximizing mining rates. Moving on to Rochester, better-than-anticipated production was driven by continued positive residual effects of the solution breakthrough experienced in the last quarter, as well as continued benefit of site slope irrigation on Pad IV. As Mitch mentioned, the story of Rochester's first quarter was weather. Rain, snow, and massive temperature swings throughout the Western U.S. fought the team from start to finish. Looking ahead, we anticipate continued strength in metals recoveries to offset lower weather-related ore placement in the first quarter, helping to keep Rochester on track for 2023 gains.
Despite the weather, we continued placing more ore on new Pad VI with an expectation to place over 2 million tons on Pad VI before starting the pre-leaching process towards the end of the second quarter, setting the mine up for a strong third quarter as previously discussed. As seen in the latest photos showing POA 11 construction, the project is currently at peak levels of activity. With mechanical completion of the new Merrill Crowe facility, our focus is now on ramping up the system, culminating in first solution through the Merrill Crowe, expected around the end of the current quarter. Advancing the new crusher circuit remains the critical path item. Steel erection and equipment setting for the pre-screen is now well underway, and good progress continues to be made on conveyor erection as well as piping and electrical installation along the entire mile-long crusher corridor.
Poor weather affected nearly every aspect of the project during the quarter, hampering the team's ability to move equipment, material, and personnel. These issues have placed some pressure on our total expected capital cost, and we anticipate the project to be up at the high end of our guidance range, around $670 million. All parts and material for the crusher assembly are on-site, and we do not anticipate changes to the overall project construction completion. Turning over to Kensington, where we experienced a slow start to the year, reduced availability of drills, bolters and in the paste plant created mine sequencing issues, leading to lower gold production in the quarter. The team is working successfully to catch up on paste placement, which is improving heading availability. We anticipate bridging most of the shortfall over the next two quarters.
Lastly, at Wharf, results were slightly ahead of plan, with first quarter benefiting from higher- grade material placed earlier in the year. The site team is doing a great job on controlling costs. Along with a decline in diesel prices, per own costs were lower than anticipated. With three mains performing well and Kensington working hard to catch up over the next couple of quarters, we remain comfortable with 2023 production guidance of between 320,000 oz and 370,000 oz of gold and 10 million oz-12 million oz of silver. With that, I'll pass the call over to Tom.
Thanks, Mick. I will quickly run through our first quarter financial results and then provide a snapshot of our financial picture during the home stretch of the Rochester expansion. As outlined on slide four, despite lower gold production compared to a year ago, revenue was essentially flat versus the first quarter of 2022, as we benefited from stronger metals prices. Turning to costs on slide six, we saw signs of easing costs among three of our four largest cost buckets, which gives us optimism that inflation may finally be moderating. Finally, it is important to note that the first quarter financial results contain two one-time annual payments totaling $23 million related to the payment of the annual EBITDA mining tax in Mexico and the company-wide 2022 annual incentive payouts, both of which impacted our financial results. Turning over to slide seven.
We've consistently referred to this current period at Rochester representing the peak level of capital intensity. We are today at the peak of the peak, representing the heaviest period of investment, with nearly $1 million per day being spent during the first half of 2023 at Rochester. As of March 31st, approximately $634 million, or roughly 95% of the total expected project costs, had been committed, with about $560 million incurred. All of our proactive balance sheet management initiatives over the last couple of years have prepared the company for this moment. As shown on slide 12, we have total liquidity of $382 million, and we have a significant layer of downside price risk mitigation in place for the remainder of 2023 via our metals hedges.
We're confident these actions provide the necessary flexibility to complete the Rochester expansion while also advancing other key near-term growth catalysts, including development and drilling program taking place at Kensington. I'll now pass the call back to Mitch.
Thanks, Tom. 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 now finally at the cusp of a major inflection point that we've been working toward for about three years. Our clear and critical priority during the remainder of the year is to safely and efficiently finish up what remains to be done at Rochester and successfully ramp it up during the second half of the year. In addition to Rochester, we also need to deliver results across the rest of the portfolio while investing in high-value exploration priorities, especially at Kensington, to set us up for higher returns as these new ounces are monetized in future periods.
At Silvertip , we will continue enhancing our understanding of this prospective deposit and seek to further expand its size before revisiting how best to generate maximum value from this asset. And two quick final points. I want to highlight that this year represents Coeur's 95th year since it was incorporated. Not a lot of companies are fortunate to be around to celebrate 95 years. We're very proud of Coeur's long history as an American mining company and very much look forward to what lies ahead. Another celebration taking place here at the company this year is Wharf's 40th year in operation. There's one employee, Mark Schmalling, who has worked at Wharf this entire 4 decades, so he's celebrating his 40th work anniversary this year.
