Coeur Mining, Inc. (CDE) Earnings Call Transcript & Summary

Good morning, and welcome to the conference call to discuss Coeur's second quarter results. [Operator Instructions] Please note that this event is being recorded today. I would now like to turn the call over to Mitch Krebs, President and CEO. Please go ahead.

Hello, everyone, and thanks for joining our call to discuss Coeur's second quarter results. Before we start, please note our cautionary language regarding forward-looking statements and refer to our SEC filings on our website. Starting off on Slide 3. Coeur's record second quarter results were driven in large part by the first full quarter of contributions from the recently acquired New Afton and Rainy River operations. Quarterly revenue passed the $1 billion mark for the first time in the company's history on the way to record quarterly adjusted EBITDA and free cash flow. Lower prices, inflationary pressures below plan grades at 3 of our operations and the pace of production ramp-ups at Rainy River and New Afton were all headwinds during the quarter. There was also a $140 million or $0.10 per share noncash impact to second quarter EPS and EBITDA from the acquisition accounting driven by Rainy River stockpile inventory that's worth highlighting. Off the back of nearly $400 million of quarterly free cash flow, our ending cash balance exceeded $1 billion for the first time in history and is expected to continue increasing rapidly, turning the balance sheet into a significant source of strength. We intend to continue deploying this cash into record levels of exploration investment and into our organic growth projects to help us deliver peer-leading ROIC. We also showed in the second quarter our commitment to returning capital to shareholders as we began to more actively repurchase shares under the expanded $750 million buyback program in the second half of the quarter, and we paid the company's first dividend in 30 years. The company's growing financial strength leaves us well positioned which is expected to further increase with a significantly second half weighted production and cash flow profile. Heading on a couple of second quarter highlights. Rochester out of Nevada achieved an important milestone with a new quarterly record of 6.8 million metric tons crushed, a 15% increase over the prior quarter. This progress in establishing crusher consistency and predictability has been a true team effort that deserves acknowledgment. As Mick will walk you through, the team also completed the Phase 2a leach pad expansion during the quarter, leaving Rochester poised for very strong second half silver production given the significant number of test placed close to liner. It was also great to see Wharf bounce back with a strong quarter as they return to more normal operations after recovering from damages to the crusher last November. We issued an exploration update last month, highlighting the ongoing success we're having at our 2 Mexican operations, recent results at Palmarejo with the continued emergence off to the east and at Las Chispas, with drilling in the gap zone and at other new targets underscores continued impact of our brownfield exploration investments on our efforts to drive higher returns on invested capital. While our 5 legacy operations remain on track to deliver their full year guidance, we recalibrated New Afton's and Rainy River's guidance ranges for the 9 months of Coeur's ownership in 2026. The Rainy River adjustments reflect a more gradual expected ramp-up in underground production rates this year than previously assumed, and the New Afton modifications reflect rate of cave growth were seen since the C-zone development was completed in April. Mick will provide additional details on the great work being done to safely and sustainably deliver the performance that we expect from these 2 new assets. Meanwhile, I'm pleased to report that our post-acquisition integration efforts are advancing according to schedule. Before turning it over to Mick, our addition to the S&P 400 MidCap Index announced on June 8, was another example of how our U.S.-based North American platform of 7 well-balanced operations offers investors liquid high-quality exposure to the positive long-term outlook for gold, silver and copper. Mick, over to you.

