Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis (“MD&A”) provides information that management believes is relevant to an assessment and understanding of the consolidated financial condition and results of operations of Coeur Mining, Inc. and its subsidiaries (collectively the “Company”, “our”, or “we”). We use certain non-GAAP financial performance measures in our MD&A. For a detailed description of these measures, please see “Non-GAAP Financial Performance Measures” at the end of this Item. We provide Costs applicable to sales (“CAS”) allocation, referred to as the co-product method, based on revenue contribution for Palmarejo, Rochester and Silvertip and based on the primary metal, referred to as the by-product method, for Wharf. Revenue from secondary metal, such as silver at Wharf, is treated as a cost credit.
Overview
We are primarily a gold and silver producer with assets located in the United States, Canada and Mexico
2021 Highlights
For full year 2021, Coeur reported revenue of $832.8 million and cash flow from operating activities of $110.5 million. We reported GAAP net loss of $31.3 million, or $0.13 per diluted share. On an adjusted basis1, the Company reported EBITDA of $210.8 million and net loss of $1.4 million or $0.01 per diluted share.
•Solid fourth quarter production growth led to full-year production within guidance ranges – Gold and silver production increased 2% and 6% quarter-over-quarter, respectively, to 88,946 ounces and 2.6 million ounces. Full-year gold and silver production totaled 348,529 ounces and 10.1 million ounces, respectively, within the Company’s consolidated production guidance range for both metals
•Strong cost performance from primary gold operations – Full-year costs applicable to sales1 at Palmarejo, Kensington and Wharf were within their guidance ranges for 2021 despite inflationary cost headwinds, leading to strong free cash flow1 at each of these primary gold operations. During 2021, gold sales represented 70% of the Company’s total revenue
•Largest exploration program in Company history extended mine lives and drove resource growth – Coeur increased total exploration investment 41% year-over-year to $71 million in 2021, bringing its five-year cumulative investment in exploration to nearly $240 million, which has led to significant increases in reserves and resources. From the 2021 program, mine life extensions at Palmarejo and Wharf as well as significant resource additions at Silvertip and Kensington continue to lay the foundation for future organic growth
•Updated capital and schedule estimates for Rochester expansion provide clarity – The Company estimates the total capital for the Plan of Operations Amendment 11 (“POA 11”) will be approximately $520 million, which is in-line with recent updates. Approximately $236 million has been incurred on the project as of December 31, 2021. In addition, Coeur estimates the cost to incorporate pre-screens into the new crusher circuit and associated re-assessment of project contingency to be approximately $70 - $80 million. Construction is expected to be completed mid-2023 with commissioning to follow. Post-expansion, full-year production is expected to average roughly 8 million ounces of silver and 76,250 ounces of gold with average free cash flow1 of $90 million from 2024 to 20344
•Silvertip trade-off study underway – The Company commenced work to assess the economics of a potential larger expansion and restart of its high-grade Silvertip silver-zinc-lead property in British Columbia. The review is evaluating the potential to target a higher throughput to take advantage of the significant resource growth and on a timetable that would sequence an expansion and restart following completion and commissioning of the Rochester expansion. Results from this ongoing work are expected by the end of the year
•Initial Technical Report Summaries filed under new SEC rules confirm strength and stability of Coeur’s multi-asset portfolio – The Company today filed initial Technical Report Summaries pursuant to Item 1300 of SEC Regulation S-K. Highlights from the reports include reserve-only based mine lives of 8 years at Palmarejo, 13 years at Rochester, 3 years at Kensington and 8 years at Wharf
Selected Financial and Operating Results
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| | | | | | | Year Ended December 31, |
In thousands | | | | | | | | | 2021 | | 2020 | | 2019 |
Financial Results: | | | | | | | | | | | | | |
Gold sales | | | | | | | | | $ | 578,911 | | | $ | 584,633 | | | $ | 493,347 | |
Silver sales | | | | | | | | | $ | 253,917 | | | $ | 200,175 | | | $ | 191,478 | |
Zinc sales | | | | | | | | | $ | — | | | $ | (662) | | | $ | 12,806 | |
Lead sales | | | | | | | | | $ | — | | | $ | 1,315 | | | $ | 13,871 | |
Consolidated Revenue | | | | | | | | | $ | 832,828 | | | $ | 785,461 | | | $ | 711,502 | |
Net income (loss) | | | | | | | | | $ | (31,322) | | | $ | 25,627 | | | $ | (346,896) | |
Net income (loss) per share, diluted | | | | | | | | | $ | (0.13) | | | $ | 0.11 | | | $ | (1.59) | |
Adjusted net income (loss)(1) | | | | | | | | | $ | (1,393) | | | $ | 59,013 | | | $ | (54,583) | |
Adjusted net income (loss) per share, diluted(1) | | | | | | | | | $ | (0.01) | | | $ | 0.24 | | | $ | (0.25) | |
EBITDA(1) | | | | | | | | | $ | 148,402 | | | $ | 214,767 | | | $ | (154,378) | |
Adjusted EBITDA(1) | | | | | | | | | $ | 210,845 | | | $ | 263,365 | | | $ | 173,854 | |
Total debt(2) | | | | | | | | | $ | 487,501 | | | $ | 275,501 | | | $ | 295,497 | |
Operating Results: | | | | | | | | | | | | | |
Gold ounces produced | | | | | | | | | 348,529 | | | 355,678 | | | 359,418 | |
Silver ounces produced | | | | | | | | | 10,068,112 | | | 9,698,236 | | | 11,748,734 | |
Zinc pounds produced | | | | | | | | | — | | | 2,459,756 | | | 17,103,427 | |
Lead pounds produced | | | | | | | | | — | | | 2,176,847 | | | 16,555,622 | |
Gold ounces sold | | | | | | | | | 350,347 | | | 356,251 | | | 367,650 | |
Silver ounces sold | | | | | | | | | 10,133,837 | | | 9,628,429 | | | 11,914,567 | |
Zinc pounds sold | | | | | | | | | — | | | 3,203,446 | | | 18,154,521 | |
Lead pounds sold | | | | | | | | | — | | | 2,453,485 | | | 16,487,847 | |
Average realized price per gold ounce | | | | | | | | | $ | 1,652 | | | $ | 1,641 | | | $ | 1,342 | |
Average realized price per silver ounce | | | | | | | | | $ | 25.06 | | | $ | 20.79 | | | $ | 16.07 | |
Average realized price per zinc pound, gross(3) | | | | | | | | | $ | — | | | NM(3) | | $ | 0.71 | |
Average realized price per lead pound, gross(3) | | | | | | | | | $ | — | | | NM(3) | | $ | 0.84 | |
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(1)See “Non-GAAP Financial Performance Measures.”
(2)Includes finance leases. Net of debt issuance costs and premium received.
(3)Due to the suspension of mining and processing activities these amounts are not meaningful.
(4) Additional details for Rochester can be found in the Technical Report Summary filed by the Company with the U.S. Securities and Exchange Commission on February 16, 2022 which is incorporated by reference into this Report.
Consolidated Financial Results
Year Ended December 31, 2021 compared to Year Ended December 31, 2020
Revenue
We sold 350,347 gold ounces and 10.1 million silver ounces, compared to 356,251 gold ounces, 9.6 million silver ounces, 3.2 million zinc pounds and 2.5 million lead pounds in the prior year. Revenue increased by $47.4 million, or 6%, as a result of a 1% and 21% increase in average realized gold and silver prices, respectively, and higher silver ounces sold (5%), partially offset by lower gold ounces sold (2%). The increase in silver ounces sold was primarily due to higher mill throughput at Palmarejo. Gold and silver accounted for 70% and 30% of 2021 sales revenue, respectively. This compares to gold and silver accounting for 74% and 25% of 2020 sales revenue, respectively, with zinc and lead accounting for the remaining 2020 sales revenue.
The following table summarizes consolidated metal sales:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Increase (Decrease) | | Percentage Change |
In thousands | 2021 | | 2020 | | |
Gold sales | $ | 578,911 | | | $ | 584,633 | | | $ | (5,722) | | | (1) | % |
Silver sales | 253,917 | | | 200,175 | | | 53,742 | | | 27 | % |
Zinc sales | — | | | (662) | | | 662 | | | (100) | % |
Lead sales | — | | | 1,315 | | | (1,315) | | | (100) | % |
Metal sales | $ | 832,828 | | | $ | 785,461 | | | $ | 47,367 | | | 6 | % |
Costs Applicable to Sales
Costs applicable to sales increased $71.2 million, or 16%, primarily due to inflationary pressures related to employee-related, maintenance and consumable costs at all operating sites, higher silver ounces sold primarily at Palmarejo, the Rochester fourth quarter lower of cost or net realizable value (“LCM”) adjustment of $7.3 million, partially offset by the $13.8 million favorable impact from foreign currency hedges. For a complete discussion of costs applicable to sales, see Results of Operations below.
Amortization
Amortization decreased $3.1 million, or 2%, primarily due to longer assumed mine life based on year-end 2020 mineral reserve growth, partially offset by higher silver ounces sold.
Expenses
General and administrative expenses increased $6.7 million, or 20%, primarily due to higher compensation, travel and outside service costs.
Exploration expense increased $8.5 million, or 20%, as the Company maintained its commitment to a higher-level of exploration investment following the completion of the largest and most successful drilling campaign in Coeur’s history during 2020. The Company completed 746,900 feet (227,650 meters) of expansion drilling and 417,200 feet (127,175 meters) of infill drilling in 2021 compared to 617,500 feet (188,225 meters) of expansion drilling and 165,700 feet (50,475 meters) of infill drilling in 2020.
Pre-development, reclamation, and other expenses decreased $7.0 million, or 13%, stemming from lower costs incurred in connection with the Company’s COVID-19 health and safety protocols, partially offset by full-year ongoing carrying costs and absence of one-time 2020 costs associated with the suspension of mining and processing activities at Silvertip.
The following table summarizes pre-development, reclamation, and other expenses:
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| Year ended December 31, | | Increase (Decrease) | | Percentage Change |
In thousands | 2021 | | 2020 | | |
COVID-19 | $ | 6,618 | | | $ | 15,555 | | | $ | (8,937) | | | (57) | % |
Silvertip ongoing carrying costs | 24,928 | | | 16,384 | | | 8,544 | | | 52 | % |
Silvertip suspension costs | — | | | 11,199 | | | (11,199) | | | (100) | % |
Gain on modification of right of use lease | — | | | (4,051) | | | 4,051 | | | (100) | % |
Asset retirement accretion | 11,988 | | | 11,754 | | | 234 | | | 2 | % |
Other | 5,144 | | | 4,813 | | | 331 | | | 7 | % |
Pre-development, reclamation and other expense | $ | 48,678 | | | $ | 55,654 | | | $ | (6,976) | | | (13) | % |
Other Income and Expenses
During the first quarter of 2021, the Company incurred a $9.2 million loss in connection with the tender and redemption of the 2024 Senior Notes concurrent with the completed offering of the 2029 Senior Notes.
Fair value adjustments, net, decreased to a loss of $0.5 million compared to a gain of $7.6 million as a result of a reduction in value of the Company’s equity investments. The estimated fair values of the Company’s equity investments in Victoria Gold Corp. and Integra Resources Corp. (“Integra Resources”) were $124.2 million and $8.0 million, respectively, at December 31, 2021.
Interest expense (net of capitalized interest of $11.1 million) decreased to $16.5 million from $20.7 million due to higher capitalized interest associated with the POA 11 project at Rochester, and lower interest paid under the RCF, partially offset by higher interest paid under the 2029 Senior Notes compared to the 2024 Senior Notes and higher interest paid under finance lease obligations.
Other, net increased to a loss of $22.9 million compared to $5.9 million due to a write-down of a VAT receivable of $26.0 million due to uncertain collectability, partially offset by an increase in gains on the sale of assets in 2021 and a one-time fee of $3.8 million related to the novation of certain of the Company’s gold zero cost collars incurred in 2020. For additional details on the VAT receivable write-down see Note 20 -- Commitments and Contingencies.
Income and Mining Taxes
The Company’s Income and mining tax (expense) benefit consisted of:
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| Year Ended December 31, |
In thousands | 2021 | | 2020 | | |
Income and mining tax (expense) benefit at statutory rate | $ | (764) | | | $ | (13,161) | | | |
State tax provision from continuing operations | 2,009 | | | (152) | | | |
Change in valuation allowance | (28,615) | | | (17,522) | | | |
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Percentage depletion | 4,968 | | | 5,056 | | | |
Uncertain tax positions | 920 | | | 2,321 | | | |
U.S. and foreign permanent differences | 4,105 | | | 3,844 | | | |
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Foreign exchange rates | (384) | | | 1,390 | | | |
Foreign inflation and indexing | (1,087) | | | 684 | | | |
Foreign tax rate differences | (4,901) | | | (3,971) | | | |
Mining, foreign withholding, and other taxes | (12,599) | | | (17,457) | | | |
Other, net | 1,390 | | | 1,923 | | | |
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Income and mining tax (expense) benefit | $ | (34,958) | | | $ | (37,045) | | | |
Income and mining tax expense of approximately $35.0 million resulted in an effective tax rate of 961.4% for 2021. This compares to income tax expense of $37.0 million or effective tax rate of 59.1% for 2020. The comparability of the Company’s income and mining tax (expense) benefit and effective tax rate for the reported periods was impacted by multiple factors, primarily: (i) variations in our income before income taxes; (ii) geographic distribution of that income; (iii) mining taxes; (iv) foreign exchange rates; (v) percentage depletion (vi) the impact of uncertain tax positions; and (vii) the non-recognition of tax assets. Therefore, the effective tax rate will fluctuate, sometimes significantly, period to period.
The following table summarizes the components of the Company’s income (loss) before tax and income and mining tax (expense) benefit:
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| | | Year ended December 31, |
| | | | | 2021 | | 2020 |
In thousands | | | | | | | Income (loss) before tax | Tax (expense) benefit | | Income (loss) before tax | Tax (expense) benefit |
United States | | | | | | | $ | (34,196) | | $ | (6,142) | | | $ | 40,891 | | $ | (9,361) | |
Canada | | | | | | | (52,299) | | 1,224 | | | (68,730) | | 232 | |
Mexico | | | | | | | 87,233 | | (30,040) | | | 90,116 | | (27,949) | |
Other jurisdictions | | | | | | | 2,898 | | — | | | 395 | | 33 | |
| | | | | | | $ | 3,636 | | $ | (34,958) | | | $ | 62,672 | | $ | (37,045) | |
A valuation allowance is provided for deferred tax assets for which it is more likely than not that the related tax benefits will not be realized. The Company analyzes its deferred tax assets and, if it is determined that the Company will not realize all or a portion of its deferred tax assets, it will record or increase a valuation allowance. Conversely, if it is determined that the Company will ultimately be more likely than not able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced. There are a number of factors that impact the Company’s ability to realize its deferred tax assets. For additional information, please see “Item 1A - Risk Factors” in the 2021 10-K.
Net Income (Loss)
Net loss was $31.3 million, or $0.13 per diluted share, compared to net income of $25.6 million, or $0.11 per share. The decrease in net income was driven by higher operating costs, a VAT write-down of $26.0 million, higher exploration expense, a $9.2 million loss on debt extinguishment and higher income and mining taxes. This was partially offset by a 1% and 21% increase in average realized gold and silver prices, respectively and higher silver ounces sold (5%). Adjusted net loss was $1.4 million, or $0.01 per diluted share, compared to an adjusted net income of $59.0 million, or $0.24 per share (see “Non-GAAP Financial Performance Measures”).
Year Ended December 31, 2020 compared to Year Ended December 31, 2019
Revenue
Revenue increased by $74.0 million or 10%, as a result of a 22% and 29% increase in average realized gold and silver prices, respectively, partially offset by lower gold and silver ounces sold (3% and 19%, respectively), recovery delays at Rochester and the suspension of mining and processing activities at Silvertip in February. We sold 356,251 gold ounces, 9.6 million silver ounces, 3.2 million zinc pounds and 2.5 million lead pounds compared to 367,650 gold ounces, 11.9 million silver ounces, 18.2 million zinc pounds and 16.5 million lead pounds in the prior year. Gold and silver accounted for 74% and 25% of 2020 sales revenue, respectively, with zinc and lead accounting for the remaining sales revenue. This compares to gold and silver accounting for 69% and 27% of 2019 sales revenue.
The following table summarizes consolidated metal sales: | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Increase (Decrease) | | Percentage Change |
In thousands | 2020 | | 2019 | | |
Gold sales | $ | 584,633 | | | $ | 493,347 | | | $ | 91,286 | | | 19 | % |
Silver sales | 200,175 | | | 191,478 | | | 8,697 | | | 5 | % |
Zinc sales | (662) | | | 12,806 | | | (13,468) | | | (105) | % |
Lead sales | 1,315 | | | 13,871 | | | (12,556) | | | (91) | % |
Metal sales | $ | 785,461 | | | $ | 711,502 | | | $ | 73,959 | | | 10 | % |
Costs Applicable to Sales Costs applicable to sales decreased primarily due to the suspension at Silvertip and lower ounces sold at Palmarejo and Rochester. For a complete discussion of costs applicable to sales, see Results of Operations below.
Amortization
Amortization decreased $47.5 million, or 27%, primarily due to the suspension at Silvertip, and longer assumed mine life based on year-end 2019 reserve growth at Palmarejo and lower ounces sold at Palmarejo and Rochester.
Expenses
General and administrative expenses decreased $0.8 million, or 2%, primarily due to lower travel costs.
