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Coeur Mining reports 3Q $16.7 Million Loss

Coeur Mining Inc. (CDE) on Wednesday reported a third-quarter loss of $16.7 million, after reporting a profit in the same period a year earlier.

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Coeur Mining, Inc.  today reported companywide all-in sustaining costs (AISC) per average spot silver equivalent ounce (AgEqOz) of $15.18 for third quarter 2017, 4% lower quarter-over-quarter and driven by a 7% increase in silver equivalent production. These improvements over the prior quarter were primarily due to 25% higher silver equivalent production and a 14% decline in adjusted costs applicable to sales per average spot AgEqOz from Palmarejo and 21% higher gold production from Wharf.

Third quarter revenue of 176.0 million was up 1% quarter-over-quarter, cash flow from operating activities was unchanged at $29.4 million, while adjusted EBITDA increased 18% to $39.5 million. Third quarter net loss of $16.7 million, or $0.09 per share, was impacted by higher income and mining tax expense mostly due to non-cash increases in deferred tax estimates, increased exploration expense driven by ongoing success from drilling programs at the Palmarejo and Kensington mines, and higher costs at the San Bartolomé mine due to continued drought conditions and reduced third-party ore purchases during the quarter.

Highlights

  • Higher quarterly silver equivalent production – Third quarter silver and gold production were 4.0 million ounces and 93,293 ounces, respectively, or 9.5 million AgEqOz, representing an increase of 7% quarter-over-quarter and 10% year-over-year. Higher companywide production was driven primarily by Palmarejo, where higher mining rates and silver grades delivered 25% quarter-over-quarter and 89% year-over-year increases in AgEqOz production. At Wharf, mining at the higher-grade Golden Reward deposit during the quarter drove a 21% increase in its gold production
  • Lower third quarter costs per ounce – Third quarter companywide AISC and adjusted AISC per average spot AgEqOz of $15.30 and $15.18, respectively, were 4% and 3% lower quarter-over-quarter primarily due to lower unit costs at Palmarejo, partially offset by higher unit costs at San Bartolomé as well as increased sustaining capital expenditures and exploration expense
  • Major milestones achieved at key capital projects – At Palmarejo, Rochester, and Kensington, important milestones were achieved in key capital projects during the quarter. Following a multi-year development and ramp-up period, the targeted mining rate of 4,500 tons per day was achieved one quarter ahead of schedule at Palmarejo. At Rochester, the new Stage IV leach pad expansion was successfully commissioned on-schedule after three years of permitting and ten months of construction. At Kensington, development ore was mined and stockpiled from the high-grade Jualin deposit after two years of underground development activities
  • Acquisition of high-grade Silvertip mine announced – Announced acquisition of newly-constructed Silvertip silver-zinc-lead operation located in British Columbia on September 11, 2017, which closed on October 17, 2017. Underground drilling and development activities are now underway and mill commissioning is proceeding on-schedule. Production is expected to begin during the first quarter of 2018 and average approximately ten million AgEqOz per year at an average AISC per AgEqOz of $10.50 – $11.50, generating average annual EBITDA of $70 million over its initial 7.5-year mine life
  • Modifications to full-year guidance – Full-year production guidance was revised on October 5, 2017 for San Bartolomé to reflect the impact of ongoing drought conditions in the Potosí region of Bolivia. San Bartolomé’s cost guidance has been increased as a result. The Company has also increased cost guidance for Rochester due to higher processing costs induced by the residual effects of record rainfall earlier in the year and at Kensington to reflect higher year-to-date unit costs driven by lower-than-expected gold grades. Companywide AISC guidance has been revised accordingly while full-year capital expenditure guidance has been increased to reflect anticipated investments in the newly-acquired Silvertip mine. Finally, full-year exploration expense guidance has been raised to reflect the higher investment levels at Palmarejo and Kensington and to incorporate anticipated exploration expense at Silvertip during the fourth quarter.

“During the third quarter, the Company delivered higher production and cash flow, lower costs, and realized key objectives at several major, multi-year growth projects,” said Mitchell J. Krebs, Coeur’s President and Chief Executive Officer. “Palmarejo and Wharf were the strongest performers during the quarter, delivering strong production growth and generating combined free cash flow of nearly $25 million.

“We announced and recently completed the acquisition of the high-grade Silvertip mine in British Columbia for US$200 million of upfront consideration, which we expect will meaningfully grow our production and cash flow beginning next year. Our team is applying the same approach to Silvertip that has been successful at our existing operations and with recent acquisitions such as Wharf to position our newest mine for long-term success.

“Our third quarter results were negatively impacted by higher costs at San Bartolomé, lower-than-expected gold grades at Kensington, and significantly higher income and mining tax expense mostly attributable to changes in deferred tax estimates. Given San Bartolomé’s high costs and short mine life, we are evaluating several alternatives for this operation. In the meantime, we reduced San Bartolomé’s workforce by 23%, which resulted in a one-time severance expense of $2.2 million during the quarter and is expected to yield significant savings going forward. Although Kensington’s grades have been lower than expected, we anticipate significantly higher grades in the fourth quarter as mining activities accelerate in the higher-grade Raven and Jualin zones.

“Importantly, we are maintaining our significantly higher level of exploration investment, especially in near-mine drilling programs at Palmarejo and Kensington, due to the ongoing success of these programs and the lack of drilling these assets have received historically.”

Financial Results

Third quarter revenue of 176.0 million was up 1% quarter-over-quarter. Silver sales contributed 37% of third quarter revenue and gold sales contributed 63%. The Company’s U.S. operations generated 55% of the quarter’s revenue. Average realized silver and gold prices were $16.86 and $1,240 per ounce, respectively, representing a decrease of 1% and an increase of 3% quarter-over-quarter. The average realized gold price reflects the sale of 9,400 ounces to Franco-Nevada at a price of $800 per ounce under the gold stream at Palmarejo.

Costs applicable to sales were $118.9 million for the quarter, decreasing 5% quarter-over-quarter due primarily to lower unit costs at Palmarejo, partially offset by higher unit costs at San Bartolomé. General and administrative expenses were $7.4 million, $0.4 million higher than in the second quarter and largely attributable to higher professional service costs. Interest expense, net of capitalized interest, decreased 56% to $3.6 million compared to $8.1 million in the third quarter of 2016 due to lower debt levels and a lower interest rate on the Company’s senior notes, which were refinanced in the second quarter of 2017.

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