Thanks, Mitch. First, operating results in the second quarter included several important developments that bode well for the strength of our enhanced portfolio as we look forward to the second half of 2026 and beyond. As Mitch mentioned, we saw lower-than-planned grades at Kensington, Rochester and Palmarejo, which are expected to rebound in the second half consistent with our guidance. A strong second half tailwind at Rochester, aside from the higher planned grades is the impressive progress of the crushing circuit, which continues to deliver strong, more consistent performance. Of the record 6.8 million tons crushed in 2Q that Mitch mentioned, approximately 97% run through all 3 stages of crushing, highlighting the enhanced efficiency and flexibility of the operation as the crushing train moves further into a consistent operating rhythm. The pace of construction for Phase 2 year of leach pad 6 accelerated during the quarter. Some of you may recall the initial flush of silver and gold production in 2023 following placement and irrigation of first ore close to line on pad 6 Phase I, with Phase 2a all placed exceeding 4 million tons through July and growing, we expect a similar spike to underpin strong second half 2026 production at Rochester. Phase 2b of pad 6 is well on schedule, and we expect it to be completed in Q4 of this year, providing additional capacity close to liner. Turning briefly to Wharf. The team continued to exceed expectations and complete all repairs ahead of schedule following the fair incident in the crusher building last November. Till contract crushing units augmented all placement rates on the pads as the repaired Wharf crusher achieved full capacity in May. Contract crushing has been fully demobilized and novel operations have now resumed. Moving to the Canadian assets. We have continued to work clearly with the New Afton and Rainy River teams over the last 4 months on integration and mine plant optimization. At New Afton, the primary focus remains on prioritizing health care growth, executing disciplined care draw management in these early days is the most important factor we control to protect the long-term health and productivity of season. We increased tonnage draw from the western portion of the cave at similar grades to the north draw points, and we are still limiting tonnage from the higher-grade eastern portion of the cave following completion of its construction in April. Daily mining rates during the quarter averaged approximately 12,000 tons per day. We are pleased to report that with all mining rates tick up further in July, including reaching 14,000 tons per day during the last week of the month as we've begun to increase draw rates in the West. We expect to achieve targeted throughput of 16,000 tons per day early in the fourth quarter compared to the end of the second quarter as assumed in the original New Gold 2026 budget they approved late last year. As a result, we have refined New Afton's partial year guidance to reflect this prudent approach, which is summarized on Slide 12. At Rainy River, solid production from Phase 4 of the open pit drove free cash flow of $123 million, the highest free cash flow of any mining incurs long history. Open pit mining, processing and underground development all performed well during the initial full quarter of Coeur's ownership, while waste stripping activities on Phase 5 of the open bid remained ahead of schedule. It is important to note, we kept the mill full all quarter via the operations significant stockpile inventory. We expect the acquired high- and medium-grade stockpiles to be depleted by the end of the third quarter but we will be building up a new stock pale to provide that important level of flexibility with all of keeping the mill full at times. Second quarter production was affected by lower-than-planned under mining rates, which reflected some short-term execution challenges with the underground mining contractor. I'm pleased to report that after assuming control of the operation and addressing the gaps we observed, underground mining rates are now on the rise as evidenced in the performance improvements we saw in July. The gap did require a relatively modest amount of additional capital and operating costs that Tom will highlight. However, we are expecting a very quick payback. Just to give you a sense, after averaging 2,300 tonnes per day in the second quarter, underground production rates jumped over 40% to approximately 3,300 tonnes per day in July, and we now expect to achieve our target of 5,000 tonnes per day by year-end versus the third quarter as assumed in the original New Gold 2026 budget that they approved late last year. Revised partial year 2026 production guidance at Rainy River is shown on Slide 13, which reflects the slightly slower assumed ramp-up of underground mining rates. With that, I'll turn the call over to Tom.