Exploration expense increased $20.1 million, or 89%, due to the Company’s multi-year exploration program. The Company completed 617,500 feet (188,225 meters) of expansion drilling and 165,700 feet (50,475 meters) of infill drilling in 2020 compared to 342,500 (104,425 meters) of expansion drilling and 181,600 feet (55,350 meters) of infill drilling in 2019.
Pre-development, reclamation, and other expenses increased $37.2 million, or 202%, stemming from ongoing carrying and suspension costs at Silvertip and incremental costs incurred to comply with the Company’s COVID-19 health and safety protocols, partially offset by a gain resulting from the modification of a right of use lease at Silvertip.
The following table summarizes pre-development, reclamation, and other expenses: | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Increase (Decrease) | | Percentage Change |
In thousands | 2020 | | 2019 | | |
COVID-19 | $ | 15,555 | | | $ | — | | | $ | 15,555 | | | 100 | % |
Silvertip ongoing carrying costs | 16,384 | | | — | | | 16,384 | | | 100 | % |
Silvertip suspension costs | 11,199 | | | — | | | 11,199 | | | 100 | % |
Gain on modification of right of use lease | (4,051) | | | — | | | (4,051) | | | 100 | % |
Asset retirement accretion | 11,754 | | | 12,154 | | | (400) | | | (3) | % |
Other | 4,813 | | | 6,267 | | | (1,454) | | | (23) | % |
Pre-development, reclamation and other expense | $ | 55,654 | | | $ | 18,421 | | | $ | 37,233 | | | 202 | % |
Other Income and Expenses
Fair value adjustments, net, decreased to a gain of $7.6 million compared to $16.0 million as a result of changes in value related to the Company’s equity investments, primarily Integra Resources and Metalla Royalty & Streaming Ltd. ("Metalla"), which had estimated fair values of $11.9 million and $1.0 million, respectively, at December 31, 2020.
Interest expense (net of capitalized interest of $1.5 million) decreased to $20.7 million from $24.8 million due to a lower interest rate paid under the RCF and lower average balances of both the RCF and 2024 Senior Notes.
Other, net increased to a loss of $5.9 million compared to a loss of $3.2 million due to an increase in losses on the sale of assets and a one-time fee of $3.8 million related to the novation of certain of the Company’s gold zero cost collars, partially offset by a reduction in foreign exchange losses.
Income and Mining Taxes
The Company’s Income and mining tax (expense) benefit consisted of:
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| Year ended December 31, |
In thousands | 2020 | | 2019 | | |
Income and mining tax (expense) benefit at statutory rate | $ | (13,161) | | | $ | 75,185 | | | |
State tax provision from continuing operations | (152) | | | 1,243 | | | |
Change in valuation allowance | (17,522) | | | (77,220) | | | |
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Percentage depletion | 5,056 | | | 820 | | | |
Uncertain tax positions | 2,321 | | | 2,358 | | | |
U.S. and foreign permanent differences | 3,844 | | | 2,272 | | | |
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Foreign exchange rates | 1,390 | | | (7,066) | | | |
Foreign inflation and indexing | 684 | | | (2,933) | | | |
Foreign tax rate differences | (3,971) | | | 19,729 | | | |
Mining, foreign withholding, and other taxes | (17,457) | | | (2,746) | | | |
Other, net | 1,923 | | | (513) | | | |
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Income and mining tax (expense) benefit | $ | (37,045) | | | $ | 11,129 | | | |
Income and mining tax expense of approximately $37.0 million resulted in an effective tax rate of 59.1% for 2020. This compares to income tax benefit of $11.1 million or effective tax rate of 3.1% for 2019. The comparability of the Company’s income and mining tax (expense) benefit and effective tax rate for the reported periods was impacted by multiple factors, primarily: (i) mining taxes; (ii) variations in our income before income taxes; (iii) geographic distribution of that income; (iv) foreign exchange rates; (v) percentage depletion; (vi) the non-recognition of tax assets; and (vii) the impact of uncertain tax positions. Therefore, the effective tax rate will fluctuate, sometimes significantly, period to period.
The following table summarizes the components of the Company’s income (loss) before tax and income and mining tax (expense) benefit:
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| | | Year ended December 31, |
| | | | | 2020 | | 2019 |
In thousands | | | | | | | Income (loss) before tax | Tax (expense) benefit | | Income (loss) before tax | Tax (expense) benefit |
United States | | | | | | | $ | 40,891 | | $ | (9,361) | | | $ | (16,702) | | $ | (5,446) | |
Canada | | | | | | | (68,730) | | 232 | | | (365,781) | | 32,203 | |
Mexico | | | | | | | 90,116 | | (27,949) | | | 25,002 | | (15,625) | |
Other jurisdictions | | | | | | | 395 | | 33 | | | (544) | | (3) | |
| | | | | | | $ | 62,672 | | $ | (37,045) | | | $ | (358,025) | | $ | 11,129 | |
A valuation allowance is provided for deferred tax assets for which it is more likely than not that the related tax benefits will not be realized. The Company analyzes its deferred tax assets and, if it is determined that the Company will not realize all or a portion of its deferred tax assets, it will record or increase a valuation allowance. Conversely, if it is determined that the Company will ultimately be more likely than not able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced. There are a number of factors that impact the Company’s ability to realize its deferred tax assets. For additional information, please see the section titled “Risk Factors” included in Item 1A.
Net Income (Loss) from Continuing Operations
Net income from continuing operations was $25.6 million, or $0.11 per diluted share, compared to net loss of $346.9 million, or $1.59 per share. The increase in net income from continuing operations was driven by strong operating results at Wharf and Palmarejo, a 22% and 29% increase in average realized gold and silver prices, respectively, lower operating costs at Rochester and Silvertip, and an impairment of long-lived assets at Silvertip of $250.8 million in 2019. This was partially offset by lower sales of gold and silver (3% and 19%, respectively), higher exploration expense, ongoing carrying and severance costs at Silvertip and incremental costs associated with the Company’s COVID-19 health and safety protocols. Adjusted net income was $59.0 million, or $0.24 per diluted share, compared to adjusted net loss of $54.6 million, or $0.25 per share (see “Non-GAAP Financial Performance Measures”).
2022 Guidance Framework
2022 Production Guidance
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| | | Gold | | Silver |
| | | (oz) | | (K oz) |
Palmarejo | | | 100,000 - 110,000 | | 6,000 - 7,000 |
Rochester | | | 35,000 - 43,000 | | 3,000 - 4,000 |
Kensington | | | 110,000 - 120,000 | | — |
Wharf | | | 70,000 - 80,000 | | — |
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Total | | | 315,000 - 353,000 | | 9,000 - 11,000 |
2022 Costs Applicable to Sales Guidance
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| | | Gold | Silver |
| | | ($/oz) | ($/oz) |
Palmarejo (co-product) | | | $750 - $850 | $13.50 - $14.50 |
Rochester (co-product) | | | $1,490 - $1,590 | $20.75 - $22.75 |
Kensington | | | $1,150 - $1,250 | — |
Wharf (by-product) | | | $1,225 - $1,325 | — |
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2022 Capital, Exploration and G&A Guidance
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| | | | ($M) |
Capital Expenditures, Sustaining | | | | $115 - $140 |
Capital Expenditures, Development | | | | $205 - $250 |
Exploration, Expensed | | | | $18 - $23 |
Exploration, Capitalized | | | | $18 - $23 |
General & Administrative Expenses | | | | $42 - $46 |
Note: The Company’s guidance figures assume estimated prices of $1,800/oz gold and $24.00/oz silver as well as CAD of 1.25 and MXN of 20.00. Guidance figures exclude the impact of any metal sales or foreign exchange hedges.
Results of Operations
Palmarejo
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| | | Year Ended December 31, |
| | | | | | | 2021 | | 2020 | | 2019 |
Tons milled | | | | | | | 2,106,741 | | | 1,751,525 | | | 1,755,957 | |
Average gold grade (oz/t) | | | | | | | 0.06 | | | 0.07 | | | 0.08 | |
Average silver grade (oz/t) | | | | | | | 3.93 | | | 4.45 | | | 4.85 | |
Average recovery rate – Au | | | | | | | 92.8 | % | | 89.9 | % | | 84.3 | % |
Average recovery rate – Ag | | | | | | | 82.4 | % | | 80.4 | % | | 79.3 | % |
Gold ounces produced | | | | | | | 109,202 | | | 110,608 | | | 111,932 | |
Silver ounces produced | | | | | | | 6,820,589 | | | 6,269,206 | | | 6,762,265 | |
Gold ounces sold | | | | | | | 108,806 | | | 110,822 | | | 116,104 | |
Silver ounces sold | | | | | | | 6,805,816 | | | 6,301,516 | | | 6,841,380 | |
Costs applicable to sales per gold ounce(1) | | | | | | | $ | 664 | | | $ | 610 | | | $ | 685 | |
Costs applicable to sales per silver ounce(1) | | | | | | | $ | 11.97 | | | $ | 9.14 | | | $ | 9.13 | |
(1)See Non-GAAP Financial Performance Measures.
Year Ended December 31, 2021 compared to Year Ended December 31, 2020
Gold production decreased 1% as a result of lower gold grade, partially offset by higher mill throughput and recoveries. Silver production increased 9% as a result of higher mill throughput and recoveries, partially offset by lower silver grade. Metal sales were $320.3 million, or 38% of Coeur’s metal sales, compared with $286.6 million, or 36% of Coeur’s metal sales. Revenue for the year ended December 31, 2021 increased by $33.7 million or 12%, of which $23.9 million was due to higher average realized silver prices and $9.8 million was the result of a higher volume of silver sales. Costs applicable to sales per gold and silver ounce increased 9% and 31%, respectively, due to the mix of gold and silver sales, and higher employee-related, maintenance and consumable costs largely due to inflationary pressures, partially offset by the favorable impact of foreign currency hedges ($13.8 million). Amortization decreased to $36.1 million due to longer assumed mine life based on year-end 2020 mineral reserve growth. Capital expenditures increased to $36.5 million from $25.0 million due to higher underground development and infill drilling activities.
Year Ended December 31, 2020 compared to Year Ended December 31, 2019
Gold and silver production decreased 1% and 7%, respectively, as a result of lower gold and silver grades, partially offset by higher gold and silver recovery. In the second quarter, Palmarejo temporarily suspended active mining and processing activities in accordance with a COVID-related government decree. After receiving guidance from the Mexican government in May that the suspension decree did not apply to precious metals mining, production began ramping back up in June, increasing steadily during the month as staffing levels returned to a pre-shutdown level. Despite the temporary suspension, Palmarejo’s milled tons were in-line with the prior year. Metal sales were $286.6 million, or 36% of Coeur’s metal sales, compared with $252.7 million, or 36% of Coeur’s metal sales. Revenue for the year ended December 31, 2020 increased by $33.9 million or 13%, of which $52.6 million was due to higher average realized gold and silver prices, partially offset by a decrease of $18.7 million due to a lower volume of gold and silver sales. Costs applicable to sales per gold ounce decreased 11% while costs applicable to sales per silver ounce remained comparable due to higher revenue contribution from silver sales compared to gold. Additionally, favorable foreign exchange rates and lower compensation and consumable costs contributed to an overall favorable movement in costs applicable to sales. Amortization decreased to $44.9 million due to longer assumed mine life based on year-end 2019 reserve growth and lower gold and silver ounces sold. Capital expenditures decreased to $25.5 million from $32.7 million due to lower underground development and lower mining equipment expenditures.
Rochester
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | | | | | 2021 | | 2020 | | 2019 |
Tons placed | | | | | | | 13,687,536 | | | 15,696,565 | | | 10,582,518 | |
Average gold grade (oz/t) | | | | | | | 0.002 | | | 0.002 | | | 0.003 | |
Average silver grade (oz/t) | | | | | | | 0.42 | | | 0.52 | | | 0.46 | |
Gold ounces produced | | | | | | | 27,051 | | | 27,147 | | | 35,400 | |
Silver ounces produced | | | | | | | 3,158,017 | | | 3,174,529 | | | 3,761,060 | |
Gold ounces sold | | | | | | | 27,697 | | | 26,257 | | | 36,052 | |
Silver ounces sold | | | | | | | 3,241,624 | | | 3,054,139 | | | 3,844,556 | |
Costs applicable to sales per gold ounce(1) | | | | | | | $ | 1,801 | | | $ | 1,377 | | | $ | 1,251 | |
Costs applicable to sales per silver ounce(1) | | | | | | | $ | 25.10 | | | $ | 16.35 | | | $ | 14.34 | |
(1)See Non-GAAP Financial Performance Measures.
Year Ended December 31, 2021 compared to Year Ended December 31, 2020
Gold and silver production remained comparable year over year. Metal sales were $130.8 million, or 16% of Coeur’s metal sales, compared with $110.3 million, or 14% of Coeur’s metal sales. Revenue for the year ended December 31, 2021 increased by $20.6 million or 19%, of which $13.3 million was the result of higher average realized gold and silver prices and $7.3 million was the result of a higher volume of gold and silver sales. Costs applicable to sales per gold and silver ounce increased 31% and 54%, respectively, due to the mix of gold and silver sales, higher employee-related, maintenance and consumable costs partially due to inflationary pressures, and a LCM adjustment of $7.3 million. Amortization increased to $20.2 million due to higher equipment depreciation from recently placed-in service assets and an LCM adjustment of $1.1 million in the fourth quarter. Capital expenditures increased to $166.5 million from $37.5 million due to the commencement of construction activities related to POA 11 in August 2020.
In the second half of 2021 the Company began seeing inflationary pressures on bids for remaining unawarded contracts on the POA 11 expansion project at Rochester during the second half of 2021, most notably on two structural, mechanical, piping, electrical and instrumentation (“SMPEI”) construction contracts for the Merrill-Crowe process plant and crushing circuit, respectively. Coeur recently selected the general SMPEI contractor for construction of the Merrill-Crowe process plant and crusher corridor based on a revised commercial approach from the previous lump-sum commercial model to a single contract. SMPEI work under the initial contract is beginning to advance.
Coeur has also advanced work related to implementation of pre-screens as part of the POA 11 expansion project and has elected to proceed with this scope change enhancement. As previously disclosed, the Company plans to integrate pre-screens into the current crushing system at Rochester, which is expected to drive improved performance while providing valuable operating experience and knowledge that can be applied to the new crushing circuit as part of the POA 11 expansion. Coeur has commenced detailed engineering for pre-screens and intends to align construction of the pre-screens with the completion of the crusher corridor. Installation of pre-screens on the existing crusher system is scheduled for the first half of 2022 with commissioning expected to begin around mid-year.
In connection with the items discussed above, the Company has conducted a comprehensive re-baselining of the overall schedule and costs associated with the original scope of POA 11.
Coeur now estimates the total construction capital for POA 11 to be approximately $597 million, which includes the 10-15% previously announced potential cost escalation as well as $70 - $80 million related to pre-screen implementation and additional project contingency to reflect ongoing COVID and schedule risk. As of December 31, 2021, the Company has incurred approximately $236 million in the expansion and 61% of the capital is now committed (excluding the recently-awarded SMPEI contract, which is expected to be formalized in the first quarter).
Excluding capital leases, Coeur forecasts capital expenditures related to POA 11 to be approximately $217 - $257 million and $131 - $171 million in 2022 and 2023, respectively. Additional details on expected production and capital expenditures for Rochester can be found in the Technical Report Summary filed by the Company with the U.S. Securities and Exchange Commission on February 16, 2022 which is incorporated by reference into this Report.
Year Ended December 31, 2020 compared to Year Ended December 31, 2019
Gold and silver production decreased 23% and 16%, respectively, due to the impact of dilution from stacking high-pressure grinding roll (“HPGR”) crushed material on top of historic ore on the Stage IV leach pad and upset conditions in the Merrill-Crowe process plant due to higher-than-expected fine particulates in pregnant solution from ore placed on newly constructed inter-lift liners in the first nine months of 2020. Metal sales were $110.3 million, or 14% of Coeur’s metal sales, compared with $112.0 million, or 16% of Coeur’s metal sales. Revenue for the year ended December 31, 2020 decreased by $1.7 million or 2%, of which $33.8 million was the result of a lower volume of gold and silver sales, partially offset by an increase of $32.1 million due to higher average realized gold and silver prices. Costs applicable to sales per gold and silver ounce increased 10% and 14%, respectively, driven by higher cyanide and outside service costs and a change in the Company’s recovery rate assumptions. Amortization decreased to $14.3 million due to lower ounces sold. Capital expenditures increased to $37.5 million from $22.6 million due to the commencement of construction activities related to POA 11.
Kensington
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | | | | | 2021 | | 2020 | | 2019 |
Tons milled | | | | | | | 667,560 | | | 675,731 | | | 658,378 | |
Average gold grade (oz/t) | | | | | | | 0.19 | | | 0.20 | | | 0.21 | |
Average recovery rate | | | | | | | 93.2 | % | | 93.0 | % | | 91.0 | % |
Gold ounces produced | | | | | | | 121,140 | | | 124,867 | | | 127,914 | |
Gold ounces sold | | | | | | | 122,181 | | | 124,793 | | | 130,495 | |
Costs applicable to sales per gold ounce(1) | | | | | | | $ | 1,086 | | | $ | 975 | | | $ | 917 | |
(1)See Non-GAAP Financial Performance Measures.
