Coeur d’Alene shares hammered by weak Q3

Shares in Coeur d’Alene Mines (CDM-T, CDE-N) took a beating after the silver and gold miner posted a third-quarter net loss of US$15.8 million, or US18¢ a share, which included a non-cash, fair-market value adjustment of US$37.6 million, compared to a profit of US$31.1 million, or US35¢ per share a year ago.

Adjusted earnings per share came in at US29¢, down 72% in the year-earlier period, and below the consensus of US39¢. 
On a conference call, the firm’s president and CEO Mitchell Krebs told analysts and investors that Coeur had a “disappointing” quarter at two of its largest operations: the Palmarejo silver-gold mine in Mexico, and the San Bartolome silver mine in Bolivia.

“Palmarejo’s production was down due to unexpected underground challenges that were encountered in September in a high-grade area of the mine, and to a transition phase in the open-pit that negatively impacted grades,” Krebs said, adding that the problem was a “timing issue” and “temporary in nature.” 

In three months, Palmarejo mined 1.8 million oz. silver and 23,702 oz. gold, down 23% and 24% over the second quarter. Higher cash-operating costs of US$3.75 per silver oz. in the quarter were due to declining output and a temporary rise in costs for extra ground support, maintenance and waste haulage in the open pit, Coeur says. 

“Lower production and higher costs at Palmarejo were driven by a decision to reduce underground extraction rates in the higher-grade upper levels of the 76 Clavo to improve ground-control issues,” BMO Capital Markets analyst Andrew Kaip writes. 

That said, the company expects ground conditions and output to improve in the second half of the fourth quarter. 

At San Bartolome, Coeur experienced power outages that caused mill downtime in August. While Coeur says the mine’s silver output of 1.5 million oz. is similar to the previous quarter, it concedes that lower mill production rates at San Bartolome and growing costs at Palmarejo contributed to its higher consolidated cash operating costs of US$9.05 per oz. silver, up 20% from a year ago. 

Krebs says that Coeur’s Rochester silver-gold mine in Nevada and Kensington gold mine in Alaska both delivered higher output at lower costs during the quarter. 

Company-wide silver production came in at 4.4 million oz. — roughly 10% below BMO Research’s expectations of 4.9 million oz. — while gold production of 58,786 oz. was in-line, Kaip says. 

Net metal sales in the quarter fell 33% to US$230.6 million compared with a year ago due to declining output at Palmarejo, less attractive realized silver and gold prices and lower sales. 

Silver and gold sales equalled 4.5 million oz. and 59,156 oz., down 27% and 12%. The average realized prices per ounce silver and gold were US$30.09 and US$1,654, down 21% and 2% over the year. 

Before changes in working capital, Coeur recorded US$77.3 million in operating cash flow — nearly half of the amount it reported a year ago. 

Due to the lacklustre quarter, the Idaho-based miner has narrowed its full-year production guidance to between 18.5 million and 19 million oz. silver and 215,000 oz. to 225,000 oz. gold, from 18.5 million to 20 million oz. silver and 210,000 oz. to 230,000 oz. gold previously.

It has also revised its 2012 cash-operating costs per silver to US$7.50 per oz., up from US$6.50 to US$7.50 per oz. It estimates cash operating costs at Kensington of US$1,350 per oz., up from US$1,150 to US$1,250 per oz. 

Coeur says operating costs at Kensington should decline to US$950 per oz. in 2013.

“In BMO Research’s view, market concerns that operational issues at Palmarejo are long-lived and Kensington costs are unlikely to come down are overdone, and represent a buying opportunity given today’s share price decline,” Kaip says. 

The company anticipates silver and gold production next year to be consistent with 2011 and 2012 levels. 

Coeur ended the period with US$143.6 million in cash and equivalents, after having bought back US$10 million in shares and paying down US$72 million in debt. It has 89.8 million shares outstanding.