Thanks, Mick. Turning to Slide 9, I'll briefly run through our consolidated financial results. Despite being our second lightest expected production quarter this year, our balance 7 asset portfolio produced quarterly record financial results off the back of the inclusion of our first quarter of our Canadian assets. Some of the many quarterly records included record quarterly revenue of $1.1 billion, a 27% increase quarter-over-quarter. Record EBITDA of $478 million despite the $141 million noncash expense related to Rainy River's fair value uplift of the short-term stockpile, which must flow through EBITDA, the P&L and our reported CAS number. And record free cash flow of $388 million or more than $4 million per day, an increase of 45% versus last quarter. Our Canadian assets delivered 45% of overall quarterly free cash flow or approximately $175 million despite both assets being in ramp-up mode. Our Q2 results did see lower realized gold and silver prices than Q1, particularly in June. We are also seeing some signs of cost inflation, specifically diesel costs, as shown on Slide 11. Slide 8 illustrates the tremendous impact of these accelerating cash flows on our balance sheet. Cash of $1.1 billion at June 30 represents a doubling of the balance versus year-end 2025. We paid out approximately 45% of our Q2 quarterly free cash flow with $110 million of buybacks through June 30, the payment of an inaugural $0.02 dividend and the elimination of $39 million of our higher cost capital lease debt. We exited Q2 with liquidity of over $2 billion, leaving no doubt about our balance sheet strength. With expectations for significantly higher production during the second half of 2026, Coeur is poised to deliver even higher quarterly free cash flow for the remainder of the year. Based on revised guidance and our updated forecast pricing of $4,000 per ounce of gold, $60 per ounce of silver and $6 per pound of copper, we expect to generate 2026 EBITDA of approximately $2.3 billion and free cash flow of approximately $1.5 billion, despite significantly lower assumed metals prices in the second half of 2026 and only 9 months of lower than originally planned contribution from New Afton and Rainy River. What an amazing story. I wanted to highlight the key changes in our updated guidance on Slide 21. We have tweaked our overall 2026 CapEx guidance at Rainy River to reflect $45 million of Phase 5 capitalized stripping costs, previously guided as an operating cost, and $25 million of expenditures related to underground development, equipment and infrastructure to assist with the gaps Mick and his team identified. Revised CapEx guidance also includes an additional $15 million at Silvertip for 2026 prefeasibility study and related costs. Cash taxes were guided downwards to reflect lower assumed metals prices and lower Canadian taxes. Amortization guidance was also reduced as we complete our initial purchase price allocation for the newly acquired Canadian assets. Adjusted CAS guidance for gold and copper at New Afton increased as a result of the lower expected production. However, it is important to note that we did not see an overall increase in total operating costs at New Afton. Adjusted gold CAS guidance at Rainy River also increased as a result of the lower expected production. We are also expecting a 10% increase in total operating costs or approximately $30 million during 2026 for additional labor, rental equipment and maintenance to address the gaps Mick and his team identified. I did want to spend a minute on the acquisition accounting related to the short-term inventory including the significant short-term stockpile at Rainy River that we acquired at the transaction closing. The fair value uplift of the acquired inventory as required under U.S. GAAP is an important pointyheaded accounting matter to clearly understand, given the magnitude and the pervasive impact it has on our financial results. While the impact is noncash, the full year total will be $244 million at Rainy River and $20 million at New Afton. We want to emphasize this noncash amount must be included in our EBITDA, net income and CAS. During the first quarter, approximately $85 million of the fair value uplift hit our EBITDA net income in CAS. The Q2 impact was a further $140 million or approximately $0.10 per share and the remaining $38 million is anticipated to flow through during Q3 as we expect to have depleted the remaining acquired short-term stockpile at Rainy River by the end of the quarter, as Mick mentioned. To give a better sense of the order of magnitude of this noncash impact on our CAS, the Q2 impact at Rainy River was $2.036 per ounce of the total $3,788 CAS per ounce. And on a consolidated basis, it represented $834 per ounce of the total $2,442 in CAS per ounce. I hope that made sense, and I'll get off the accounting hope box. We remain extremely excited and proud of this platform we have created as a unique North America-only precious metals producer with the heart of silver. We are set up for a strong second half of free cash flow, continued capital returns and cash accumulation on the balance sheet as we continue to deliver on our strategic plan. I'll now turn the call back to Mitch.

Thanks, Tom. Before opening it up for Q&A, our key strategic priorities for the remainder of the year are shown on Slide 20. We're looking forward to delivering sharp increases in production and cash flow during the second half that are expected to lead to record full year 2026 results, leaving us well positioned to deliver another record year in 2027. With that, let's go ahead and open it up for questions.

[Operator Instructions] And our first question here will come from Wayne Lam with TD Securities.

Just want to understand the reset and the expectations for the New Gold assets after just the first quarter of operation post the combined guidance. Maybe starting with New Afton, what was the previously budgeted time line to get to the 16,000 tonnes per day? Or was the revision here also largely grade-driven? Because I think most of baked in a ramp-up to reach the run rate capacity, but it also seems like a second haircut taken at New Afton now from what New Gold management had previously guided to what was outlined in the combined guidance a few months ago to now?

Yes. Well, we'll start there with New Afton. Thanks for the question. The original plan for New Afton coming into this year was for them to be at 16,000 tonnes a day by the end of the second quarter. And I think what we're seeing now is hitting that level early in the fourth quarter. So roughly 3 months slower than what they came into the year, assuming, and so the reset in the guidance ranges there was driven more by that timing. There's a little bit of a grade differential just as we draw from different parts of the cave in response to kind of how the cave is propagating since the construction was completed in April. But maybe, Mick, you can go a layer deeper than that?

Yes. Yes, thanks for the question. It's really about that healthy cave propagation. And with respect to the grades, we're really trying to chop the cave in the 6 main areas that's north and south and then split up into the east and west zones as different grades across the case. But the key to the start of the cave is really about drawing it and getting it balanced and flat so that it come down as a block. And where we're high grades are really in the south and the east and we have to draw more on the west and the north at the moment to get the cave to propagate in a flat manner. So as we see that coming to bear over this next quarter, then we'll see the draw rates increase, and we should see the deliveries improved over that period between now and the end of the year.