Year Ended December 31, 2021 compared to Year Ended December 31, 2020
Gold production decreased 3% as a result of lower grade and lower mill throughput. Metal sales were $215.0 million, or 26% of Coeur’s metal sales, compared to $216.5 million, or 28% of Coeur’s metal sales. Revenue for the year ended December 31, 2021 decreased by $1.5 million or 1%, of which $4.6 million resulted from lower volume of gold sales, partially offset by an increase of $3.1 million due to higher average realized gold prices. Costs applicable to sales per gold ounce increased 11% due to lower production and higher employee-related, maintenance and consumable costs, partially due to inflationary pressures. Amortization increased to $54.9 million primarily due to higher Jualin production, partially offset by lower ounces sold. Capital expenditures increased to $27.5 million from $19.8 million due to higher infill drilling and underground development.
Year Ended December 31, 2020 compared to Year Ended December 31, 2019
Gold production decreased 2% as a result of processing lower grade ore and COVID-19 response efforts that temporarily impacted mine production in the first nine months of 2020. Metal sales were $216.5 million, or 28% of Coeur’s metal sales, compared to $181.1 million, or 25% of Coeur’s metal sales. Revenue for the year ended December 31, 2020 increased by $35.4 million or 20%, of which $45.3 million was due to higher average realized gold prices, partially offset by a decrease of $9.9 million due to a lower volume of gold sales. Costs applicable to sales per gold ounce increased 6% due to lower production and higher compensation, outside service and maintenance costs, partially offset by lower diesel costs. Amortization decreased to $49.5 million due to lower ounces sold. Capital expenditures decreased to $19.8 million from $23.5 million due to lower underground development.
Wharf
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | | | | | 2021 | | 2020 | | 2019 |
Tons placed | | | | | | | 4,702,882 | | | 4,710,875 | | | 4,613,359 | |
Average gold grade (oz/t) | | | | | | | 0.027 | | | 0.027 | | | 0.023 | |
Gold ounces produced | | | | | | | 91,136 | | | 93,056 | | | 84,172 | |
Silver ounces produced | | | | | | | 89,506 | | | 115,214 | | | 63,483 | |
Gold ounces sold | | | | | | | 91,663 | | | 94,379 | | | 84,999 | |
Silver ounces sold | | | | | | | 86,397 | | | 113,790 | | | 64,161 | |
Costs applicable to sales per gold ounce(1) | | | | | | | $ | 997 | | | $ | 923 | | | $ | 937 | |
(1)See Non-GAAP Financial Performance Measures.
Year Ended December 31, 2021 compared to Year Ended December 31, 2020
Gold production decreased 2% driven by the timing of recoveries. Metal sales were $166.7 million, or 20% of Coeur’s metal sales, compared to $170.2 million, or 22% of Coeur’s metal sales. Revenue for the year ended December 31, 2021 decreased by $3.5 million or 2%, of which $5.6 million resulted from a lower volume of gold sales, partially offset by an increase of $2.1 million due to higher average realized gold and silver prices. Costs applicable to sales per gold ounce increased 8% due to higher equipment rental, diesel and employee-related costs partially due to inflationary pressures. Amortization decreased to $11.0 million due to lower ounces sold. Capital expenditures were $8.1 million reflecting $4.0 million of infill drilling.
Year Ended December 31, 2020 compared to Year Ended December 31, 2019
Gold production increased 11% driven by higher grade. Metal sales were $170.2 million, or 22% of Coeur’s metal sales, compared to $121.4 million, or 17% of Coeur’s metal sales. Revenue for the year ended December 31, 2020 increased by $48.8 million or 40%, of which $31.1 million was due to higher average realized gold and silver prices and $17.7 million was the result of a higher volume of gold and silver sales. Costs applicable to sales per gold ounce decreased 2% due to higher production and lower diesel costs. Amortization increased to $12.5 million due to higher ounces sold. Capital expenditures were $2.4 million.
Silvertip | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | | | | | 2021 | | 2020 (1) | | 2019 |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Silver ounces produced | | | | | | | — | | | 139,287 | | | 1,161,926 | |
Zinc pounds produced | | | | | | | — | | | 2,459,756 | | | 17,103,427 | |
Lead pounds produced | | | | | | | — | | | 2,176,847 | | | 16,555,622 | |
Silver ounces sold | | | | | | | — | | | 158,984 | | | 1,164,470 | |
Zinc pounds sold | | | | | | | — | | | 3,203,446 | | | 18,154,521 | |
Lead pounds sold | | | | | | | — | | | 2,453,485 | | | 16,487,847 | |
Costs applicable to sales per silver ounce(2) | | | | | | | $ | — | | | NM (2) | | $ | 31.92 | |
Costs applicable to sales per zinc pound(2) | | | | | | | $ | — | | | NM (2) | | $ | 2.34 | |
Costs applicable to sales per lead ounce(2) | | | | | | | $ | — | | | NM (2) | | $ | 1.76 | |
(1) Due to the suspension of mining and processing activities these amounts are not meaningful. (2) See Non-GAAP Financial Performance Measures.
Year Ended December 31, 2021
Silvertip suspended mining and processing activities, unrelated to COVID-19, in February 2020. Operational results in the table above reflected performance prior to the suspension. Ongoing carrying and suspension costs are included in Pre-development, reclamation, and other.
Coeur continues to generate positive results from ongoing exploration as the Company evaluates various opportunities to enhance the economics of a potential expansion and restart of Silvertip.
The Company received preliminary capital estimates for an accelerated expansion and restart in late 2021, which were higher than originally anticipated and reflect overall inflationary pressures as well as supply disruptions and labor market tightness consistent with broader macroeconomic themes.
Capital expenditures increased to $70.1 million from $13.1 million due to planned early civil works construction, higher infill drilling and underground development. For 2022, capital expenditures are expected to be approximately $15 - 25 million, primarily focusing on the economics of a potential expansion, including study work to evaluate additional opportunities to enhance and restart and as well as continued underground development and infill drilling at the mine.
In June 2021, Silvertip repurchased from Silvertip Resources Investment Cayman Ltd. a net smelter returns royalty of 1.429% on the first 1,434,000 metric tonnes of mineral resources mined, and 1.00% thereafter for $7.0 million.
Liquidity and Capital Resources
At December 31, 2021, the Company had $58.3 million of cash, cash equivalents and restricted cash and $200.0 million available under the RCF. Cash and cash equivalents decreased $36.1 million in the year ended December 31, 2021, due to higher capital expenditures related to POA 11 at Rochester and the potential expansion project at Silvertip coupled with higher operating costs, lower gold ounces sold (2%), higher general and administrative and exploration costs, and the tender and redemption of the 2024 Senior Notes for $238.3 million, including premiums. This was partially offset by a 1% and 21% increase in average realized gold and silver prices, respectively, higher silver ounces sold (5%), $65.0 million drawn from the RCF, and the net proceeds of $367.5 million from the issuance of the 2029 Senior Notes.
Since the start of the COVID-19 pandemic, the Company has completed various scenario planning analyses to consider potential impacts of COVID-19 on its business, including volatility in commodity prices, temporary disruptions and/or curtailments of operating activities (voluntary or involuntary). To provide additional flexibility to respond to potential downside scenarios, the Company has been able to periodically draw and make repayments under its RCF subsequent to the start of the COVID-19 pandemic. The RCF was amended in March 2021 to extend the maturity to March 2025 and to potentially allow the Company to obtain one or more increases of the RCF in an aggregate amount of up to $100.0 million. At December 31, 2021, the Company had $65.0 million drawn and $35.0 million in outstanding letters of credit under the RCF. The Company also holds $132.0 million of equity securities including a 17.8% interest in Victoria Gold. Additionally, Coeur established a $100.0 million ATM Program in April 2020 as a means to proactively increase its financial flexibility in response to increased volatility and uncertainty associated with COVID-19. At the date of this filing, the Company has yet to issue any shares of its common stock under the ATM Program.
We currently believe we have sufficient sources of funding to meet our business requirements for the next twelve months and long-term. We expect to use a combination of cash provided by operating activities, borrowings under our RCF and additional capital leases to fund near term capital requirements, including those described in this Report for POA 11 and in our 2022 capital expenditure guidance. We also have additional potential sources of funding including proceeds from sales under the ATM program, potential asset sales, and the monetization of our equity investments, including our investment in Victoria Gold. Our longer-term plans contemplate the expansion and restart of Silvertip, as well as the continued exploration and potential development of our other projects, such as Crown/Sterling and the Lincoln Hill area adjacent to Rochester.
Coeur now estimates the total construction capital for POA 11 to be approximately $597 million, which includes the 10-15% previously announced potential cost escalation as well as $70 - $80 million related to pre-screen implementation and additional project contingency to reflect ongoing COVID and schedule risk. As of December 31, 2021, the Company has incurred approximately $236 million in the expansion and 61% of the capital is now committed (excluding the recently-awarded SMPEI contract, which is expected to be formalized in the first quarter).
Excluding capital leases, Coeur forecasts capital expenditures related to POA 11 to be approximately $217 - $257 million and $131 - $171 million in 2022 and 2023, respectively. Additional details on expected production and capital expenditures for Rochester can be found in the Technical Report Summary filed by the Company with the U.S. Securities and Exchange Commission on February 16, 2022 which is incorporated by reference into this Report.
We also have additional obligations as part of our ordinary course of business, beyond those committed for capital expenditures and other purchase obligations and commitments for purchases of goods and services.
If and to the extent liquidity resources are insufficient to support short- and long-term expenditures, we may need to incur additional indebtedness or issue additional equity securities, among other financing options, which may not be available on acceptable terms or at all. This could have a material adverse impact on the Company, as discussed in more detail under Item 1A – Risk Factors.
Cash Provided by Operating Activities
Net cash provided by operating activities for the year ended December 31, 2021 was $110.5 million, compared to $148.7 million for the year ended December 31, 2020. Adjusted EBITDA for the year ended December 31, 2021 was $210.8 million, compared to $263.4 million for the year ended December 31, 2020 (see “Non-GAAP Financial Performance Measures”). Net cash provided by operating activities was impacted by the following key factors for the applicable periods:
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
In thousands | | | | | 2021 | | 2020 | | 2019 |
Cash flow before changes in operating assets and liabilities | | | | | $ | 145,615 | | | $ | 162,434 | | | $ | 134,234 | |
Changes in operating assets and liabilities: | | | | | | | | | |
Receivables | | | | | (983) | | | (9,463) | | | (2,739) | |
Prepaid expenses and other | | | | | 489 | | | (2,621) | | | 280 | |
Inventories | | | | | (27,628) | | | (34,538) | | | (62,998) | |
Accounts payable and accrued liabilities | | | | | (7,011) | | | 32,897 | | | 23,103 | |
Cash provided by operating activities | | | | | $ | 110,482 | | | $ | 148,709 | | | $ | 91,880 | |
Net cash provided by operating activities decreased $38.2 million for the year ended December 31, 2021, primarily due to lower gold ounces sold (2%), higher operating costs, exploration costs, and mining and income taxes at Palmarejo, partially offset by a 1% and 21% increase in average realized gold and silver prices, respectively, and higher silver ounces sold (5%). Revenue for the year ended December 31, 2021 increased by $47.4 million, of which $44.5 million was the result of higher average realized gold and silver prices and $2.9 million was due to the higher volume of silver sales.
Net cash provided by operating activities increased $56.8 million in the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to a 22% and 29% increase in average realized gold and silver prices, respectively, and lower metal inventory write-downs at Silvertip, partially offset by lower ounces sold of gold and silver (3% and 19%, respectively). Revenue for the year ended December 31, 2020 increased by $74.0 million, of which $151.9 million was the result of higher average realized gold and silver prices, partially offset by a decrease of $77.9 million due to lower volume of gold and silver sales.
Cash Used in Investing Activities
Net cash used in investing activities in the year ended December 31, 2021 was $304.1 million compared to $65.7 million in the year ended December 31, 2020. Cash used in investing activities increased primarily due to construction activities related to POA 11 at Rochester and the potential expansion at Silvertip in the current period and the impact of the net proceeds of $19.4 million from the sale of Metalla Common Shares in the comparable period of 2020. The Company incurred capital expenditures of $309.8 million in the year ended December 31, 2021 compared with $99.3 million in the year ended December 31, 2020. Capital expenditures in the year ended December 31, 2021 were primarily related to POA 11 construction activities at Rochester, potential expansion expenditures at Silvertip and underground development at Palmarejo and Kensington. Capital expenditures in the year ended December 31, 2020 were primarily related to POA 11 at Rochester, which commenced construction activities during the third quarter, and underground development at Palmarejo and Kensington.
The Company is experiencing inflationary pressures, specifically with respect to building materials and fuel as well as overall tightness in the construction market related to capital projects, most notably the POA 11 project at Rochester, and to operating costs company-wide.
Net cash used in investing activities in the year ended December 31, 2020 was $65.7 million compared to $92.6 million in the year ended December 31, 2019. Cash used in investing activities decreased primarily due to the net proceeds of $30.1 million from the sale of the Company’s equity investments. The Company had capital expenditures of $99.3 million in the year ended December 31, 2020 compared with $99.8 million in the year ended December 31, 2019. Capital expenditures in the year ended December 31, 2020 were primarily related to POA 11 at Rochester, which commenced construction activities during the third quarter, and underground development at Palmarejo and Kensington. Capital expenditures in the year ended December 31, 2019 were primarily related to underground development at Silvertip, Palmarejo, and Kensington, a new thickener at Palmarejo, POA 11 and the new crushing circuit, including the HPGR unit at Rochester.
Cash Provided by (Used in) Financing Activities
Net cash provided by financing activities in the year ended December 31, 2021 was $158.1 million compared to net cash used in financing activities of $46.5 million in the year ended December 31, 2020. During the year ended December 31, 2021, the Company received net proceeds of $367.5 million from the issuance of the 2029 Senior Notes, and drew $65.0 million, net, from the RCF, partially offset by the tender and redemption of the 2024 Senior Notes for $238.3 million, including premiums. As of December 31, 2021, there was $65.0 million drawn under the RCF. During the year ended December 31, 2020, the Company fully repaid the $150.0 million drawn from the RCF during 2020, and paid contingent cash consideration of $18.8 million associated with the Silvertip acquisition.
The Company secured a finance lease package for nearly $60 million during the year, a portion of which has been funded as of December 31, 2021. The package is earmarked for planned equipment purchases for the POA 11 project in 2021 and 2022, and has an interest rate of 5.22%.
Net cash used in financing activities in the year ended December 31, 2020 was $46.5 million compared to $60.9 million in the year ended December 31, 2019. During the year ended December 31, 2020, the Company fully repaid the $150.0 million drawn from the RCF during 2020, and paid contingent cash consideration of $18.8 million associated with the Silvertip acquisition. During the year ended December 31, 2019, the Company repaid $135.0 million, net, of outstanding amounts under the RCF and paid contingent cash consideration of $18.7 million associated with the Silvertip acquisition, partially offset by net proceeds of approximately $123.1 million from the sale of 30.9 million shares of its common stock.
Critical Accounting Policies and Accounting Developments
Listed below are the accounting policies that we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates and assumptions involved and the magnitude of the asset, liability, revenue, and expense being reported. For a discussion of recent accounting pronouncements, see Note 2 -- Summary of Significant Accounting Policies in the notes to the Consolidated Financial Statements.
Revenue Recognition
The Company produces doré and concentrate that is shipped to third-party refiners and smelters, respectively, for processing. The Company enters into contracts to sell its metal to various third-party customers which may include the refiners and smelters that process the doré and concentrate. The Company’s performance obligation in these transactions is generally the transfer of metal to the customer.
In the case of doré shipments, the Company generally sells refined metal at market prices agreed upon by both parties. The Company also has the right, but not the obligation, to sell a portion of the anticipated refined metal in advance of being fully refined. When the Company sells refined metal or advanced metal, the performance obligation is satisfied when the metal is delivered to the customer. Revenue and Costs Applicable to Sales are recorded on a gross basis under these contracts at the time the performance obligation is satisfied.
Under the Company’s concentrate sales contracts with third-party smelters, metal prices are set on a specified future quotational period, typically one to three months, after the shipment date based on market prices. When the Company sells gold concentrate to the third-party smelters, the performance obligation is satisfied when risk of loss is transferred to the customer. The contracts, in general, provide for provisional payment based upon provisional assays and historical metal prices. Final settlement is based on the applicable price for the specified future quotational period and generally occurs three to six months after shipment. The Company’s provisionally priced sales contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of concentrates measured at the forward price at the time of sale. The embedded derivative does not qualify for hedge accounting and is adjusted to fair value through revenue each period until the date of final metal settlement.
The Company also sells concentrate under off-take agreements to third-party customers that are responsible for arranging the smelting of the concentrate. Prices can either be fixed or based on a quotational period. The quotational period
varies by contract, but is generally a one-month period following the shipment of the concentrate. The performance obligation is satisfied when risk of loss is transferred to the customer.
The Company recognizes revenue from concentrate sales, net of treatment and refining charges, when it satisfies the performance obligation of transferring control of the concentrate to the customer.
For doré and off-take sales, the Company may incur a finance charge related to advance sales that is not considered significant and, as such, is not considered a separate performance obligation. In addition, the Company has elected to treat freight costs as a fulfillment cost under ASC 606 and not as a separate performance obligation.
The Company’s gold stream agreement with Franco-Nevada provided for a $20.0 million deposit paid by Franco-Nevada in exchange for the right and obligation, commencing in 2016, to purchase 50% of a portion of Palmarejo gold production at the lesser of $800 or market price per ounce. Because there is no minimum obligation associated with the deposit, it is not considered financing, and each shipment is considered to be a separate performance obligation. The stream agreement represents a contract liability under ASC 606, which requires the Company to ratably recognize a portion of the deposit as revenue for each gold ounce delivered to Franco-Nevada.