Mark was Wharf's employee number one back in 1983, just before the mine began to operate with an initial mine life of three to five years. Fast-forward to today, and Wharf's mine life currently stands at eight years, three years longer than when we acquired it back in 2015 from Goldcorp. Congratulations to Wharf and to Mark. Thank you. With that, let's go ahead and open it up for questions.
We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question here will come from Mark Reichman with Noble Capital Markets. Please go ahead with your question.
Good morning, and thank you for taking my question.
Yeah. Hi, Mark.
The first question is, the company did not provide any costs applicable to sales for 2023, at least for Rochester. I was just wondering, now that you have kind of the three months at Rochester, looking at those numbers, both on an adjusted cost applicable to sales, gold and silver what are your thoughts kind of for the remainder of the year in terms of the costs applicable to sales at Rochester based on the first quarter results?
Yeah. First quarter we're in line with plan. We'll have a lot of noise here in the next two quarters, which is really the driver behind that decision to wait to put out cost guidance for Rochester until this summer. Tom, do you want to go through just a few of those moving parts in terms of the noise that—
Sure.
That we'll be seeing here in the next couple of quarters at Rochester?
Sure.
Mark, expect guidance to be issued alongside the Q2 results. The couple of key issues that we've got is it's just where all the gold is coming and Silvertip is coming from over the next three quarters. For example, a lot of our gold is coming off of Stage IV residuals, so i.e. ounces that, and tons that were placed last year. Now this quarter, we have a mix. Roughly half the tons went on the old Stage IV leach pad, and another half went on the current Stage VI leach pad, which Mick is busy at ramping up and pre-commissioning and commissioning here over the second quarter. On a go-forward basis, all of the tons that will be placed will go on to VI.
Again, recall those ounces or tons are gonna be coming from the Stage IV, ex-pit crusher. Of course, around mid-year, when we get the whole package done, we'll start to see tons coming from the new crusher. Again, expect some guidance, a full guidance to accompany the second quarter.
Okay, well, that's helpful. Just a follow-up to that. In terms of Rochester, and I know, you know, kind of where this tonnage is getting, you know, staged and all that, there's gonna be some lumpiness in the quarterly numbers here on out. Would you kind of expect the third quarter to be your strongest in terms of Rochester? Kind of how are you thinking about the quarterly profile relative to the annual guidance at Rochester?
Yeah, good question. As Tom said, the first quarter benefited from some of that carryover off of the old Stage IV. That will deteriorate a bit in the second quarter. In the third quarter, we'd expect to see a pretty decent spike up on the back of beginning to leach that fresh ore off of VI, the newly stacked material on VI, which should actually create a higher—t he third quarter being the highest quarter of the year, production-wise, out of Rochester because of that sort of initial surge in ounces.
Meanwhile, we'll be sort of as quickly and methodically as possible, ramping up the crushing rates out of the crusher during the back half of the year to try and end the year, you know, as close to that run rate of 30+ million tons a year crushing and stacking rate. Mick, anything I didn't cover there that might help answer Mark's question?
Yeah, I mean, it's really, it was about getting the heap leach and the Merrill Crowe constructed and ready to go, pre-commissioned, and then we expect to be commissioning that towards the end of this quarter. That's the main driver behind that third quarter flush. In parallel, we continue with the crush at Corridor, and we get that ready to start providing those tons. We'll have about 2 million tons on when we start pre-leaching, and we're nearly there today as we described in the materials, and we expect to have about 3 million tons by the time we start up the Merrill Crowe as per the plan. Everything's going as per plan right now.
That's all very helpful. Thank you very much.
Yeah, thanks, Mark.
As a reminder, if you have a question, you may press star then one to join the queue. Our next question will come from Michael Siperco with RBC Capital Markets. Please go ahead with your question.
Thank you, and thank you for taking my questions, team. Maybe if I could just follow up on that question about the ramp up at Rochester. Maybe I'm not understanding. I hear you when you say that the third quarter should be the strongest, if on a go-forward basis, all of the ore is on the new pad, shouldn't we expect to see a gradual increase into the end of the year and then into 2024? What am I misunderstanding there? Sorry.
No, that's okay. Mick, you wanna?
As we construct the base of the heap leach pad, before we put it into operation, we'll have to put some higher size fraction in there to make sure that French drain works really well. We're effectively loading several million tons of material on there before we put any kind of cyanide leach irrigation onto it. When we start that process, that's gonna give you that wave of additional ounces in Q3, but that will drop back as we then finish off the construction of the crusher, the main crusher, the limit crusher, and then we bring that in. As you appreciate, with any large scale capital project like this, there is a ramp-up curve. We expect to be driving up that ramp-up curve across that second half of the year.
As we do that, we'll load more and more tons onto that heap leach pad. That will gradually build, Michael, for sure. We should see a lift in Q3. It'll dip back down a little bit, and then we'll see that gradual ramp up through the end of the year and into 2024.
