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Coeur d’Alene Mines CEO Discusses Q4 2010 Results – Earnings Call Transcript

Coeur d’Alene Mines Corporation (CDE) Q4 2010 Earnings Conference Call February 28, 2011 1:00 pm ET


Good afternoon my name is Bee and I’ll be your conference operator today. At this time I would like to welcome everyone to the Coeur d’Alene Mines Fourth Quarter and full year 2011 Earnings Call. (Operator instructions) Thank you, Mr. Tony Ebersole, please go-ahead sir.

Tony Ebersole

Thank for joining us today to discuss the company’s fourth quarter and full year 2010 results. This call is also being broadcast live on the internet through our website at, where we have posted slides to accompany our prepared remarks. Telephonic replay of the call will be available for one week following today’s call.

On the call today are Dennis Wheeler; Chairman President and Chief Executive Officer, Mitchell Krebs; Senior Vice President and Chief Financial Officer, Leon Hardy; Senior Vice President of Operations and Don Birak; Senior Vice President of Exploration.

Any forward-looking statements made today by management come under securities legislation of United States and Canada and involve a number of risks that could cause actual results to differ materially from projections. Please see our full cautionary statement on slide two.

With that, I’d like turn the call over to Dennis.

Dennis Wheeler

Welcome to all of you and thank you for joining us today. We are pleased you have joined us to showcase to you the progress made by our company during the fourth quarter which has led the record 2010 results. We think these results demonstrate the momentum created by the combination of Coeur’s three new long life silver and gold mines together with the strong precious metals market prices.

Silver keeps setting new records with prices above $33 an ounce last week, its highest level in 31 years and another record today. Coeur’s fourth-quarter materially outperformed the third quarter and our 2010 full-year results far exceeded 2009. During this most recent quarter, the people at Coeur achieved a 75% increase in metal sales to a total $208 million. A 186% increase in operating cash flow to nearly $100 million, adjusted earnings of $49.9 million or $0.56 per share.

Our capital expenditures dropped 28% and total debt was reduced by 14%. And our cash and cash equivalents doubled from the prior quarter. For the full year, we realized a 72% increase in metal sales to $515 million. Operating cash flow jumped to 199% to a total of $184 million, while adjusted earnings were $34.3 million or $0.39 a share. We achieved the 29% decline in capital expenditures and our gold production increased 118% to 157,000 ounces, while we were experiencing a 7% lower cash operations cost.

Clearly we are an unprecedented metal market and we at Coeur fully expect this silver market to continue. For the third quarter of 2010 to the fourth-quarter, silver prices increased an amazing 42% to $26.83 per ounce, a dramatic increase over the previous four quarters. And so far this year silver prices averaged close to $30 an ounce with today’s record high reaching $33.86 compared to the average price in 2010 of nearly $21.

Recently, The Times of India news service from New Delhi reported that silver was the best performing asset over the past five years. India is clearly one of the world’s largest customers as well as the largest gold consumer with the world’s largest middle-class and the article was noteworthy and that it pointed out that given silver performance as an asset, it was one of the arguably best places to continue to invest and that silver in the subcontinent had become the new gold.

Meanwhile, gold prices in the fourth quarter averaged $1357 per ounce up 10% from the previous quarter and average gold prices last year were up 23% for the year over the prior year averaging $1237 per ounce. Today, gold set another record price of $1413 per ounce. These market prices have been driven by a strong fundamental investment demand and clearly silver like gold has re-established itself as a monetary metal as evidenced by the record levels of ETF.

Silver, our main metal at Coeur will continue to bolster the Company’s results. ETF sales remained extremely robust, places like India and they catapult throughout the world and here sales of silver Eagle coins cannot meet US coinage demand. We have seen central banks for the first time in more than 20 years become net buyers of gold and given these global dynamics along with current uncertainty in the Middle East, we remain bullish on both of our products, silver and gold.

And long-term and most importantly, people in governments of the world now realize, that gold and silver resources and deposits are finite and demand continues to grow. Now, I would like to have Mitch comment on our fourth quarter and 2010 financial results.