Estimates
The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of its financial statements, the reported amounts of revenue and expenses during the reporting period, and mined reserves. There can be no assurance that actual results will not differ from those estimates. There are a number of uncertainties inherent in estimating quantities of reserves, including many factors beyond the Company’s control. Mineral reserve estimates are based upon engineering evaluations of samplings of drill holes and other openings. These estimates involve assumptions regarding future silver and gold prices, mine geology, mining methods and the related costs to develop and mine the reserves. Changes in these assumptions could result in material adjustments to the Company’s reserve estimates. The Company uses reserve estimates in determining the units-of-production amortization and evaluating mine assets for potential impairment. For a discussion of estimates and assumptions used by management that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of its financial statements, the reported amounts of revenue and expenses during the reporting period, and mined reserves, see Note 2 -- Summary of Significant Accounting Policies in the notes to the Consolidated Financial Statements.
Amortization
The Company amortizes its property, plant, and equipment, mining properties, and mine development using the units-of-production method over the estimated life of the ore body generally based on its proven and probable reserves or the straight-line method over the useful life, whichever is shorter. The accounting estimates related to amortization are critical accounting estimates because (1) the determination of reserves involves uncertainties with respect to the ultimate geology of its reserves and the assumptions used in determining the economic feasibility of mining those reserves and (2) changes in estimated proven and probable reserves and asset useful lives can have a material impact on net income.
Impairment of Long-lived Assets
We review and evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Asset impairment is considered to exist if the total estimated undiscounted pretax future cash flows are less than the carrying amount of the asset. In estimating future cash flows, assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of future cash flows from other asset groups. An impairment loss is measured by discounted estimated future cash flows, and recorded by reducing the asset's carrying amount to fair value. Future cash flows are estimated based on estimated quantities of recoverable minerals, expected gold, silver, lead and zinc prices (considering current and historical prices, trends and related factors), production levels, operating costs, capital requirements and reclamation costs, all based on life-of-mine plans.
During 2019, the Company recorded a non-cash impairment charge of $250.8 million. The write-down was allocated between Property, plant and equipment, net, Mining properties, net and Other non-current assets, in the amounts of $43.6 million, $201.5 million and $5.7 million, respectively.
Existing proven and probable reserves and value beyond proven and probable reserves, including mineralization other than proven and probable reserves are included when determining the fair value of mine site asset groups at acquisition and, subsequently, in determining whether the assets are impaired. The term “recoverable minerals” refers to the estimated amount of gold, silver, lead and zinc that will be obtained after taking into account losses during ore processing and treatment. Estimates of recoverable minerals from exploration stage mineral interests are risk adjusted based on management’s relative confidence in such materials. The ability to achieve the estimated quantities of recoverable minerals from exploration stage
mineral interests involves further risks in addition to those risk factors applicable to mineral interests where proven and probable reserves have been identified, due to the lower level of confidence that the identified mineral reserves and resources could ultimately be mined economically. Assets classified as exploration potential have the highest level of risk that the carrying value of the asset can be ultimately realized, due to the still lower level of geological confidence and economic modeling.
Gold, silver, zinc and lead prices are volatile and affected by many factors beyond the Company’s control, including prevailing interest rates and returns on other asset classes, expectations regarding inflation, speculation, currency values, governmental decisions regarding precious metals stockpiles, global and regional demand and production, political and economic conditions and other factors may affect the key assumptions used in the Company’s impairment testing. Various factors could impact our ability to achieve forecasted production levels from proven and probable reserves. Additionally, production, capital and reclamation costs could differ from the assumptions used in the cash flow models used to assess impairment. Actual results may vary from the Company’s estimates and result in additional Impairment of Long-lived Assets.
Ore on Leach Pads
The heap leach process is a process of extracting silver and gold by placing ore on an impermeable pad and applying a diluted cyanide solution that dissolves a portion of the contained silver and gold, which are then recovered in metallurgical processes. The Company uses several integrated steps to scientifically measure the metal content of ore placed on the leach pads. As the ore body is drilled in preparation for the blasting process, samples are taken of the drill residue which are assayed to determine estimated quantities of contained metal. The Company then processes the ore through crushing facilities where the output is again weighed and sampled for assaying. A metallurgical reconciliation with the data collected from the mining operation is completed with appropriate adjustments made to previous estimates. The crushed ore is then transported to the leach pad for application of the leaching solution. As the leach solution is collected from the leach pads, it is continuously sampled for assaying. The quantity of leach solution is measured by flow meters throughout the leaching and precipitation process. After precipitation, the product is converted to doré, which is the final product produced by the mine. The inventory is stated at lower of cost or net realizable value, with cost being determined using a weighted average cost method.
The historical cost of the metal that is expected to be extracted within 12 months is classified as current. Ore on leach pad is valued based on actual production costs incurred to produce and place ore on the leach pads, less costs allocated to minerals recovered through the leach process.
The estimate of both the ultimate recovery expected over time and the quantity of metal that may be extracted relative to the time the leach process occurs requires the use of estimates and relies upon laboratory testwork. Testwork consists of 60-day leach columns from which the Company projects metal recoveries up to five years in the future. The quantities of metal contained in the ore are estimated based upon actual weights and assay analysis. The rate at which the leach process extracts gold and silver from the crushed ore is based upon laboratory column tests and actual experience occurring over more than 20 years of leach pad operations at the Rochester mine. The assumptions used by the Company to measure metal content during each stage of the inventory conversion process includes estimated recovery rates based on laboratory testing and assaying. The Company periodically reviews its estimates compared to actual experience and revises its estimates when appropriate. The ultimate recovery will not be known until leaching operations cease. Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis. In 2020, the Company revised its recovery rate assumptions in line with the updated technical report for Rochester filed in December 2020. This change resulted in an adjustment to the ending Ore on leach pads balance with the resulting charges allocated between Costs Applicable to Sales and Amortization in the amounts of $7.2 million and $1.2 million, respectively. In June 2021, the Company updated the recovery rate assumption on the Stage IV leach pad at Rochester, based on the historical performance of the leach pad since the third quarter of 2019. This change resulted in an adjustment to the ending ore on leach pads balance with the resulting non-cash charges allocated between Costs Applicable to Sales and Amortization in the amounts of $8.6 million and $2.2 million, respectively.
Reclamation
The Company recognizes obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The fair value of a liability for an asset retirement obligation will be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. An accretion cost, representing the increase over time in the present value of the liability, is recorded each period in Pre-development, Reclamation, and Other. As reclamation work is performed or liabilities are otherwise settled, the recorded amount of the liability is reduced. Future remediation costs for inactive mines are accrued based on management’s best estimate at the end of each period of the discounted costs expected to be incurred at the site. Such cost estimates include, where applicable, ongoing care and maintenance and monitoring costs. Changes in estimates are reflected in earnings in the period an estimate is revised. See Note 12 -- Reclamation in the notes to the Consolidated Financial Statements for additional information.
Derivatives
The Company is exposed to various market risks, including the effect of changes in metal prices and interest rates, and uses derivatives to manage financial exposures that occur in the normal course of business. The Company may elect to designate certain derivatives as hedging instruments under U.S. GAAP.
The Company, from time to time, uses derivative contracts to protect the Company’s exposure to fluctuations in metal prices. The Company has elected to designate these instruments as cash flow hedges of forecasted transactions at their inception. Assuming normal market conditions, the change in the market value of such derivative contracts has historically been, and is expected to continue to be, highly effective at offsetting changes in price movements of the hedged item. For derivatives not designated as hedging instruments, the Company recognizes derivatives as either assets or liabilities on the balance sheet and measures those instruments at fair value. Changes in the value of derivative instruments not designated as hedging instruments are recorded each period in the Consolidated Statement of Comprehensive Income (Loss) in Fair value adjustments, net or Revenue. Management applies judgment in estimating the fair value of instruments that are highly sensitive to assumptions regarding commodity prices, market volatilities, and foreign currency exchange rates.
Income and Mining Taxes
The Company accounts for income taxes in accordance with the guidance of ASC 740. The Company’s annual tax rate
is based on income, statutory tax rates in effect and tax planning opportunities available to us in the various jurisdictions in which the Company operates. Significant judgment is required in determining the annual tax expense, current tax assets and liabilities, deferred tax assets and liabilities, and our future taxable income, both as a whole and in various tax jurisdictions, for purposes of assessing our ability to realize future benefit from our deferred tax assets. Actual income taxes could vary from these estimates due to future changes in income tax law, significant changes in the jurisdictions in which we operate or unpredicted results from the final determination of each year’s liability by taxing authorities.
The Company’s deferred income taxes reflect the impact of temporary differences between the reported amounts of assets and liabilities for financial reporting purposes and such amounts measured by tax laws and regulations. In evaluating the realizability of the deferred tax assets, management considers both positive and negative evidence that may exist, such as earnings history, reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies in each tax jurisdiction. A valuation allowance may be established to reduce our deferred tax assets to the amount that is considered more likely than not to be realized through the generation of future taxable income and other tax planning strategies.
The Company has asserted indefinite reinvestment of earnings from its Mexican operations as determined by management’s judgment about and intentions concerning the future operations of the Company. The Company does not record a U.S. deferred tax liability for foreign earnings that meet the indefinite reversal criteria. Refer to Note 13 -- Income and Mining Taxes for further discussion on our assertion.
The Company’s operations may involve dealing with uncertainties and judgments in the application of complex tax regulations in multiple jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal, state, and international tax audits. The Company recognizes potential liabilities and records tax liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on its estimate of whether, and the extent to which, additional taxes will be due. The Company adjusts these reserves in light of changing facts and circumstances, such as the progress of a tax audit; however, due to the complexity of some of these uncertainties, the ultimate resolution could result in a payment that is materially different from our current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period which they are determined. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
Other Liquidity Matters
We believe that our liquidity and capital resources in the U.S. are adequate to fund our U.S. operations and corporate activities. The Company has asserted indefinite reinvestment of earnings from its Mexican operations as determined by management’s judgment about and intentions concerning the future operations of the Company. The Company does not believe that the amounts reinvested will have a material impact on liquidity.
In order to reduce indebtedness, fund future cash interest payments and/or amounts due at maturity or upon redemption and for general working capital purposes, from time-to-time we may (1) issue equity securities for cash in public or private offerings or (2) repurchase certain of our debt securities for cash or in exchange for other securities, which may include secured or unsecured notes or equity, in each case in open market or privately negotiated transactions. We evaluate any such transactions in light of prevailing market conditions, liquidity requirements, contractual restrictions, and other factors. The
amounts involved may be significant and any debt repurchase transactions may occur at a substantial discount to the debt securities’ face amount.
Non-GAAP Financial Performance Measures
Non-GAAP financial measures are intended to provide additional information only and do not have any standard meaning prescribed by generally accepted accounting principles (“GAAP”). Unless otherwise noted, we present the Non-GAAP financial measures in the tables below. These measures should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP.
Adjusted Net Income (Loss)
Management uses Adjusted net income (loss) to evaluate the Company’s operating performance, and to plan and forecast its operations. The Company believes the use of Adjusted net income (loss) reflects the underlying operating performance of our core mining business and allows investors and analysts to compare results of the Company to similar results of other mining companies. Management’s determination of the components of Adjusted net income (loss) are evaluated periodically and is based, in part, on a review of non-GAAP financial measures used by mining industry analysts. The tax effect of adjustments are based on statutory tax rates and the Company’s tax attributes, including the impact through the Company’s valuation allowance. The combined effective rate of tax adjustments may not be consistent with the statutory tax rates or the Company’s effective tax rate due to jurisdictional tax attributes and related valuation allowance impacts which may minimize the tax effect of certain adjustments and may not apply to gains and losses equally. Adjusted net income (loss) is reconciled to Net income (loss) in the following table:
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
In thousands except per share amounts | | | | | 2021 | | 2020 | | 2019 |
Net income (loss) | | | | | $ | (31,322) | | | $ | 25,627 | | | $ | (341,203) | |
(Income) loss from discontinued operations, net of tax | | | | | — | | | — | | | (5,693) | |
Fair value adjustments, net | | | | | 543 | | | (7,601) | | | (16,030) | |
Foreign exchange loss (gain) | | | | | 1,994 | | | (69) | | | 5,900 | |
(Gain) loss on sale of assets and securities | | | | | (4,111) | | | 2,484 | | | 714 | |
Impairment of long-lived assets | | | | | — | | | — | | | 250,814 | |
VAT write-off | | | | | 25,982 | | | — | | | — | |
Loss on debt extinguishment | | | | | 9,173 | | | — | | | 1,282 | |
Silvertip inventory write-down | | | | | — | | | 13,717 | | | 64,610 | |
Wharf inventory write-down | | | | | — | | | 3,323 | | | 3,596 | |
Silvertip suspension costs | | | | | — | | | 7,164 | | | — | |
Silvertip lease modification | | | | | — | | | (4,051) | | | — | |
Silvertip gain on contingent consideration | | | | | — | | | (955) | | | — | |
Novation | | | | | — | | | 3,819 | | | — | |
COVID-19 costs | | | | | 6,618 | | | 15,555 | | | — | |
Receivable write-down | | | | | — | | | — | | | 1,040 | |
Interest income on notes receivables | | | | | — | | | — | | | (198) | |
Tax effect of adjustments(1) | | | | | (10,270) | | | — | | | (19,415) | |
Adjusted net income (loss) | | | | | $ | (1,393) | | | $ | 59,013 | | | $ | (54,583) | |
| | | | | | | | | |
Adjusted net income (loss) per share - Basic | | | | | $ | (0.01) | | | $ | 0.25 | | | $ | (0.25) | |
Adjusted net income (loss) per share - Diluted | | | | | $ | (0.01) | | | $ | 0.24 | | | $ | (0.25) | |
(1) For the year ended December 31, 2021, tax effect of adjustments of $10.3 million (-27%) is primarily related to the VAT write-off. For the year ended December 31, 2019, tax effect of adjustments of $19.4 million (-6%) is primarily related to the write-down of Silvertip inventory.
EBITDA and Adjusted EBITDA
Management uses EBITDA to evaluate the Company’s operating performance, to plan and forecast its operations, and assess leverage levels and liquidity measures. The Company believes the use of EBITDA reflects the underlying operating performance of our core mining business and allows investors and analysts to compare results of the Company to similar results of other mining companies. Adjusted EBITDA is a measure used in indenture governing the 2029 Senior Notes and the RCF to determine our ability to make certain payments and incur additional indebtedness. EBITDA and Adjusted EBITDA do not represent, and should not be considered an alternative to, Net income (Loss) or Cash Flow from Operations as determined under GAAP. Other companies may calculate Adjusted EBITDA differently and those calculations may not be comparable to our presentation. Adjusted EBITDA is reconciled to Net income (loss) in the following table:
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| | | Year Ended December 31, |
In thousands except per share amounts | | | | | 2021 | | 2020 | | 2019 |
Net income (loss) | | | | | $ | (31,322) | | | $ | 25,627 | | | $ | (341,203) | |
(Income) loss from discontinued operations, net of tax | | | | | — | | | — | | | (5,693) | |
Interest expense, net of capitalized interest | | | | | 16,451 | | | 20,708 | | | 24,771 | |
Income tax provision (benefit) | | | | | 34,958 | | | 37,045 | | | (11,129) | |
Amortization | | | | | 128,315 | | | 131,387 | | | 178,876 | |
EBITDA | | | | | 148,402 | | | 214,767 | | | (154,378) | |
Fair value adjustments, net | | | | | 543 | | | (7,601) | | | (16,030) | |
Foreign exchange (gain) loss | | | | | 2,779 | | | 2,245 | | | 4,346 | |
Asset retirement obligation accretion | | | | | 11,988 | | | 11,754 | | | 12,154 | |
Inventory adjustments and write-downs | | | | | 9,471 | | | 1,144 | | | 5,904 | |
(Gain) loss on sale of assets and securities | | | | | (4,111) | | | 2,484 | | | 714 | |
Impairment of long-lived assets | | | | | — | | | — | | | 250,814 | |
VAT write-off | | | | | 25,982 | | | — | | | — | |
Loss on debt extinguishment | | | | | 9,173 | | | — | | | 1,282 | |
Silvertip inventory write-down | | | | | — | | | 13,717 | | | 64,610 | |
Silvertip suspension costs | | | | | — | | | 7,164 | | | — | |
Silvertip lease modification | | | | | — | | | (4,051) | | | — | |
Silvertip gain on contingent consideration | | | | | — | | | (955) | | | — | |
COVID-19 costs | | | | | 6,618 | | | 15,555 | | | — | |
Novation | | | | | — | | | 3,819 | | | — | |
Wharf inventory write-down | | | | | — | | | 3,323 | | | 3,596 | |
Receivable write-down | | | | | — | | | — | | | 1,040 | |
Interest income on notes receivables | | | | | — | | | — | | | (198) | |
Adjusted EBITDA | | | | | $ | 210,845 | | | $ | 263,365 | | | $ | 173,854 | |
Free Cash Flow
Management uses Free Cash Flow as a non-GAAP measure to analyze cash flows generated from operations. Free Cash Flow is Cash Provided By (used in) Operating Activities less Capital expenditures as presented on the Consolidated Statements of Cash Flows. The Company believes Free Cash Flow is also useful as one of the bases for comparing the Company’s performance with its competitors. Although Free Cash Flow and similar measures are frequently used as measures of cash flows generated from operations by other companies, the Company’s calculation of Free Cash Flow is not necessarily comparable to such other similarly titled captions of other companies.