Okay. It's a shorter leach cycle for that initial material that you're putting on, and then as that grows, then you'll get into the more typical leach cycle. Is that the right way to look at it?
Typically you get the best benefit from your material on the pad in the first 60- 90 days.
Right.
Yes, we'll see that for all of that material that we've placed. In a normal operation, you'll be placing that continually and then seeing each of those blocks drop off. With this, we're placing it all before we start. You get that all at once, and then beyond that, the normal cycle.
Okay. Okay. Clear enough. Thank you for that. If I could switch gears for a second and ask about liquidity. Very clear in the presentation by my math and I think obviously yours, you have ample room under the facility and cash on hand for the completion of Rochester and the ramp- up. Can you just refresh us maybe on any key covenants attached to the facility? Anything that could prevent any kind of drawdown in a sort of a worst case scenario? And any other levers that you might have the option of pulling on or that you might want to pull on in the near term with respect to the balance sheet?
No, good question. Fair question. As you alluded to there, Mike, we are sitting here at this point pretty comfortable with the balance sheet relative to where we are at Rochester. Just as a refresh, you know, that revolver has a $390 million size. There's $30 million of LCs against that, which leaves $360 million of capacity. We ended the first quarter with 60 drawn. There's $300 million of availability. The key covenant there really is the net debt-to- EBITDA ratio of 4.5x . You know, we've got some room there as we move through really this critical quarter right now before things start to step down, starting in the second half of the year.
In terms of other levers we could pull, you know, the hedging that we have in place has been a real key risk mitigant. You know, there are other things, you know, around we've done, you know, some opportunistic exchanges on some of our senior notes as they've traded down. That has created an opportunity for inbound holders looking for liquidity of those notes. We did just a small number of those, I think just after the end of the first quarter. That's an example of, you know, these incremental tools at this point that we still have to make sure that we manage in a comfortable way here through this critical final quarter. Tom, did I leave anything out that you'd wanna add?
Yeah. No, no.
Okay, great.
Great.
Maybe if I could switch gears one more time, I promise I'll pass it on. On Kensington, you talked a bit about what impacted production in the quarter. Can you talk about what the mitigation is? Do you have to do anything more? Do you need more equipment? Is there more time required for development? Is it just that availability that impacted the throughput? How do you expect production to sort of ramp over the rest of the year in line with guidance?
Yeah. Mick, do you wanna answer Mike's question?
Yeah. Absolutely, you hit the nail on the head that the majority of those impacts came from how we described it in the documentation. The mitigation really though is, as we talked about this multi-year development program that we're looking to, you know, increase the mine life at Kensington, and we're onboarding some development contractor groups to help us with that process in the early part of the year. As you know, onboarding new people sometimes takes a little bit of time, so they took a little bit of time to get up and get the momentum up, but we wanted them to do that very safely and very effectively. Now we're seeing that they're fully on board, and they're getting the job done as per the plan.
That's a big mitigation for us as we go forward, because as they develop, then they're developing towards areas that may provide additional stocks and opportunities for us throughout the year to recover and get back on that plan for Kensington.
Just to piggyback off of Mick's comments, you know, Rochester obviously gets a lot of attention as a near-term growth catalyst, deservedly so. There's a lot going on at Kensington in terms of this development and drilling program. I think we're invested. Kensington is our largest allocation of exploration funds this year. There's a hefty chunk of underground development capital, and it really does set Kensington up as that kind of medium term catalyst for us. You know, we'll see a lot of near-term growth out of Rochester for sure.
You know, as we continue to execute this program at Kensington and keep extending that mine life, opening up some additional underground flexibility and working areas, you know, Kensington's gonna come in after Rochester and form a nice kinda medium-term wave of growth out of that asset. There's a lot going on up there, a lot of moving pieces as Mick was alluding to.
Okay. Okay, great. In the near term, like what you're seeing in I suppose April and May inspires confidence in that full-year guidance number. Is that fair to say?
April was still suffering from some of those challenges. The plan is as we get into the second part of this quarter and then into the third quarter and beyond, is when we start to really see ourselves catching back up. Does that have that about right?
Yeah, absolutely. Over the next couple of quarters, and of course, the power of the portfolio, Rochester is doing really well. We're moving along and, we'll have a good balance, of focus across the sites, to support Kensington to get back up that curve.
Okay, fantastic. Thanks again for taking my questions.
No, thanks, Mike. Appreciate it.
This will conclude our question and answer session. I'd like to turn the conference back over to Mitch Krebs for any closing remarks.
Okay. Well, hey, we appreciate everybody's time this morning. Thank you, and we look forward to speaking with you all again this summer to discuss our second quarter results. Thanks again, and have a great day.
The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your line.