Does that help, Wayne?

Yes, that's great. And then maybe just at Rainy River, can you give us a bit more detail on the challenges with the underground contractor this quarter? And again, on the prior time line, the ramp up to 5,000 tonnes per day? And maybe some color on the underground grades as well. And then just wondering, maybe for Tom, if you're chewing through more of the stockpiles at a faster rate, resulting in a greater noncash impact near term on the purchase price adjustment, does that mean that, that noncash impact the CAS, goes away at some point soon? Or just -- wasn't sure if I'm thinking with that correctly.

Well, maybe I can -- Tom, I'll try and answer that second question first because it's -- I think a pretty quick answer, which is yes, it should go away with the third quarter. I think, Tom, in your comments, you mentioned $38 million or so is expected to roll through the P&L in Q3, and then we should be done thankfully. So that's on that way. Is that good on the accounting question?

Yes. Yes, that's good color, yes.

Yes. Okay. Good. And then just on the Rainy River front, I'll say a couple of things, and then, Mick, you can cover more detail. I'd say that those short-term in challenges were more in the -- kind of in the tactical realm as those throughput rates started to climb, you could see some gap start to surface in things like trucks, personnel, availability and some infrastructure-related constraints that will be covered by the CapEx increase the Tom play. But we got in there in April and May. Mick and the team and the team at Rainy River did, I think, a really good job of identifying some of these gaps as they started ramping up to that next level. And put a good plan in place pretty quickly, and it's really nice to be able to see in July, the effects of that work as the rates started to climb up pretty quickly, and that's continued here into the early days of August. So that has us feeling really good about the second half ramp up to that 5,000 tonnes a day by year-end. And just quickly on the underground grade -- open pit grade mix, I think, in the second quarter, the underground contributed like something like 9% of total tons, and that should be almost twice that in the second half. And those underground grades are almost 3x higher than the surface grades, the open pit grades. So as we see that tonnage come up to 5,000 tonnes a day with that higher grade impact from those tons, that's going to be the nice tailwind in terms of the second half production levels there at Rainy River. Mick, did I leave anything there for you to...

There are a couple of bits and the is really just to say we're actually really happy with the response of our underground mining contractor, working really well with them, hardline glove. The early part of the development of the anagram was really focused on those development rates and the contract structure focused on that. Once we address that and we ramped up hard on the development that pace the mining rates, which then effectively exposed the other bottlenecks that we had to address. So we got after those with our contractor with a great response, and we're seeing already that the uptick in that performance with the contractor, focused now on mining rates to balance that against the development rates. And yes, really, really happy about how that's improving.

Okay. Great. Yes, looking forward to the operational improvements in the back half of the year. Maybe just last one at Rochester. Can you just walk us through the expectations into the second half on the grades and recoveries? I know the quarterly guidance had accounted for some of the lower grade this quarter and a pretty big step change on silver into Q4. But just given the longer cycle for silver recoveries that we've seen in the past, is that still realistic to expect those ounces to come out that quickly as per the guided expectations?

Yes. I'd say the 3 biggies there, Wayne, consistent crusher performance that we're now demonstrating, assume that continues higher. And then you've got the nice mix of higher grades and then close to fresh liner. And those are the ingredients for what should be a pretty dramatic second half compared to the first half. But Mick, do you want to color there?

And during this first part of the year, we, we had a lot of material that we had to produce as overliner for the construction of those new pads, and that's at a higher size fraction and it slows what crusher performance down. And so we got through that a lot. We're still producing a little bit of that for the next phase of the expansion. But overall, we're in good shape for that uptick in the second half. There's a lot of tonnes sitting on that new liner that has not even been started to irrigate yet. So looking forward to that.

Nice to see a lot of free cash flow coming through despite the slow ramp-up and look forward to catch-up.

And our next question will come from Cosmos Chiu with CIBC.

And -- maybe my first question is going back to New Afton here. I noticed that recovery was slightly lower quarter-over-quarter, 85.1% for gold and 90.6% for copper. I guess 2 parts to my question. Number one, as you talked about grade potentially coming back up later on during the year, is that going to help in terms of recovery? And then number two, as you had recalibrated your guidance for the year, what kind of recovery rate are you assuming for the rest of 2026?