The following table sets forth a reconciliation of Free Cash Flow, a non-GAAP financial measure, to Cash Provided By (used in) Operating Activities, which the Company believes to be the GAAP financial measure most directly comparable to Free Cash Flow.
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| | | Year Ended December 31, |
(Dollars in thousands) | | | | | 2021 | | 2020 | | 2019 |
Cash flow from operations | | | | | $ | 110,482 | | | $ | 148,709 | | | $ | 91,880 | |
Capital expenditures | | | | | 309,781 | | | 99,279 | | | 99,772 | |
Free cash flow | | | | | $ | (199,299) | | | $ | 49,430 | | | $ | (7,892) | |
Operating Cash Flow Before Changes in Working Capital
Management uses Operating Cash Flow Before Changes in Working Capital as a non-GAAP measure to analyze cash flows generated from operations. Operating Cash Flow Before Changes in Working Capital is Cash Provided By (used in) Operating Activities excluding the change in Receivables, Prepaid expenses and other, Inventories and Accounts payable and accrued liabilities as presented on the Consolidated Statements of Cash Flows. The Company believes Operating Cash Flow Before Changes in Working Capital is also useful as one of the bases for comparing the Company’s performance with its competitors. Although Operating Cash Flow Before Changes in Working Capital and similar measures are frequently used as measures of cash flows generated from operations by other companies, the Company’s calculation of Operating Cash Flow Before Changes in Working Capital is not necessarily comparable to such other similarly titled captions of other companies.
The following table sets forth a reconciliation of Operating Cash Flow Before Changes in Working Capital, a non-GAAP financial measure, to Cash Provided By (used in) Operating Activities, which the Company believes to be the GAAP financial measure most directly comparable to Operating Cash Flow Before Changes in Working Capital.
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| | Year Ended December 31, |
(Dollars in thousands) | | | | 2021 | | 2020 | | 2019 |
Cash provided by (used in) operating activities | | | | $ | 110,482 | | | $ | 148,709 | | | $ | 91,880 | |
Changes in operating assets and liabilities: | | | | | | | | |
Receivables | | | | 983 | | | 9,463 | | | 2,739 | |
Prepaid expenses and other | | | | (489) | | | 2,621 | | | (280) | |
Inventories | | | | 27,628 | | | 34,538 | | | 62,998 | |
Accounts payable and accrued liabilities | | | | 7,011 | | | (32,897) | | | (23,103) | |
Operating cash flow before changes in working capital | | | | $ | 145,615 | | | $ | 162,434 | | | $ | 134,234 | |
Costs Applicable to Sales
Management uses CAS to evaluate the Company’s current operating performance and life of mine performance from discovery through reclamation. We believe these measures assist analysts, investors and other stakeholders in understanding the costs associated with producing gold, silver, zinc and lead, assessing our operating performance and ability to generate free cash flow from operations and sustaining production. These measures may not be indicative of operating profit or cash flow from operations as determined under GAAP. Management believes that allocating CAS to gold, silver, zinc and lead based on gold, silver, zinc and lead metal sales relative to total metal sales best allows management, analysts, investors and other stakeholders to evaluate the operating performance of the Company. Other companies may calculate CAS differently as a result of reflecting the benefit from selling non-silver metals as a by-product credit, converting to silver equivalent ounces, and differences in underlying accounting principles and accounting frameworks such as in International Financial Reporting Standards.
Year Ended December 31, 2021
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In thousands (except metal sales, per ounce and per pound amounts) | Palmarejo | | Rochester | | Kensington | | Wharf | | Silvertip | | Total |
Costs applicable to sales, including amortization (U.S. GAAP) | $ | 189,717 | | | $ | 151,427 | | | $ | 187,998 | | | $ | 104,617 | | | $ | 4,797 | | | $ | 638,556 | |
Amortization | (36,062) | | | (20,187) | | | (54,933) | | | (11,038) | | | (4,797) | | | (127,017) | |
Costs applicable to sales | $ | 153,655 | | | $ | 131,240 | | | $ | 133,065 | | | $ | 93,579 | | | $ | — | | | $ | 511,539 | |
| | | | | | | | | | | |
Metal Sales | | | | | | | | | | | |
Gold ounces | 108,806 | | | 27,697 | | | 122,181 | | | 91,663 | | | | | 350,347 | |
Silver ounces | 6,805,816 | | | 3,241,624 | | | — | | | 86,397 | | | — | | | 10,133,837 | |
Zinc pounds | | | | | | | | | — | | | — | |
Lead pounds | | | | | | | | | — | | | — | |
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| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Costs applicable to sales | | | | | | | | | | | |
Gold ($/oz) | $ | 664 | | | $ | 1,801 | | | $ | 1,086 | | | $ | 997 | | | | | |
Silver ($/oz) | $ | 11.97 | | | $ | 25.10 | | | | | | | $ | — | | | |
Zinc ($/lb) | | | | | | | | | $ | — | | | |
Lead ($/lb) | | | | | | | | | $ | — | | | |
Year Ended December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands (except metal sales, per ounce and per pound amounts) | Palmarejo | | Rochester | | Kensington | | Wharf | | Silvertip | | Total |
Costs applicable to sales, including amortization (U.S. GAAP) | $ | 170,077 | | | $ | 100,418 | | | $ | 171,204 | | | $ | 102,108 | | | $ | 26,580 | | | $ | 570,387 | |
Amortization | (44,873) | | | (14,306) | | | (49,477) | | | (12,473) | | | (8,923) | | | (130,052) | |
Costs applicable to sales | $ | 125,204 | | | $ | 86,112 | | | $ | 121,727 | | | $ | 89,635 | | | $ | 17,657 | | | $ | 440,335 | |
| | | | | | | | | | | |
Metal Sales | | | | | | | | | | | |
Gold ounces | 110,822 | | | 26,257 | | | 124,793 | | | 94,379 | | | | | 356,251 | |
Silver ounces | 6,301,516 | | | 3,054,139 | | | | | 113,790 | | | 158,984 | | | 9,628,429 | |
Zinc pounds | | | | | | | | | 3,203,446 | | | 3,203,446 | |
Lead pounds | | | | | | | | | 2,453,485 | | | 2,453,485 | |
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| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Costs applicable to sales | | | | | | | | | | | |
Gold ($/oz) | $ | 610 | | | $ | 1,377 | | | $ | 975 | | | $ | 923 | | | | | |
Silver ($/oz) | $ | 9.14 | | | $ | 16.35 | | | | | | | NM (1) | | |
Zinc ($/lb) | | | | | | | | | NM (1) | | |
Lead ($/lb) | | | | | | | | | NM (1) | | |
(1) Due to the suspension of mining and processing activities these amounts are not meaningful.
Year Ended December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands (except metal sales, per ounce and per pound amounts) | Palmarejo | | Rochester | | Kensington | | Wharf | | Silvertip | | Total |
Costs applicable to sales, including amortization (U.S. GAAP) | $ | 201,306 | | | $ | 118,246 | | | $ | 170,194 | | | $ | 92,969 | | | $ | 145,496 | | | $ | 728,211 | |
Amortization | (59,379) | | | (18,041) | | | (50,592) | | | (12,280) | | | (36,738) | | | (177,030) | |
Costs applicable to sales | $ | 141,927 | | | $ | 100,205 | | | $ | 119,602 | | | $ | 80,689 | | | $ | 108,758 | | | $ | 551,181 | |
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Metal Sales | | | | | | | | | | | |
Gold ounces | 116,104 | | | 36,052 | | | 130,495 | | | 84,999 | | | | | 367,650 | |
Silver ounces | 6,841,380 | | | 3,844,556 | | | | | 64,161 | | | 1,164,470 | | | 11,914,567 | |
Zinc pounds | | | | | | | | | 18,154,521 | | | 18,154,521 | |
Lead pounds | | | | | | | | | 16,487,847 | | | 16,487,847 | |
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| | | | | | | | | | | |
| | | | | | | | | | | |
Costs applicable to sales | | | | | | | | | | | |
Gold ($/oz) | $ | 685 | | | $ | 1,251 | | | $ | 917 | | | $ | 937 | | | | | |
Silver ($/oz) | $ | 9.13 | | | $ | 14.34 | | | | | | | $ | 31.92 | | | |
Zinc ($/lb) | | | | | | | | | $ | 2.34 | | | |
Lead ($/lb) | | | | | | | | | $ | 1.76 | | | |
Reconciliation of Costs Applicable to Sales for 2022 Guidance
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands (except metal sales, per ounce or per pound amounts) | Palmarejo | | Rochester | | Kensington | | Wharf | | | | |
Costs applicable to sales, including amortization (U.S. GAAP) | $ | 211,800 | | | $ | 148,540 | | | $ | 185,494 | | | $ | 106,175 | | | | | |
Amortization | (34,183) | | | (20,094) | | | (48,763) | | | (8,378) | | | | | |
Costs applicable to sales | $ | 177,617 | | | $ | 128,446 | | | $ | 136,731 | | | $ | 97,797 | | | | | |
By-product credit | — | | | — | | | — | | | (1,802) | | | | | |
Adjusted costs applicable to sales | $ | 177,617 | | | $ | 128,446 | | | $ | 136,731 | | | $ | 95,995 | | | | | |
| | | | | | | | | | | |
Metal Sales | | | | | | | | | | | |
Gold ounces | 105,255 | | | 38,912 | | | 116,502 | | | 75,261 | | | | | |
Silver ounces | 6,501,289 | | | 3,405,155 | | | | | 75,093 | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Revenue Split | | | | | | | | | | | |
Gold | 49% | | 46% | | 100% | | 100% | | | | |
Silver | 51% | | 54% | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Adjusted costs applicable to sales | | | | | | | | | | | |
Gold ($/oz) | $750 - $850 | | $1,490 - $1,590 | | $1,150 - $1,250 | | $1,225 - $1,325 | | | | |
Silver ($/oz) | $13.50 - $14.50 | | $20.75 - $22.75 | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Coeur Mining, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Coeur Mining, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 16, 2022 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Ore on Leach Pads – Rochester mine
As described further in Notes 2 and 6 to the consolidated financial statements, the Company’s ore on leach pads balance of $154 million which includes the Rochester mine for a total of $130 million at December 31, 2021. This is a current balance of $58 million and a non-current balance of $72 million. The measurement and valuation of the ore on leach pads balance involves significant management estimates and assumptions related to the measure of metal content of ore placed on the leach pads, including recovery rates and ore grades. The balance is determined based on actual production costs incurred to produce and place ore on the leach pads, less costs allocated to minerals recovered through the leach process. The historical cost of metal expected to be extracted within twelve months is classified as current on the balance sheet. We identified the measurement and valuation for the ore on leach pads for
the Rochester mine as a critical audit matter.
The principal considerations for our determination that Rochester’s ore on leach pads is a critical audit matter are that certain management assumption are complex and have a higher degree of estimation uncertainty that changes in these assumptions
could have a significant impact on the balance. In turn, auditing Rochester’s ore on leach pads requires significant auditor judgement.
Our audit procedures related to Rochester’s ore on leach pads included the following, among others.
•We obtained and tested Rochester’s 2021 roll forward of the estimated ounces and costs added to, recovered from, and the resulting ending amounts of ounces and costs of the ore on leach pads balance, including testing of certain assumptions, such as recovery rates and ore grades.
•For the roll forward of estimated ounces, we assessed the completeness and accuracy of mining production information, including tests of daily tonnage processed.
•We evaluated management’s laboratory procedures related to assay testing used to estimate ore grade.
•We evaluated the Company’s use of specialists and their qualifications and experience related to their input on the recovery rates, including the updated recovery rates, and ore grades estimates used by management in its calculation of ore on leach pads.
•We assessed the estimated timing of recoveries, which management uses in classifying current and non-current portions of the ore on leach pads balance.
•We tested the effectiveness of management’s controls over mining production information, estimating the recovery rates, ore grades, and inventory roll forward related to recording Rochester’s balance of ore on leach pads.
/s/ Grant Thornton LLP
We have served as the Company’s auditor since 2016.
Chicago, Illinois
February 16, 2022
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Coeur Mining, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Coeur Mining, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2021, and our report dated February 16, 2022 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Grant Thornton LLP
Chicago, Illinois
February 16, 2022
COEUR MINING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
ASSETS | Notes | In thousands, except share data |
CURRENT ASSETS | | | | |
Cash and cash equivalents | | $ | 56,664 | | | $ | 92,794 | |
| | | | |
Receivables | 5 | 32,417 | | | 23,484 | |
Inventory | 6 | 51,281 | | | 51,210 | |
Ore on leach pads | 6 | 81,128 | | | 74,866 | |
| | | | |
| | | | |
Prepaid expenses and other | | 13,847 | | | 27,254 | |
Assets held for sale | 22 | 54,240 | | | — | |
| | 289,577 | | | 269,608 | |
NON-CURRENT ASSETS | | | | |
Property, plant and equipment, net | 8 | 319,967 | | | 230,139 | |
Mining properties, net | 9 | 852,799 | | | 716,790 | |
Ore on leach pads | 6 | 73,495 | | | 81,963 | |
Restricted assets | | 9,138 | | | 9,492 | |
Equity securities | 7 | 132,197 | | | 12,943 | |
Receivables | 5, 17 | — | | | 26,447 | |
| | | | |
Other | | 57,249 | | | 56,595 | |
| | | | |
TOTAL ASSETS | | $ | 1,734,422 | | | $ | 1,403,977 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | |
CURRENT LIABILITIES | | | | |
Accounts payable | | $ | 103,901 | | | $ | 90,577 | |
Accrued liabilities and other | 21 | 87,946 | | | 119,158 | |
Debt | 10,11 | 29,821 | | | 22,074 | |
| | | | |
Reclamation | 12 | 2,931 | | | 2,299 | |
| | | | |
Liabilities held for sale | 22 | 11,269 | | | — | |
| | 235,868 | | | 234,108 | |
NON-CURRENT LIABILITIES | | | | |
Debt | 10,11 | 457,680 | | | 253,427 | |
| | | | |
Reclamation | 12 | 178,957 | | | 136,975 | |
Deferred tax liabilities | | 21,969 | | | 34,202 | |
Other long-term liabilities | | 39,686 | | | 51,786 | |
| | | | |
| | 698,292 | | | 476,390 | |
COMMITMENTS AND CONTINGENCIES | 20 | | | |
STOCKHOLDERS’ EQUITY | | | | |
Common stock, par value $0.01 per share; authorized 300,000,000 shares, 256,919,803 issued and outstanding at December 31, 2021 and 243,751,283 at December 31, 2020 | | 2,569 | | | 2,438 | |
Additional paid-in capital | | 3,738,347 | | | 3,610,297 | |
Accumulated other comprehensive income (loss) | | (1,212) | | | (11,136) | |
Accumulated deficit | | (2,939,442) | | | (2,908,120) | |
| | 800,262 | | | 693,479 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 1,734,422 | | | $ | 1,403,977 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
COEUR MINING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year Ended December 31, |
| | | | | | 2021 | | 2020 | | 2019 |
| Notes | | | | | In thousands, except share data |
Revenue | 3 | | | | | $ | 832,828 | | | $ | 785,461 | | | $ | 711,502 | |
COSTS AND EXPENSES | | | | | | | | | | |
Costs applicable to sales(1) | 3 | | | | | 511,539 | | | 440,335 | | | 551,181 | |
Amortization | | | | | | 128,315 | | | 131,387 | | | 178,876 | |
General and administrative | | | | | | 40,399 | | | 33,722 | | | 34,493 | |
Exploration | | | | | | 51,169 | | | 42,643 | | | 22,527 | |
Impairment of long-lived assets | | | | | | — | | | — | | | 250,814 | |
Pre-development, reclamation, and other | 17 | | | | | 48,678 | | | 55,654 | | | 18,421 | |
Total costs and expenses | | | | | | 780,100 | | | 703,741 | | | 1,056,312 | |
OTHER INCOME (EXPENSE), NET | | | | | | | | | | |
Loss on debt extinguishment | 11 | | | | | (9,173) | | | — | | | (1,281) | |
Fair value adjustments, net | 15 | | | | | (543) | | | 7,601 | | | 16,030 | |
Interest expense, net of capitalized interest | 11 | | | | | (16,451) | | | (20,708) | | | (24,771) | |
Other, net | 17 | | | | | (22,925) | | | (5,941) | | | (3,193) | |
Total other income (expense), net | | | | | | (49,092) | | | (19,048) | | | (13,215) | |
Income (loss) before income and mining taxes | | | | | | 3,636 | | | 62,672 | | | (358,025) | |
Income and mining tax (expense) benefit | 13 | | | | | (34,958) | | | (37,045) | | | 11,129 | |
Income (loss) from continuing operations | | | | | | $ | (31,322) | | | $ | 25,627 | | | $ | (346,896) | |
Income (loss) from discontinued operations | 23 | | | | | — | | | — | | | 5,693 | |
NET INCOME (LOSS) | | | | | | $ | (31,322) | | | $ | 25,627 | | | $ | (341,203) | |
OTHER COMPREHENSIVE INCOME (LOSS): | | | | | | | | | | |
Change in fair value of derivative contracts designated as cash flow hedges | | | | | | 22,783 | | | (12,434) | | | (136) | |
Reclassification adjustments for realized (gain) loss on cash flow hedges | | | | | | (12,859) | | | 1,434 | | | — | |
Unrealized gain (loss) on debt and equity securities | | | | | | — | | | — | | | 59 | |
Other comprehensive income (loss) | | | | | | 9,924 | | | (11,000) | | | (77) | |
COMPREHENSIVE INCOME (LOSS) | | | | | | $ | (21,398) | | | $ | 14,627 | | | $ | (341,280) | |
| | | | | | | | | | |
NET INCOME (LOSS) PER SHARE | 18 | | | | | | | | | |
Basic income (loss) per share: | | | | | | | | | | |
Net income (loss) from continuing operations | | | | | | $ | (0.13) | | | $ | 0.11 | | | $ | (1.59) | |
Net income (loss) from discontinued operations | | | | | | — | | | — | | | 0.03 | |
Basic | | | | | | $ | (0.13) | | | $ | 0.11 | | | $ | (1.56) | |
Diluted income (loss) per share: | | | | | | | | | | |
Net income (loss) from continuing operations | | | | | | $ | (0.13) | | | $ | 0.11 | | | $ | (1.59) | |
Net income (loss) from discontinued operations | | | | | | — | | | — | | | 0.03 | |
Diluted | | | | | | $ | (0.13) | | | $ | 0.11 | | | $ | (1.56) | |
(1) Excludes amortization.