Mitchell Krebs

Thanks Dennis. We had a record-setting fourth-quarter and full-year financial results and were set up for a very strong 2011. On slide nine, you can see the 75% increase in metal sales in the fourth quarter over the third quarter to $207.6 million. The major drivers to this increase were record silver and gold production at Palmarejo, a plus $2 million ounce quarter from San Bartolome, growing contribution from Kensington and higher realized prices.

Fourth-quarter sales made up 40% of the company’s total sales for the year, which are shown on the following slide 10. For the full year, we achieved a 72% increase in metal sales versus 2009 to $515.5 million, this represented the first full year of production from Palmarejo, which contributed 45% of the Company’s total sales.

In this current year of 2011 with a first full year of production from all three new mines, we are anticipating metal sales to reach approximately $800 million; which is a 55% increase over 2010. This assumes the average prices of $27.50 for silver and $1250 an ounce for gold and 2011 production of $20 million ounces of silver and 250,000 ounces of gold.

Our sales growth far exceeds increases in our production costs leading to large increases in overall gross margins. This is reflected in the fourth-quarter results shown on slide 11 where quarterly gross profit increased to 108% to $120.8 million and gross margins increased from 49% in the third quarter to 58% in the fourth quarter.

For the full year of 2010 on slide 12, gross profits jumped to 136% to $257.8 million with margins increasing from 36% in 2009 to 50% in 2010. With the addition of a full year of Kensington production in 2011, we expect gross profits to increase over 70% to approximately $450 million assuming the same metals prices that I mentioned earlier which are well below current stock prices.

On slide 13, for the first time this quarter, we are reporting an adjusted earnings number, the company believes this metric along with operating cash flow provides investors with the cleanest view possible of its financial results and performance. The main adjustments to US GAAP net income are removing the non-cash impact relating to the accounting for the gold production royalty at Palmarejo, backing out other non-cash non-recurring items including gains and losses on debt extinguishments and gains and losses from discontinued operations.

We also only include current income taxes and exclude the deferred portion of income taxes in order to provide investors with a more representative number for tax that is actually paid during a period; you can see the reconciliations to the right of the bar chart on slide 13. Also there is a detailed with reconciliation of adjusted earnings to US GAAP net income in the fourth quarter press release and at the back of these presentation slides.

In the fourth quarter alone, the company realized $49.9 million in adjusted earnings of $0.56 per share, a huge increase from the year ago fourth quarter , when the Company’s realize adjusted earnings were only $2.5 million. On slide 14, for the full year we recorded $34.3 million in adjusted earnings or $0.39 per share compared to a loss of $23.5 million for the previous year.

These dramatic improvements in the company’s financial performance particularly in the fourth quarter on an earnings basis after a depreciation, depletion and amortization, G&A expenses, exploration costs, interest expense and current taxes, hopefully demonstrate to the investment community just how far the company has come on our key financial performance metrics.

Most dramatic of all performance metrics has been our rise in operating cash flow as shown on slide 15. In the fourth quarter, operating cash flow rose 186% to $99.4 million just in the fourth quarter. The Company generated 54% of the total full-year operating cash flow just in the three – last month of 2010. For the full year of 2010, we saw a similar percentage increase in operating cash flow to $183.9 million, again assuming a $27.50 silver price and $1250 gold price this year; we expect 2011 operating cash flow to exceed $400 million.

It is important to note, shown on slide 17 that as we have seen this dramatic rise in metal sales, adjusted earnings and operating cash flow, we are also undergoing a similar dramatic reduction in CapEx. We saw our CapEx decline 29% to $156 million in 2010, most of that CapEx number was for the completion of the Kensington mine in Alaska.

Looking ahead, we expect 2011 CapEx to come in at about $120 million, most of that for the development of the new mining activities at Rochester and for various environmental related capital projects at our other mines that will support operations for the long term. Slide 18 illustrates the trends we have established of writing cash flow and lowering debt levels over the past five quarters, our cash and equivalents at year-end was $66.1 million which was doubled as of September 30 levels.

