Coeur takes US$1B writedown in 2014

Coeur Mining (TSX: CDM; NYSE: CDE), the largest U.S.-based silver producer, reported a wider net loss for 2014 as it took a US$1-billion after-tax writedown in the fourth quarter, following weaker silver and gold prices.

The non-cash charge largely resulted from Coeur lowering its metal price assumptions to recalculate its reserves and resources. The company’s Mexican assets — the Palmarejo silver-gold mine and the La Preciosa project — took the biggest hit, with after-tax writedowns of US$504.5 million and US$244.9 million.

“The majority of the impairment charge was related to mineral interests and not property, plant and equipment that the company has been carrying from prior acquisitions and development activities that took place during peak metal prices,” Mitchell Krebs, the company’s president and CEO, said on a Feb. 19 conference call.

The charge, amounting to US$1.5 billion before taxes, also took into account that Coeur’s market value has plunged from above US$1.7 billion last year to under US$700 million recently.

“Although it is never an easy decision to take a big impairment charge, it was an opportunity I think to clean things up. By using lower metal prices, our mine plans, balance sheet and income statement should be a better reflection of our underlying business going forward,” Krebs noted.

Last year, Coeur recorded a US$1.2-billion headline loss, or US$11.28 per share, up 78% from the year ago. The adjusted loss was US$112 million, or US$1.09 per share, versus a US42-per-share loss in 2013.

Full-year revenue came in at US$635 million, with adjusted earnings before interest, taxes, depreciation and amortization of US$86.7 million, both below the levels seen in 2013, owing to lower metal prices, declining sales and a slight bump in costs.

Full-year production came in at 17.2 million oz. silver and 249,384 oz. gold, while equivalent oz. silver sold dipped 3% to 32 million.

The average realized prices in 2014 dropped 21% for silver and 6% for gold to US$18.87 per oz. and US$1,252 per oz., while adjusted all-in sustaining costs per silver-equivalent oz. rose 3% to US$19.27 per oz.

Coeur updated the year-end reserves and resources for its five producing mines — Palmarejo in Mexico, Rochester in Nevada, Kensington in Alaska, San Bartolome in Bolivia and Endeavor in Australia — plus the La Preciosa project. Excluding La Preciosa, where development is on hold, total silver and gold reserves declined 37% and 27% to 162 million oz. silver and 1.6 million oz. gold, BMO analyst Andrew Kaip writes. The updated reserve used prices of US$19 per oz. silver and US$1,275 per oz. gold, compared to US$25 per oz. silver and US$1,320 per oz. gold in 2013.

That said, Kaip notes the reserve grades have increased 12% for silver and 15% for gold, putting the firm “in a better position to weather low metal prices” despite the reserve life declining to 8.3 years based on the company’s 2015 mining rates.

Coeur recalculated its resources using US$22 per oz. silver and US$1,350 per oz. gold, reflecting a 24% and 16% price decrease. This shrunk the silver-equivalent ounces in measured and indicated by 45% to 292.4 million oz. Kaip projects the measured and indicated resource could add 9.7 years to Coeur’s life if converted.

On the bright side, Krebs said the firm achieved US$93 million in cost savings in 2014 on the back of reduced costs applicable to sales and lower capital expenditures, general and administrative fees, and exploration costs. “We’ve achieved lower unit costs almost across the board, which you all know is the name of the game in our industry.”

Coeur is guiding 2015 production of 14.8 million to 16 million oz. silver and 284,000 to 313,000 oz. gold. All-in sustaining costs per silver equivalent oz. should decline by 7% to US$17.50 to US$18.50 per equivalent oz. silver, Krebs says.

The reduced year-over-year silver production is primarily a result of lower expected production at Palmarejo, while the Rochester mine and the newly acquired Wharf gold mine in South Dakota should contribute to this year’s higher gold count.

The Wharf mine is one of the two acquisitions Coeur made in 2014 and it should close on Feb. 20. 

Coeur shares fell 12.5% to close Feb. 19 at $6.06. The company exited 2014 with US$271 million in liquidity and US$207.5 million in net debt.

BMO’s Kaip has an “underperform” rating and $4 target on the stock.