The accompanying notes are an integral part of these Consolidated Financial Statements.
COEUR MINING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year Ended December 31, |
| | | | | | 2021 | | 2020 | | 2019 |
| Notes | | | | | In thousands |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | |
Net income (loss) | | | | | | $ | (31,322) | | | $ | 25,627 | | | $ | (341,203) | |
(Income) loss from discontinued operations | | | | | | — | | | — | | | (5,693) | |
Adjustments: | | | | | | | | | | |
Amortization | | | | | | 128,315 | | | 131,387 | | | 178,876 | |
Accretion | | | | | | 12,897 | | | 11,984 | | | 12,147 | |
Deferred taxes | | | | | | (10,932) | | | (7,283) | | | (36,817) | |
Loss on debt extinguishment | 11 | | | | | 9,173 | | | — | | | 1,281 | |
Fair value adjustments, net | 15 | | | | | 543 | | | (7,634) | | | (16,030) | |
Stock-based compensation | 14 | | | | | 13,660 | | | 8,548 | | | 9,189 | |
Gain on modification of right of use lease | | | | | | — | | | (4,051) | | | — | |
Impairment of long-lived assets | 4 | | | | | — | | | — | | | 250,814 | |
Write-downs | | | | | | 38,596 | | | 16,821 | | | 69,246 | |
Deferred revenue recognition | 20 | | | | | (16,226) | | | (16,702) | | | (1,857) | |
Other | | | | | | 911 | | | 3,737 | | | 14,281 | |
Changes in operating assets and liabilities: | | | | | | | | | | |
Receivables | | | | | | (983) | | | (9,463) | | | (2,739) | |
Prepaid expenses and other current assets | | | | | | 489 | | | (2,621) | | | 280 | |
Inventory and ore on leach pads | | | | | | (27,628) | | | (34,538) | | | (62,998) | |
Accounts payable and accrued liabilities | | | | | | (7,011) | | | 32,897 | | | 23,103 | |
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | | | | | | 110,482 | | | 148,709 | | | 91,880 | |
| | | | | | | | | | |
| | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | |
Capital expenditures | | | | | | (309,781) | | | (99,279) | | | (99,772) | |
| | | | | | | | | | |
Proceeds from the sale of assets | | | | | | 6,824 | | | 5,529 | | | 1,033 | |
Purchase of investments | | | | | | (1,955) | | | (2,500) | | | (5,023) | |
Sale of investments | | | | | | 935 | | | 30,831 | | | 2,109 | |
Proceeds from notes receivable | | | | | | — | | | — | | | 7,168 | |
Other | | | | | | (99) | | | (252) | | | 1,919 | |
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | | | | | | (304,076) | | | (65,671) | | | (92,566) | |
| | | | | | | | | | |
| | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | |
Issuance of common stock | 18 | | | | | — | | | — | | | 123,059 | |
Issuance of notes and bank borrowings, net of issuance costs | 11 | | | | | 592,493 | | | 150,000 | | | 60,000 | |
Payments on debt, finance leases, and associated costs | 10,11 | | | | | (430,101) | | | (175,984) | | | (221,854) | |
Silvertip contingent consideration | 20 | | | | | — | | | (18,750) | | | (18,697) | |
Other | | | | | | (4,256) | | | (1,801) | | | (3,404) | |
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | | | | | | 158,136 | | | (46,535) | | | (60,896) | |
| | | | | | | | | | |
| | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | | | | (423) | | | 649 | | | 531 | |
INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | | | | | | (35,881) | | | 37,152 | | | (61,051) | |
| | | | | | | | | | |
| | | | | | | | | | |
Cash, cash equivalents and restricted cash at beginning of period | | | | | | 94,170 | | | 57,018 | | | 118,069 | |
Cash, cash equivalents and restricted cash at end of period | | | | | | $ | 58,289 | | | $ | 94,170 | | | $ | 57,018 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
COEUR MINING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands | Common Stock Shares | | Common Stock Par Value | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income (Loss) | | Total |
Balances at December 31, 2018 | 203,310 | | | $ | 2,033 | | | $ | 3,443,082 | | | $ | (2,592,544) | | | $ | (59) | | | $ | 852,512 | |
Net income (loss) | — | | | — | | | — | | | (341,203) | | | — | | | (341,203) | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (77) | | | (77) | |
Common stock issued for the extinguishment of Senior Notes | 4,453 | | | 45 | | | 21,246 | | | — | | | — | | | 21,291 | |
Common stock issued under "at the market" stock offering | 30,850 | | | 309 | | | 122,523 | | | — | | | — | | | 122,832 | |
Common stock issued for Silvertip contingent consideration payment | 953 | | | 8 | | | 5,965 | | | — | | | — | | | 5,973 | |
Common stock issued/canceled under long-term incentive plans and director fees and options, net | 1,963 | | | 20 | | | 5,656 | | | — | | | — | | | 5,676 | |
Balances at December 31, 2019 | 241,529 | | | $ | 2,415 | | | $ | 3,598,472 | | | $ | (2,933,747) | | | $ | (136) | | | $ | 667,004 | |
Net income (loss) | — | | | — | | | — | | | 25,627 | | | — | | | 25,627 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (11,000) | | | (11,000) | |
Common stock issued for Silvertip contingent consideration payment | 878 | | | 9 | | | 5,286 | | | — | | | — | | | 5,295 | |
Common stock issued/canceled under long-term incentive plans and director fees and options, net | 1,345 | | | 14 | | | 6,539 | | | — | | | — | | | 6,553 | |
Balances at December 31, 2020 | 243,752 | | | $ | 2,438 | | | $ | 3,610,297 | | | $ | (2,908,120) | | | $ | (11,136) | | | $ | 693,479 | |
Net income (loss) | — | | | — | | | — | | | (31,322) | | | — | | | (31,322) | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 9,924 | | | 9,924 | |
Common stock issued for investment | 12,786 | | | 128 | | | 118,649 | | | | | | | 118,777 | |
Common stock issued/canceled under long-term incentive plans and director fees and options, net | 381 | | | 3 | | | 9,401 | | | — | | | — | | | 9,404 | |
Balances at December 31, 2021 | 256,919 | | | $ | 2,569 | | | $ | 3,738,347 | | | $ | (2,939,442) | | | $ | (1,212) | | | $ | 800,262 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 - THE COMPANY
Coeur Mining, Inc. (“Coeur” or the “Company”) is primarily a gold and silver producer with assets in the United States, Mexico and Canada. Coeur was incorporated as an Idaho corporation in 1928 under the name Coeur d’Alene Mines Corporation and on May 16, 2013, changed its state of incorporation from the State of Idaho to the State of Delaware and changed its name to Coeur Mining, Inc. Coeur’s corporate headquarters are in Chicago, Illinois.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Risks and uncertainties
As a mining company, the revenue, profitability and future rate of growth of the Company are substantially dependent on the prevailing prices for gold, silver, zinc and lead. The prices of these metals are volatile and affected by many factors beyond the Company’s control, including prevailing interest rates and returns on other asset classes, expectations regarding inflation, speculation, currency values, governmental decisions regarding precious metals stockpiles, global and regional demand and production, political and economic conditions and other factors. A substantial or extended decline in commodity prices could have a material adverse effect on the Company’s financial position, results of operations, cash flows, access to capital and the quantities of reserves that the Company can economically produce. Further, the carrying value of the Company’s property, plant and equipment, net; mining properties, net; inventories and ore on leach pads are particularly sensitive to the outlook for commodity prices. A decline in the Company’s price outlook from current levels could result in material impairment charges related to these assets.
Use of Estimates
The Company's Consolidated Financial Statements have been prepared in accordance with United States Generally Accepted Accounting Principles. The preparation of the Company's Consolidated Financial Statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and reported amounts of revenues and expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions relate to metal prices and mineral reserves that are the basis for future cash flow estimates utilized in impairment calculations and units-of production amortization calculations, environmental, reclamation and closure obligations, estimates of recoverable silver and gold in leach pad inventories, estimates of fair value for certain reporting units and asset impairments, valuation allowances for deferred tax assets, and the fair value and accounting treatment of financial instruments, equity securities, asset acquisitions, the allocation of fair value to assets and liabilities assumed in connection with business combinations, and derivative instruments. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results will differ from the amounts estimated in these financial statements.
Principles of Consolidation
The Consolidated Financial Statements include the wholly-owned subsidiaries of the Company, the most significant of which are Coeur Mexicana S.A. de C.V., Coeur Rochester, Inc., Coeur Alaska, Inc., Wharf Resources (U.S.A.), Inc., and Coeur Silvertip Holdings Ltd. All intercompany balances and transactions have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents include all highly-liquid investments with an original maturity of three months or less. The Company minimizes its credit risk by investing its cash and cash equivalents with major U.S. and international banks and financial institutions located principally in the United States with a minimum credit rating of A1, as defined by Standard & Poor’s. The Company’s management believes that no concentration of credit risk exists with respect to the investment of its cash and cash equivalents. At certain times, amounts on deposit may exceed federal deposit insurance limits.
Receivables
Trade receivables and other receivable balances are reported at outstanding principal amounts, net of an allowance for doubtful accounts, if deemed necessary. Management evaluates the collectability of receivable account balances to determine the allowance, if any. Management considers the other party's credit risk and financial condition, as well as current and projected economic and market conditions, in determining the amount of the allowance. Receivable balances are written off when management determines that the balance is uncollectible.
Ore on Leach Pads
The heap leach process extracts silver and gold by placing ore on an impermeable pad and applying a diluted cyanide solution that dissolves a portion of the contained silver and gold, which are then recovered in metallurgical processes.
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The Company uses several integrated steps to scientifically measure the metal content of ore placed on the leach pads. As the ore body is drilled in preparation for the blasting process, samples are taken of the drill residue which are assayed to determine estimated quantities of contained metal. The Company then processes the ore through crushing facilities where the output is again weighed and sampled for assaying. A metallurgical reconciliation with the data collected from the mining operation is completed with appropriate adjustments made to previous estimates. The crushed ore is then transported to the leach pad for application of the leaching solution. As the leach solution is collected from the leach pads, it is continuously sampled for assaying. The quantity of leach solution is measured by flow meters throughout the leaching and precipitation process. After precipitation, the product is converted to doré at the Rochester mine and a form of gold concentrate at the Wharf mine, representing the final product produced by each mine. The inventory is stated at lower of cost or net realizable value, with cost being determined using a weighted average cost method.
The historical cost of metal expected to be extracted within 12 months is classified as current and the historical cost of metals contained within the broken ore expected to be extracted beyond 12 months is classified as non-current. Ore on leach pads is valued based on actual production costs incurred to produce and place ore on the leach pad, less costs allocated to minerals recovered through the leach process.
The estimate of both the ultimate recovery expected over time and the quantity of metal that may be extracted relative to the time the leach process occurs requires the use of estimates, which are inherently inaccurate due to the nature of the leaching process. The quantities of metal contained in the ore are based upon actual weights and assay analysis. The rate at which the leach process extracts gold and silver from the crushed ore is based upon laboratory testing and actual experience of more than 20 years of leach pad operations at the Rochester mine and 30 years of leach pad operations at the Wharf mine. The assumptions used by the Company to measure metal content during each stage of the inventory conversion process includes estimated recovery rates based on laboratory testing and assaying. The Company periodically reviews its estimates compared to actual experience and revises its estimates when appropriate. The ultimate recovery will not be known until leaching operations cease. Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis. As of December 31, 2021, the Company’s estimated recoverable ounces of gold and silver on the leach pads were 43,699 and 4.9 million, respectively. In 2020, the Company revised its recovery rate assumptions in line with the updated technical report for Rochester filed in December 2020. This change resulted in an adjustment to the ending Ore on leach pads balance with the resulting charges allocated between Costs Applicable to Sales and Amortization in the amounts of $7.2 million and $1.2 million, respectively. In June 2021, the Company updated the recovery rate assumption on the Stage IV leach pad at Rochester, based on the historical performance of the leach pad since the third quarter of 2019. This change resulted in an adjustment to the ending ore on leach pads balance with the resulting non-cash charges allocated between Costs Applicable to Sales and Amortization in the amounts of $8.6 million and $2.2 million, respectively.
Metal and Other Inventory
Inventories include concentrate, doré, and operating materials and supplies. The classification of inventory is determined by the stage at which the ore is in the production process. All inventories are stated at the lower of cost or net realizable value, with cost being determined using a weighted average cost method. Concentrate and doré inventory includes product at the mine site and product held by refineries. Metal inventory costs include direct labor, materials, depreciation, depletion and amortization as well as overhead costs relating to mining activities.
Property, Plant, and Equipment
Expenditures for new facilities, assets acquired pursuant to finance leases, new assets or expenditures that extend the useful lives of existing facilities are capitalized and depreciated using the straight-line method at rates sufficient to depreciate such costs over the shorter of estimated productive lives of such facilities, lease term, or the useful life of the individual assets. Productive lives range from 7 to 30 years for buildings and improvements and 3 to 10 years for machinery and equipment. Certain mining equipment is depreciated using the units-of-production method based upon estimated total proven and probable reserves.
Mining Properties and Mine Development
Capitalization of mine development costs begins once all operating permits have been secured, mineralization is classified as proven and probable reserves and a final feasibility study has been completed. Mine development costs include engineering and metallurgical studies, drilling and other related costs to delineate an ore body, the removal of overburden to initially expose an ore body at open pit surface mines and the building of access ways, shafts, lateral access, drifts, ramps and other infrastructure at underground mines. Costs incurred before mineralization are classified as proven and probable reserves and are capitalized if a project is in pre-production phase or expensed and classified as Exploration or Pre-development if the project is not yet in pre-production. Mine development costs are amortized using the units-of-production method over the estimated life of the ore body generally based on recoverable ounces to be mined from proven and probable reserves. Interest
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
expense allocable to the cost of developing mining properties and to construct new facilities is capitalized until assets are ready for their intended use.
Drilling and related costs incurred at the Company’s operating mines are expensed as incurred in Exploration, unless the Company can conclude with a high degree of confidence, prior to the commencement of a drilling program, that the drilling costs will result in the conversion of a mineral resource into mineral reserve. The Company’s assessment is based on the following factors: results from previous drill programs; results from geological models; results from a mine scoping study confirming economic viability of the resource; and preliminary estimates of mine inventory, ore grade, cash flow and mine life. In addition, the Company must have all permitting and/or contractual requirements necessary to have the right to and/or control of the future benefit from the targeted ore body. The costs of a drilling program that meet these criteria are capitalized as mine development costs. Drilling and related costs of approximately $19.9 million and $8.0 million at December 31, 2021 and 2020, respectively, were capitalized.
The cost of removing overburden and waste materials to access the ore body at an open pit mine prior to the production phase are referred to as “pre-stripping costs.” Pre-stripping costs are capitalized during the development of an open pit mine. Stripping costs incurred during the production phase of a mine are variable production costs that are included as a component of inventory to be recognized in Costs applicable to sales in the same period as the revenue from the sale of inventory.
Mineral Interests
Significant payments related to the acquisition of land and mineral rights are capitalized. Prior to acquiring such land or mineral rights, the Company generally makes a preliminary evaluation to determine that the property has significant potential to develop an economic ore body. The time between initial acquisition and full evaluation of a property’s potential is variable and is determined by many factors including: location relative to existing infrastructure, the property’s stage of development, geological controls and metal prices. If a mineable ore body is discovered, such costs are amortized when production begins using the units-of-production method based on recoverable ounces to be mined from proven and probable reserves. If no mineable ore body is discovered, such costs are expensed in the period in which it is determined the property has no future economic value.
Impairment of Long-lived Assets
We review and evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Asset impairment is considered to exist if the total estimated undiscounted pretax future cash flows are less than the carrying amount of the asset. In estimating future cash flows, assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of future cash flows from other asset groups. An impairment loss is measured by discounted estimated future cash flows, and recorded by reducing the asset's carrying amount to fair value. Future cash flows are estimated based on estimated quantities of recoverable minerals, expected gold, silver, lead and zinc prices (considering current and historical prices, trends and related factors), production levels, operating costs, capital requirements and reclamation costs, all based on life-of-mine plans.