Total debt is $159.6 million which is a reduction of 28% over the last three quarters relative to fourth-quarter EBITDA of $109.5 million and with the repayment of higher cost debt with cash and the use of lower cost debt, the company’s balance sheet ended 2010 in a very comfortable position. On slide 19, it is also important to note that over the past year, our number of shares outstanding has remained constant at $89.3 million.

Our company has grown into a fairly constant G&A expense levels of around $25 million per year with G&A as a percent of sales now down to the 3% range which places Coeur on the low end on our industry. Leon Hardy will now take you through the company’s operating results.

Leon Hardy

Thanks Mitch. In the fourth quarter of 2010, the company produced 4.8 million ounces of silver, a 12% increase over the 4.3 million ounces produced in the third quarter. For the full year of 2010, our combined operations produced 16.8 million ounces of silver consistent with the previous year. Silver production was lower at San Bartolome and Martha in 2010, which was offset by increased Silver production at Palmarejo in its first full year of operation.

For the coming year and 2011, we are looking ahead to $20 million ounces of silver production. From the gold’s production side shown on slide 28 in the fourth quarter of 2010, we produced 60,600 ounces of gold versus 47,500 ounces in the third quarter. This 28% increase in quarterly gold production quarter-to-quarter was due to the continued ramp up of Kensington, which produced 27,990 ounces of gold in the fourth quarter and also due to Palmarejo’s strong quarter which exceeded 30,000 ounces of quarterly gold production for the first time since commencing production in April 2009.

For the full year 2010, gold production increased 118% to 157,000 ounces; this was due to the contribution of our start-up of operations at Kensington in July and the first full year of mining at Palmarejo. We are expecting roughly 60% increase in gold production this year to approximately 250,000 ounces, which will add significantly to our expected metal sales and cash flow as Mitch previously discussed.

This last quarter was a record quarter for Palmarejo for both silver and gold production. Palmarejo exceeded 2 million ounces of silver production for the first time since commencing production which was a 33% increase compared to the previous quarter. Gold production in the first quarter exceeded 30,000 ounces for the first time in a quarter since start-up; this resulted in a 39% increase in operating cash flow at Palmarejo.

Capital expenditures dropped 30% during the quarter at the mine and average cash operating costs in the fourth quarter was $2.67 per ounce of silver. Full-year 2010 production at Palmarejo was 5.9 million ounces of silver and 102,000 ounces of gold and an average cash operating cost of $4.10 down 58% from the prior year. Full-year operating cash cost at Palmarejo was 94 million with CapEx up $54 million.

San Bartolome, in the fourth quarter elevated production levels by 12% over the previous quarter to 2 million ounces. Average cash operating costs were $7.60 per ounce. Operating cash flow from the mine was 34 million. Full-year 2010 production totaled 6.7 million ounces of silver at an average cash cost of $7.87 per ounce. Annual metal sales from San Bartolome were $143 million with a 144% increase in operating cash flow to $61 million in 2010.

At Kensington, we ramped up to full capacity producing 28,000 ounces of gold in the fourth quarter. We are still anticipating annual average production levels of 125,000 ounces with a 12 year mine life at current proven and probable reserve levels of 1.4 million ounces. CapEx last year was $92.7 million as our construction was completed; fourth-quarter CapEx was $9.6 million down 53% from the previous quarter.

Construction activities at Rochester are proceeding in preparation for active mining to begin soon with additional production adding to our residual (inaudible) beginning in the second half of this year. In 2010, production was 2 million ounces of silver and 9641 ounces of gold and our new expanded mining will add to those existing levels in 2011. Last year, cash operating costs were at $2.93 per ounce of silver, now I will turn the call over to Don Birak for our exploration update.

Don Birak

Thank you Leon. We started 2011 with a robust inventory of metal re-sources and reserves sufficient for many years of production and strong upside potential to grow our mine lives. After 2010 mine depletion and other changes, metal reserves stand at over 227 million ounces of silver and over 2.5 million ounces of gold. Additional metal resources are up at all properties expect Edevor [ph] and most notably at Rochester.