Yes. Thanks, Cosmos, for the question. as we go into the second half of the year. And as Mick alluded to, we'll not only see a throughput uptick, but we'll see a grade uptick as well as they start drawing on some of those other areas of the C-zone, and that should flow through to higher recoveries on both gold and copper relative to what we saw in the first half of the year. But Mick, do you want to cover that as well?

Yes. You nailed it actually. So those lower grades, it's all really about the cave draw management. As those grades come up, we should see some appreciation in the recovery rates.

Great. And then so is like what we saw in Q1, is that a better sort of run rate? I forget in terms of -- based on the technical report, what kind of recovery rates is expected sort of life of mine for copper and gold?

Yes. The first quarter was -- for us in our world was 11 days. So I can't even remember what those recoveries look like for that little snapshot of time. But Mick, do you want to answer Cosmos' question?

Yes. Based on the material that we pulled from the cave, the recoveries actually just did better than met model, in fact. So it's tracking well based on recoveries compared to the tech report.

Great. I guess going to Rainy River here, as you mentioned, as underground development caught up, mining rates are now catching up to those development rates. I guess my question is, you did 2,300 tonnes per day in Q2. Is there any kind of internal targets that you can share with us? Like what were you expecting in Q2 for mining rates to have hit? And then second part is you're getting to 5,000 tonnes per day or targeting 5,000 tonnes per day by year-end. That's almost double, that's more than double what you did in Q2. What's kind of like that cadence of that increase? You did 3,300 kind of now. Is that a good number to use for Q3? Or how should we think of how that increase is going to be? Is it a straight line? Or is it more parabolic? How should we look at it?

You're asking for some pretty good precision there, Cosmos. But I'd say the rate of underground production between now and the end of the year is fairly linear and gradual. And that 5,000 tonne a day is not an average for the fourth quarter. It's sort of -- at the end of the year is where we plan to be. So as you think about building that into your model, it's a pretty steady ramp assumed from where we saw July to where we see December.

Great. Yes, it doesn't hurt to ask, right, Mitch, you can always...

You've got a model to update.

I get it. And then maybe in terms of the pre-stripping of Phase 5, how is that going?

Yes, that's a good news story. I mean, at Rainy, we talk a lot about these underground mining rates, but let's not forget the open pit is doing great. The mill is doing great. They're really hitting their stride on the underground development and now chasing that next bottleneck down into the underground mining rates now that we're on top of. But in terms of Phase 5, pre-strip, that's a good story, right, Mick?

Yes. The strip is ahead of the game, and we expect to get a fair amount of material in the second half from 5 now, which is great as we finish our fall and then we manage coming out of the full pushback we'll get into 5 before the end of the year and of course material. Really happy about the progress there. And the mill -- I mean, the mill is full. We have stockpiles that allowed us to keep the mill full continuously. So yes, we're in good shape.

Cool. And maybe one last question. I see that in your CapEx discussion in your MD&A you have allocated additional $15 million in CapEx to Silvertip. Any updates there you can provide to us? And what should we be looking for?

Yes. Yes. No, good catch. Good question. Since we talked after the first quarter in early May, we wrapped up the initial estimate, and we've now progressed into a pre-feasibility study. And that was a decision that we made together with our Board in mid-May. And so that extra capital that you've flagged there, Cosmos, is really a reflection of us funding that additional work to wrap up a PFS hopefully, early 2027. Meantime, exploration is fully funded for the year to continue to try and expand the resource, that's really hitting its peak right now here in this third quarter. So that extra capital for Silvertip is really to fund the studies that we're proceeding with.

Our next question will come from Josh Wolfson with RBC Capital Markets.

I appreciate all the disclosures on this call and some of the details for the New Gold assets. It's been helpful. Just sort of going into some of the details there further and looking at maybe some of the impacts on 2027. The company was talking about changing, I guess, the draw of the cave for New Afton, maybe balancing things out a bit more. Would it be reasonable to think if you're balancing things at more the grades that were previously expected in '27 and '28 that were quite high might be a little bit more smooth out versus the rest of the mine plan? Or is that -- is the cave sort of changes more limited to 2026?

Mick, do you want to cover that?

Yes, yes. So at the moment, we're busy rerunning those plans. We'll really know that through Q3 and Q4 as we set the budget for '27 and beyond. But for the moment, there hasn't been any or sterilized. We're really just making sure that we balance the cave when we draw from the rate points to get that balance. And so my expectation is that we'll see that grade at some point over the next period.