Existing proven and probable reserves and value beyond proven and probable reserves, including mineralization other than proven and probable reserves are included when determining the fair value of mine site asset groups at acquisition and, subsequently, in determining whether the assets are impaired. The term “recoverable minerals” refers to the estimated amount of gold, silver, lead and zinc that will be obtained after taking into account losses during ore processing and treatment. Estimates of recoverable minerals from exploration stage mineral interests are risk adjusted based on management’s relative confidence in such materials. The ability to achieve the estimated quantities of recoverable minerals from exploration stage mineral interests involves further risks in addition to those risk factors applicable to mineral interests where proven and probable reserves have been identified, due to the lower level of confidence that the identified mineral resources could ultimately be mined economically. Assets classified as exploration potential have the highest level of risk that the carrying value of the asset can be ultimately realized, due to the still lower level of geological confidence and economic modeling.
During the fourth quarter of 2019, the Company performed a comprehensive analysis of its Silvertip property and determined that indicators of impairment existed, primarily as a result of continued deterioration in zinc and lead market conditions as well as ongoing challenges related to the processing facility. As a result of the impairment indicators, a recoverability test was performed and the Company concluded that the long-lived assets for the Silvertip property was impaired. A non-cash impairment charge of $250.8 million was recorded during the fourth quarter of 2019. The write-down was allocated between Property, plant and equipment, net, Mining properties, net and Other non-current assets, in the amounts of $43.6 million, $201.5 million and $5.7 million, respectively. See Note 4 -- Impairment of Long-lived Assets and 16 -- Fair Value Measurements for additional detail of the impairment and assumptions used in the determination of the fair value of the long-lived assets tested for impairment.
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Properties Held for Sale
In determining whether to classify a property as held for sale, the Company considers whether: (i) management has committed to a plan to sell the property; (ii) the investment is available for immediate sale, in its present condition; (iii) the Company has initiated a program to locate a buyer; (iv) the Company believes that the sale of the property is probable; (v) the Company has received a significant non-refundable deposit for the purchase of the property; (vi) the Company is actively marketing the property for sale at a price that is reasonable in relation to its estimated fair value; and (vii) actions required for the Company to complete the plan indicate that it is unlikely that any significant changes will be made to the plan. If all of the above criteria are met, the Company classifies the property as held for sale.
At September 30, 2021, the La Preciosa project met the held for sale criteria. However, considering that the La Preciosa project was not an operating mine and does not represent a strategic shift, the Company determined that the expected disposal of the La Preciosa project does not represent a strategic shift that had a major effect on the entity's results and operations, therefore, the applicable assets, liabilities for the current period presented are classified on the Consolidated Balance Sheets as held for sale. However, the applicable assets, liabilities for the prior period and the operating results for all periods presented are not presented separately as held for sale.
Restricted Assets
The Company, under the terms of its self-insurance and bonding agreements with certain banks, lending institutions and regulatory agencies, is required to collateralize certain portions of its obligations. The Company has collateralized these obligations by assigning certificates of deposit that have maturity dates ranging from three months to a year, to the respective institutions or agencies. At December 31, 2021 and 2020, the Company held certificates of deposit and cash under these agreements of $9.1 million and $9.5 million, respectively. The ultimate timing of the release of the collateralized amounts is dependent on the timing and closure of each mine and repayment of the facility. In order to release the collateral, the Company must seek approval from certain government agencies responsible for monitoring the mine closure status. Collateral could also be released to the extent the Company is able to secure alternative financial assurance satisfactory to the regulatory agencies. The Company believes there is a reasonable probability that the collateral will remain in place beyond a twelve-month period and has therefore classified these investments as long-term.
Leases
We determine if an arrangement is, or contains, a lease at the inception date. Operating leases are included in Other assets, non-current with the related liabilities included in Accrued liabilities and Other and Other long-term liabilities. Assets under finance leases, which primarily represent property and equipment, are included in Property, plant and equipment, net, with the related liabilities included in debt, current and debt, non-current on the Consolidated Balance Sheet.
Operating lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. We use our estimated incremental borrowing rate in determining the present value of lease payments. Variable components of the lease payments such as maintenance costs are expensed as incurred and not included in determining the present value. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components which are accounted for as a single lease component. See Note 10 -- Leases for additional information related to the Company’s operating and finance leases.
Reclamation
The Company recognizes obligations for the expected future retirement of tangible long-lived assets and other associated asset retirement costs. The fair value of a liability for an asset retirement obligation will be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. An accretion cost, representing the increase over time in the present value of the liability, is recorded each period in Pre-development, reclamation, and other. As reclamation work is performed or liabilities are otherwise settled, the recorded amount of the liability is reduced. Future remediation costs for inactive mines are accrued based on management’s best estimate at the end of each period of the discounted costs expected to be incurred at the site. Such cost estimates include, where applicable, ongoing care and maintenance and monitoring costs. Changes in estimates are reflected prospectively in the period an estimate is revised. See Note 12 -- Reclamation for additional information.
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Foreign Currency
The assets and liabilities of the Company’s foreign subsidiaries are measured using U.S. dollars as their functional currency. Revenues and expenses are remeasured at the average exchange rate for the period. Foreign currency gains and losses are included in the determination of net income or loss.
Derivative Financial Instruments
The Company is exposed to various market risks, including the effect of changes in metal prices, foreign exchange rates and interest rates, and uses derivatives to manage financial exposures that occur in the normal course of business. The Company may elect to designate certain derivatives as hedging instruments under U.S. GAAP.
The Company, from time to time, uses derivative contracts to protect the Company’s exposure to fluctuations in metal prices and foreign exchange rates. The Company has elected to designate these instruments as cash flow hedges of forecasted transactions at their inception. Assuming normal market conditions, the change in the market value of such derivative contracts has historically been, and is expected to continue to be, highly effective at offsetting changes in price movements of the hedged item. The effective portions of cash flow hedges are recorded in accumulated other comprehensive income (loss) until the hedged item is recognized in earnings. Deferred gains and losses associated with cash flow hedges of metal sales revenue are recognized as a component of Revenue in the same period as the related sale is recognized. Deferred gains and losses associated with cash flow hedges of foreign currency transactions are recognized as a component of Costs Applicable to Sales or Pre-development, Reclamation and Other in the same period the related expenses are incurred.
For derivatives not designated as hedging instruments, the Company recognizes derivatives as either assets or liabilities on the balance sheet and measures those instruments at fair value. Changes in the value of derivative instruments not designated as hedging instruments are recorded each period in the Consolidated Statement of Comprehensive Income (Loss) in Fair value adjustments, net or Revenue. Management applies judgment in estimating the fair value of instruments that are highly sensitive to assumptions regarding commodity prices, market volatilities, and foreign currency exchange rates. See Note 16 -- Derivative Financial Instruments and Hedging Activities for additional information.
Stock-based Compensation
The Company estimates the fair value of stock options using the Black-Scholes option pricing model and stock appreciation rights (“SARs”) awards using market comparison. Stock options granted are accounted for as equity-based awards and SARs are accounted for as liability-based awards. The value of the SARs is remeasured at each reporting date. The Company estimates forfeitures of stock-based awards based on historical data and periodically adjusts the forfeiture rate. The adjustment of the forfeiture rate is recorded as a cumulative adjustment in the period the forfeiture estimate is changed. Compensation costs related to stock based compensation are included in General and administrative expenses, Costs applicable to sales, and Property, plant, and equipment, net as deemed appropriate.
The fair value of restricted stock is based on the Company's stock price on the date of grant. The fair value of performance leverage stock units with market conditions is determined using a Monte Carlo simulation model. Stock based compensation expense related to awards with a market or performance condition is generally recognized over the vesting period of the award utilizing the graded vesting method, while all other awards are recognized on a straight-line basis. The Company's estimates may be impacted by certain variables including, but not limited to, stock price volatility, employee stock option exercise behaviors, additional stock option grants, estimates of forfeitures, the Company's performance, and related tax impacts. See Note 14 -- Stock-Based Compensation for additional information.
Income and Mining Taxes
The Company uses an asset and liability approach which results in the recognition of deferred tax liabilities and assets for the expected future tax consequences or benefits of temporary differences between the financial reporting basis and the tax basis of assets and liabilities, as well as operating loss and tax credit carryforwards, using enacted tax rates in effect in the years in which the differences are expected to reverse.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of its deferred tax assets will not be realized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. A valuation allowance has been provided for the portion of the Company’s net deferred tax assets for which it is more likely than not that they will not be realized.
Revenue Recognition
The Company produces doré and concentrate that is shipped to third-party refiners and smelters, respectively, for processing. The Company enters into contracts to sell its metal to various third-party customers which may include the refiners
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
and smelters that process the doré and concentrate. The Company’s performance obligation in these transactions is generally the transfer of metal to the customer.
In the case of doré shipments, the Company generally sells refined metal at market prices agreed upon by both parties. The Company also has the right, but not the obligation, to sell a portion of the anticipated refined metal in advance of being fully refined. When the Company sells refined metal or advanced metal, the performance obligation is satisfied when the metal is delivered to the customer. Revenue and Costs Applicable to Sales are recorded on a gross basis under these contracts at the time the performance obligation is satisfied.
Under the Company’s concentrate sales contracts with third-party smelters, metal prices are set on a specified future quotational period, typically one to three months, after the shipment date based on market prices. When the Company sells gold concentrate to the third-party smelters, the performance obligation is satisfied when risk of loss is transferred to the customer. The contracts, in general, provide for provisional payment based upon provisional assays and historical metal prices. Final settlement is based on the applicable price for the specified future quotational period and generally occurs three to six months after shipment. The Company’s provisionally priced sales contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of concentrates measured at the forward price at the time of sale. The embedded derivative does not qualify for hedge accounting and is adjusted to fair value through revenue each period until the date of final metal settlement.
The Company also sells concentrate under off-take agreements to third-party customers that are responsible for arranging the smelting of the concentrate. Prices can either be fixed or based on a quotational period. The quotational period varies by contract, but is generally a one-month period following the shipment of the concentrate. The performance obligation is satisfied when risk of loss is transferred to the customer.
The Company recognizes revenue from concentrate sales, net of treatment and refining charges, when it satisfies the performance obligation of transferring control of the concentrate to the customer.
For doré and off-take sales, the Company may incur a finance charge related to advance sales that is not considered significant and, as such, is not considered a separate performance obligation. In addition, the Company has elected to treat freight costs as a fulfillment cost under ASC 606 and not as a separate performance obligation.
The Company’s gold stream agreement with a subsidiary of Franco-Nevada Corporation (“Franco-Nevada”) provided for a $22.0 million deposit paid by Franco-Nevada in exchange for the right and obligation, commencing in 2016, to purchase 50% of a portion of Palmarejo gold production at the lesser of $800 or market price per ounce. Because there is no minimum obligation associated with the deposit, it is not considered financing, and each shipment is considered to be a separate performance obligation. The streaming agreement represents a contract liability under ASC 606, which requires the Company to ratably recognize a portion of the deposit as revenue for each gold ounce delivered to Franco-Nevada. The remaining unamortized balance is included in Accrued liabilities and other and Other long-term liabilities on the Consolidated Balance Sheet. See Note 20 -- Commitments and Contingencies for additional detail.
The following table presents a rollforward of the Franco-Nevada contract liability balance:
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
In thousands | | | | | 2021 | | 2020 | | 2019 |
Opening Balance | | | | | $ | 9,376 | | | $ | 11,061 | | | $ | 12,918 | |
Revenue Recognized | | | | | (1,226) | | | (1,685) | | | (1,857) | |
Closing Balance | | | | | $ | 8,150 | | | $ | 9,376 | | | $ | 11,061 | |
In December 2020, the Company received a $15.0 million prepayment (the “December 2020 Prepayment”) for deliveries of gold concentrate from the Kensington mine pursuant to the Amended Sales Contract (as defined in Note 21). In the first half of 2021, the Kensington mine delivered $15.0 million of gold concentrate to the counterparty in satisfaction of this prepayment obligation. The Amended Sales Contract was further amended effective June 2021, to include options for Coeur to receive up to two additional prepayments of up to $15.0 million each for deliveries of gold concentrate from the Kensington mine, and Coeur exercised the option to receive the first $15.0 million prepayment in June 2021 (the “June 2021 Prepayment”), of which $15.0 million in gold ounces were delivered in the second half 2021. In December 2021, the Company exercised the option to receive the second $15.0 million prepayment (the “December 2021 Prepayment). The Amended Sales Contract represents a contract liability under ASC 606, which requires the Company to recognize ratably a portion of the deposit as revenue for each gold ounce delivered to the customer. The remaining contract liability is included in Accrued liabilities and other on the Consolidated Balance Sheet. See Note 20 -- Commitments and Contingencies for additional detail.
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following table presents a rollforward of the Amended Sales Contract liability balance:
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
In thousands | | | | | 2021 | | 2020 | | 2019 |
Opening Balance | | | | | $ | 15,003 | | | $ | 15,009 | | | $ | — | |
Additions | | | | | 30,013 | | | 30,177 | | | 40,009 | |
Revenue Recognized | | | | | (30,000) | | | (30,183) | | | (25,000) | |
Closing Balance | | | | | $ | 15,016 | | | $ | 15,003 | | | $ | 15,009 | |
Recently Adopted Accounting Standards
In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2019-12 (“ASU 2019-12”) “Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740)” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 will be effective for interim and annual periods beginning after December 15, 2020 (January 1, 2021 for the Company). Early adoption is permitted. The adoption of the new standard did not have a material impact on the Company’s consolidated net income, financial position or cash flows.
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 3 – SEGMENT REPORTING
The Company’s operating segments include the Palmarejo, Rochester, Kensington, Wharf and Silvertip mines. Except for the Silvertip development property, all operating segments are engaged in the discovery, mining, and production of gold and/or silver. The Silvertip development property, which suspended mining and processing activities in February 2020, is engaged in the discovery of silver, zinc and lead. Other includes the Sterling/Crown and La Preciosa projects, other mineral interests, strategic equity investments, corporate office, elimination of intersegment transactions, and other items necessary to reconcile to consolidated amounts.