We see continued potential to add to resources this year with our strong organic growth exploration budget of almost $21 million. Our year-end metal resources of reserves are tabulated at the end of this presentation for your reference. At the Palmarejo main mine while we reported a decline in total reserves there drilling late in the fourth quarter encountered new gains with significant silver and gold organizations [ph]. These results are not yet included in our overall reserves and resources at Palmarejo.

Turning to some specific achievements at Palmarejo, we have realized significant gains at the Guadalupe deposit, which now stands at over 68 million contained ounces of metal resources inclusive of reserves. In addition, we tested new targets near both Guadalupe and Palmarejo with encouraging results. In the midst of commencing of production at Kensington, we completed nearly 20,000 feet of Coeur drilling on the Raven Vein, which is showing good potential that contributed to reserves and resources from high-grade share Veins and Vein clusters.

Rochester work in 2010 focused on target generation and new drilling around the Nevada Packard deposit in the south part of our land position. At Joaquin and Argentina, we earned an initial 51% managing equity in our joint-venture and conducted detailed drilling in support of our initial metal resources estimate slated for completion this year.

Looking in more detail at some of the key results, I will start with Palmarejo. Last year we focused in all of our drilling around Palmarejo mine and the Guadalupe deposits, in areas that amounts to less than 5% of our large land package in the district. Some of the most exciting results were obtained on new targets near Palmarejo mine such as La Victoria, San Juan de Dios and underground drilling at the 108, 76 (inaudible) late in the year. I’m confident that drilling and geologic work performed in 2010 has given us a very firm platform of mineral resources and reserves for many years of production.

While we commence a broader program to find new ore deposits. The story at Guadalupe continues to be one of growth. That deposit is now over 2.7 km long with excellent resources reserves extent potential on strike and at depth with further drilling. As an example, here you can see one of the recent Coeur holes at Guadalupe. This hole cuts over 11 meters two with high grade metallization and remains open up yet and to the north-west. All 287 was part of – over 5000 meters of drilling that was completed in the fourth quarter of last year and not yet reflected in our mineral resources and reserves.

Now we move to Rochester on slide 38. Rochester has yielded over 127 million silver recovered ounces and 1.4 million recovered gold ounces as is moving to its next phase of production. New silver and gold in our reserves now stand at 27.5 million ounces and nearly 250,000 ounces respectively. All of the reserves are located at the Rochester deposit as shown in the centre of the aerial photograph on this slide.

Our land position is large at Rochester and we are actively exploring it. In 2010, our district wide exploration program produced some exciting results at the Nevada Packard deposit located about 2 miles to the south of the main Rochester. Finally, we shift to North of Kensington shown on slide no 37 where I’m pleased to present results from our exploration program there.

Most of the attention during the year was devoted to commencing production, we also conducted new drilling to better define the non-metallization at Kensington and explore it for more. Past year, we completed about 20,000 feet of core on Raven and we have included assets [ph] from the latest drilling completed in this fourth quarter of last year at the back of this presentation. None of which are affected in the mineral resources for Kensington yet.

Many of the new Coeur holes that could [ph] with the high grade, so we are confident that follow up work on Raven will continue to both reserves and resources in the future. Finally, we show here photographs of two of the latest Coeur holes on the Raven zone, both cut high-grade gold over good widths and I can tell you I’m very excited about starting drilling commenced at this quarter on Raven again. 2011 planned at Kensington is for over $2 million and 41,000 feet of new Coeur drilling. I will now turn the call back over to Dennis for closing comments.

Dennis Wheeler

Thanks Don. In this past quarter and in 2010, we demonstrated strong momentum as we entered this year. We now estimate that our gold production will increase 60% to 250,000 ounces and silver production will grow 19% to 20 million ounces in 2011. With expected continued strength in our silver and gold markets, we anticipate generating very strong free cash flow for our shareholders.

One final note, there was a report in the Financial Times recently that some mining firms have begun to hedge their silver production against possible declines in price. I just want to make it clear that Coeur has the policy of non-hedging in silver production. We know that our investors like you are believers in the continued price appreciation of silver and gold and we want our investors to be able to maximize their investment and leverage to the metal so we will not be hedging any of our silver.

Operator, we are now ready for questions.

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