Financial information relating to the Company’s segments is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2021 | Palmarejo | | Rochester | | Kensington | | Wharf | | Silvertip | | Other | | Total |
Revenue | | | | | | | | | | | | | |
Gold sales | $ | 150,098 | | | $ | 49,659 | | | $ | 214,635 | | | $ | 164,519 | | | $ | — | | | $ | — | | | $ | 578,911 | |
Silver sales | 170,176 | | | 81,163 | | | 370 | | | 2,208 | | | — | | | — | | | 253,917 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Metal sales | 320,274 | | | 130,822 | | | 215,005 | | | 166,727 | | | — | | | — | | | 832,828 | |
Costs and Expenses | | | | | | | | | | | | | |
Costs applicable to sales(1) | 153,655 | | | 131,240 | | | 133,065 | | | 93,579 | | | — | | | — | | | 511,539 | |
Amortization | 36,062 | | | 20,187 | | | 54,933 | | | 11,038 | | | 4,797 | | | 1,298 | | | 128,315 | |
Exploration | 8,561 | | | 6,016 | | | 6,656 | | | 143 | | | 15,287 | | | 14,506 | | | 51,169 | |
| | | | | | | | | | | | | |
Other operating expenses | 4,443 | | | 5,886 | | | 6,299 | | | 1,786 | | | 25,031 | | | 45,632 | | | 89,077 | |
Other income (expense) | | | | | | | | | | | | | |
Loss on debt extinguishment | — | | | — | | | — | | | — | | | — | | | (9,173) | | | (9,173) | |
Fair value adjustments, net | — | | | — | | | — | | | — | | | — | | | (543) | | | (543) | |
Interest expense, net | (592) | | | (1,034) | | | (704) | | | (145) | | | 1,276 | | | (15,252) | | | (16,451) | |
Other, net(3) | (28,197) | | | (357) | | | (150) | | | 1,650 | | | (1,465) | | | 5,594 | | | (22,925) | |
Income and mining tax (expense) benefit | (29,730) | | | 559 | | | (414) | | | (4,799) | | | 1,478 | | | (2,052) | | | (34,958) | |
Net Income (loss) | $ | 59,034 | | | $ | (33,339) | | | $ | 12,784 | | | $ | 56,887 | | | $ | (43,826) | | | $ | (82,862) | | | $ | (31,322) | |
| | | | | | | | | | | | | |
Segment assets(2) | $ | 294,893 | | | $ | 559,283 | | | $ | 142,926 | | | $ | 87,579 | | | $ | 230,617 | | | $ | 109,636 | | | $ | 1,424,934 | |
Capital expenditures | $ | 36,539 | | | $ | 166,548 | | | $ | 27,522 | | | $ | 8,072 | | | $ | 70,069 | | | $ | 1,031 | | | $ | 309,781 | |
(1) Excludes amortization
(2) Segment assets include receivables, prepaids, inventories, property, plant and equipment, and mineral interests
(3) See Note 18 -- Additional Comprehensive Income (Loss) Detail for additional detail
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2020 | Palmarejo | | Rochester | | Kensington | | Wharf | | Silvertip | | Other | | Total |
Revenue | | | | | | | | | | | | | |
Gold sales | $ | 154,056 | | | $ | 46,337 | | | $ | 216,497 | | | $ | 167,743 | | | $ | — | | | $ | — | | | $ | 584,633 | |
Silver sales | 132,525 | | | 63,916 | | | — | | | 2,504 | | | 1,230 | | | — | | | 200,175 | |
Zinc sales | — | | | — | | | — | | | — | | | (662) | | | — | | | (662) | |
Lead sales | — | | | — | | | — | | | — | | | 1,315 | | | — | | | 1,315 | |
Metal sales | 286,581 | | | 110,253 | | | 216,497 | | | 170,247 | | | 1,883 | | | — | | | 785,461 | |
Costs and Expenses | | | | | | | | | | | | | |
Costs applicable to sales(1) | 125,204 | | | 86,112 | | | 121,727 | | | 89,635 | | | 17,657 | | | — | | | 440,335 | |
Amortization | 44,873 | | | 14,306 | | | 49,477 | | | 12,473 | | | 8,923 | | | 1,335 | | | 131,387 | |
Exploration | 6,955 | | | 3,303 | | | 8,568 | | | 905 | | | 12,228 | | | 10,684 | | | 42,643 | |
| | | | | | | | | | | | | |
Other operating expenses | 7,927 | | | 5,144 | | | 12,012 | | | 838 | | | 23,123 | | | 40,332 | | | 89,376 | |
Other income (expense) | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Fair value adjustments, net | — | | | — | | | — | | | — | | | — | | | 7,601 | | | 7,601 | |
Interest expense, net | (918) | | | (1,142) | | | (1,017) | | | (182) | | | (672) | | | (16,777) | | | (20,708) | |
Other, net | (5,273) | | | (2,718) | | | (18) | | | (69) | | | 1,793 | | | 344 | | | (5,941) | |
Income and mining tax (expense) benefit | (28,029) | | | (863) | | | (1,244) | | | (6,644) | | | — | | | (265) | | | (37,045) | |
Net Income (loss) | $ | 67,402 | | | $ | (3,335) | | | $ | 22,434 | | | $ | 59,501 | | | $ | (58,927) | | | $ | (61,448) | | | $ | 25,627 | |
| | | | | | | | | | | | | |
Segment assets(2) | $ | 305,291 | | | $ | 346,986 | | | $ | 169,414 | | | $ | 75,047 | | | $ | 157,529 | | | $ | 177,886 | | | $ | 1,232,153 | |
Capital expenditures | $ | 25,511 | | | $ | 37,542 | | | $ | 19,825 | | | $ | 2,447 | | | $ | 13,144 | | | $ | 810 | | | $ | 99,279 | |
(1) Excludes amortization
(2) Segment assets include receivables, prepaids, inventories, property, plant and equipment, and mineral interests
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, 2019 | Palmarejo | | Rochester | | Kensington | | Wharf | | Silvertip | | Other | | Total |
Revenue | | | | | | | | | | | | | |
Gold sales | $ | 141,669 | | | $ | 50,225 | | | $ | 181,111 | | | $ | 120,342 | | | $ | — | | | $ | — | | | $ | 493,347 | |
Silver sales | 111,032 | | | 61,799 | | | — | | | 1,072 | | | 17,575 | | | $ | — | | | 191,478 | |
Zinc sales | — | | | — | | | — | | | — | | | 12,806 | | | — | | | 12,806 | |
Lead sales | — | | | — | | | — | | | — | | | 13,871 | | | — | | | 13,871 | |
Metal sales | 252,701 | | | 112,024 | | | 181,111 | | | 121,414 | | | 44,252 | | | — | | | 711,502 | |
Costs and Expenses | | | | | | | | | | | | | |
Costs applicable to sales(1) | 141,927 | | | 100,205 | | | 119,602 | | | 80,689 | | | 108,758 | | | — | | | 551,181 | |
Amortization | 59,379 | | | 18,041 | | | 50,592 | | | 12,280 | | | 36,738 | | | 1,846 | | | 178,876 | |
Exploration | 5,658 | | | 657 | | | 5,588 | | | 272 | | | 2,469 | | | 7,883 | | | 22,527 | |
Write-downs | — | | | — | | | — | | | — | | | 250,814 | | | — | | | 250,814 | |
Other operating expenses | 4,591 | | | 4,572 | | | 1,248 | | | 2,832 | | | 1,216 | | | 38,455 | | | 52,914 | |
Other income (expense) | | | | | | | | | | | | | |
Loss on debt extinguishment | — | | | — | | | — | | | — | | | — | | | (1,281) | | | (1,281) | |
Fair value adjustments, net | — | | | — | | | — | | | — | | | — | | | 16,030 | | | 16,030 | |
Interest expense, net | (444) | | | (1,015) | | | (1,333) | | | (100) | | | (1,137) | | | (20,742) | | | (24,771) | |
Other, net | (4,798) | | | (378) | | | (704) | | | 89 | | | (557) | | | 3,155 | | | (3,193) | |
Income and mining tax (expense) benefit | (14,257) | | | (709) | | | — | | | (3,041) | | | 32,084 | | | (2,948) | | | 11,129 | |
Income (loss) from continuing operations | $ | 21,647 | | | $ | (13,553) | | | $ | 2,044 | | | $ | 22,289 | | | $ | (325,353) | | | $ | (53,970) | | | $ | (346,896) | |
Income (loss) from discontinued operations | $ | — | | | $ | — | | | $ | — | | | $ | — | | | — | | | $ | 5,693 | | | $ | 5,693 | |
Segment assets(2) | $ | 319,292 | | | $ | 284,878 | | | $ | 194,076 | | | $ | 84,765 | | | 164,125 | | | $ | 168,647 | | | $ | 1,215,783 | |
Capital expenditures | $ | 32,658 | | | $ | 22,592 | | | $ | 23,513 | | | $ | 2,220 | | | 17,504 | | | $ | 1,285 | | | $ | 99,772 | |
(1) Excludes amortization
(2) Segment assets include receivables, prepaids, inventories, property, plant and equipment, and mineral interests
| | | | | | | | | | | |
| |
Assets | December 31, 2021 | | December 31, 2020 |
Total assets for reportable segments | $ | 1,424,934 | | | $ | 1,232,153 | |
Cash and cash equivalents | 56,664 | | | 92,794 | |
Other assets | 252,824 | | | 79,030 | |
Total consolidated assets | $ | 1,734,422 | | | $ | 1,403,977 | |
Geographic Information
| | | | | | | | | | | |
Long-Lived Assets | December 31, 2021 | | December 31, 2020 |
United States | $ | 704,007 | | | $ | 503,818 | |
Mexico | 244,758 | | | 293,436 | |
Canada | 223,876 | | | 149,018 | |
Other | 125 | | | 657 | |
Total | $ | 1,172,766 | | | $ | 946,929 | |
| | | | | | | | | | | | | | | | | | | | | |
Revenue | | | Year ended December 31, |
| | | | 2021 | | 2020 | | 2019 |
United States | | | | | $ | 512,554 | | | $ | 496,997 | | | $ | 414,549 | |
Mexico | | | | | 320,274 | | | 286,581 | | | 252,701 | |
Canada | | | | | — | | | 1,883 | | | 44,252 | |
Total | | | | | $ | 832,828 | | | $ | 785,461 | | | $ | 711,502 | |
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The Company's doré, as well as the concentrate product produced by the Wharf mine, is refined into gold and silver bullion according to benchmark standards set by the London Bullion Market Association, which regulates the acceptable requirements for bullion traded in the London precious metals markets. The Company then sells its gold and silver bullion to multi-national banks, bullion trading houses, and refiners across the globe. The Company had seven trading counterparties at December 31, 2021. The Company's sales of doré or concentrate product produced by the Palmarejo, Rochester, and Wharf mines amounted to approximately 74%, 72%, and 68%, of total metal sales for the years ended December 31, 2021, 2020, and 2019, respectively.
The Company's gold concentrate product from the Kensington mine and the zinc and lead concentrates from the Silvertip development property are sold under a variety of agreements with smelters and traders, and the smelters and traders pay the Company for the metals recovered from the concentrates. The Company’s sales of concentrate produced by the Kensington and Silvertip development property amounted to approximately 26%, 28%, and 32% of total metal sales for the years ended December 31, 2021, 2020, and 2019, respectively.
The Company believes that the loss of any one smelter, refiner, trader or third-party customer would not have a material adverse effect on the Company due to the liquidity of the markets and current availability of alternative trading counterparties.
The following table indicates customers that represent 10% or more of total sales of metal for at least one of the years December 31, 2021, 2020, and 2019 (in millions):
| | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | |
Customer | 2021 | | 2020 | | 2019 | Segments reporting revenue |
Asahi | $ | 323.8 | | | $ | 272.1 | | | $ | 341.0 | | Palmarejo, Kensington, Rochester, Wharf |
Ocean Partners | 176.4 | | | 161.0 | | | 149.7 | | Palmarejo, Kensington, Silvertip |
Toronto Dominion Bank | 61.9 | | | 88.6 | | | 35.1 | | Rochester |
Techemet Metal Trading | 62.2 | | | 81.8 | | | 9.4 | | Rochester, Wharf |
Argor-Heraeus | 23.3 | | | 79.9 | | | 23.1 | | Palmarejo |
NOTE 4 – IMPAIRMENT OF LONG-LIVED ASSETS
In 2019, the Company performed a comprehensive analysis of its Silvertip property and determined that indicators of impairment existed, primarily as a result of further deterioration in zinc and lead market conditions as well as processing facility-related challenges. As a result, a non-cash impairment charge of $250.8 million was recorded in 2019. The write-down was allocated between Property, plant and equipment, net, Mining properties, net and Other non-current assets, $43.6 million, $201.5 million and $5.7 million, respectively. See Note 15 -- Fair Value Measurements for additional detail of the assumptions used in the determination of the fair value of the long-lived assets tested for impairment.
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 5 – RECEIVABLES
Receivables consist of the following:
| | | | | | | | | | | |
In thousands | December 31, 2021 | | December 31, 2020 |
Current receivables: | | | |
Trade receivables | $ | 4,879 | | | $ | 3,293 | |
VAT receivable | 18,415 | | | 17,080 | |
Income tax receivable | 8,418 | | | 530 | |
| | | |
Other | 705 | | | 2,581 | |
| $ | 32,417 | | | $ | 23,484 | |
Non-current receivables: | | | |
VAT receivable(1) | $ | — | | | $ | 26,447 | |
Other | — | | | — | |
| | | |
| — | | | 26,447 | |
Total receivables | $ | 32,417 | | | $ | 49,931 | |
(1) Represents VAT that was paid to the Mexican government associated with Coeur Mexicana’s prior royalty agreement with a subsidiary of Franco-Nevada Corporation. While the Company continues to pursue recovery from the Mexican government (including through ongoing litigation and potential international arbitration), the Company wrote down the carrying value of the receivable at September 30, 2021. See Note 20 -- Commitments and Contingencies for additional detail.
NOTE 6 – INVENTORY AND ORE ON LEACH PADS
Inventory consists of the following:
| | | | | | | | | | | |
In thousands | December 31, 2021 | | December 31, 2020 |
Inventory: | | | |
Concentrate | $ | 1,643 | | | $ | 2,909 | |
Precious metals | 11,353 | | | 14,788 | |
Supplies | 38,285 | | | 33,513 | |
| $ | 51,281 | | | $ | 51,210 | |
Ore on Leach Pads: | | | |
Current | $ | 81,128 | | | $ | 74,866 | |
Non-current | 73,495 | | | 81,963 | |
| $ | 154,623 | | | $ | 156,829 | |
| | | |
Long-term Stockpile (included in Other) | $ | 18,027 | | | $ | 5,664 | |
| | | |
Total Inventory and Ore on Leach Pads | $ | 223,931 | | | $ | 213,703 | |
Coeur reports the carrying value of metal and leach pad inventory at the lower of cost or net realizable value, with cost being determined using a weighted average cost method. At the end of the fourth quarter of 2021, the cost of metal and leach pad inventory at Rochester exceeded its net realizable value which resulted in a non-cash write down of $8.4 million (approximately $7.3 million was recognized in Costs Applicable to Sales and $1.1 million in Amortization).
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 7 – INVESTMENTS
Equity Securities
The Company makes strategic investments in equity securities of silver and gold exploration, development and royalty and streaming companies.
| | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2021 |
In thousands | Cost | | Gross Unrealized Losses | | Gross Unrealized Gains | | Estimated Fair Value |
Equity Securities | | | | | | | |
Victoria Gold Corp. | $ | 128,710 | | | $ | (4,499) | | | $ | — | | | $ | 124,211 | |
Integra Resources Corp. | 9,455 | | | (1,469) | | | — | | | 7,986 | |
Equity securities | $ | 138,165 | | | $ | (5,968) | | | $ | — | | | $ | 132,197 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| At December 31, 2020 |
In thousands | Cost | | Gross Unrealized Losses | | Gross Unrealized Gains | | Estimated Fair Value |
Equity Securities | | | | | | | |
Metalla Royalty & Streaming Ltd. | $ | 166 | | | $ | — | | | $ | 875 | | | $ | 1,041 | |
Integra Resources Corp. | 7,500 | | | — | | | 4,401 | | | 11,901 | |
Other | 2 | | | (1) | | | — | | | 1 | |
Equity securities | $ | 7,668 | | | $ | (1) | | | $ | 5,276 | | | $ | 12,943 | |
Changes in the fair value of the Company’s investment in equity securities are recognized each period in the Consolidated Statement of Comprehensive Income (Loss) in Fair value adjustments, net. See Note 15 -- Fair Value Measurements for additional details.
On January 4, 2021, the Company completed the sale of 83,556 shares of common stock of Metalla Royalty & Streaming Ltd. (“Metalla”) (“Metalla Common Shares”) at an average price (net of commission) of $11.19 per Metalla Common Share for net proceeds of $0.9 million, resulting in a realized gain of $0.8 million.
On May 10, 2021, the Company entered into a Share Exchange Agreement (the “Exchange Agreement”) with Orion Co-VI Ltd. (“Orion”). Pursuant to the Exchange Agreement, Orion sold 11,067,714 common shares of Victoria Gold Corp., a British Columbia company (“Victoria”) (representing approximately 17.8% of Victoria’s outstanding common shares) to the Company. As consideration for the purchase of Victoria shares, Coeur issued 12,785,485 shares of its common stock (approximately 4.9% of issued and outstanding shares) to Orion.
On June 9, 2021, the Company purchased 265,312 shares of common of Integra Resources Corp. (“Integra”) at a price of $3.30 per share for a total of $0.9 million. On September 16, 2021, the Company purchased an additional 423,213 shares of common stock in Integra at a price of $2.55 per share for a total of $1.1 million. Following completion of the transactions, Coeur owned approximately 5.9% of issued and outstanding Integra Common Shares.
NOTE 8 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
| | | | | | | | | | | |
In thousands | December 31, 2021 | | December 31, 2020 |
Land | $ | 8,480 | | | $ | 10,584 | |
Facilities and equipment | 668,089 | | | 659,676 | |
Assets under finance leases | 115,652 | | | 100,530 | |
| $ | 792,221 | | | $ | 770,790 | |
Accumulated amortization(1) | (620,303) | | | (579,644) | |
| $ | 171,918 | | | $ | 191,146 | |
Construction in progress | 148,049 | | | 38,993 | |
Property, plant and equipment, net | $ | 319,967 | | | $ | 230,139 | |
(1) Includes $63.9 million and $60.3 million of accumulated amortization related to assets under finance leases at December 31, 2021 and December 31, 2020, respectively.
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 9 – MINING PROPERTIES
Mining properties consist of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2021 | Palmarejo | | Rochester | | Kensington | | Wharf | | Silvertip | | Sterling | | | | Other | | Total |
Mine development | $ | 307,698 | | | $ | 437,833 | | | $ | 382,492 | | | $ | 49,045 | | | $ | 67,805 | | | $ | 3,861 | | | | | $ | — | | | $ | 1,248,734 | |
Accumulated amortization | (211,187) | | | (158,805) | | | (302,582) | | | (24,358) | | | (11,685) | | | (1,515) | | | | | — | | | (710,132) | |
| 96,511 | | | 279,028 | | | 79,910 | | | 24,687 | | | 56,120 | | | 2,346 | | | | | — | | | 538,602 | |
Mineral interests | 629,303 | | | 19,098 | | | — | | | 48,062 | | | 114,036 | | | 95,499 | | | | | — | | | 905,998 | |
Accumulated amortization | (532,155) | | | — | | | — | | | (34,818) | | | (24,828) | | | — | | | | | — | | | (591,801) | |
| 97,148 | | | 19,098 | | | — | | | 13,244 | | | 89,208 | | | 95,499 | | | | | — | | | 314,197 | |
| | | | | | | | | | | | | | | | | |
Mining properties, net | $ | 193,659 | | | $ | 298,126 | | | $ | 79,910 | | | $ | 37,931 | | | $ | 145,328 | | | $ | 97,845 | | | | | $ | — | | | $ | 852,799 | |
In June 2021, Silvertip repurchased from Silvertip Resources Investment Cayman Ltd. a net smelter returns royalty of 1.429% on the first 1,434,000 metric tonnes of mineral resources mined, and 1.00% thereafter for consideration of $7.0 million.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2020 | Palmarejo | | Rochester | | Kensington | | Wharf | | Silvertip | | Sterling | | La Preciosa | | Other | | Total |
Mine development | $ | 280,184 | | | $ | 270,648 | | | $ | 360,201 | | | $ | 33,578 | | | $ | 48,589 | | | $ | 4,107 | | | $ | — | | | $ | — | | | $ | 997,307 | |
Accumulated amortization | (194,898) | | | (157,526) | | | (264,014) | | | (22,547) | | | (10,747) | | | (1,099) | | | — | | | — | | | (650,831) | |
| 85,286 | | | 113,122 | | | 96,187 | | | 11,031 | | | 37,842 | | | 3,008 | | | — | | | — | | | 346,476 | |
Mineral interests | 629,303 | | | 18,541 | | | — | | | 48,062 | | | 105,736 | | | 95,499 | | | 49,085 | | | | | 946,226 | |
Accumulated amortization | (518,866) | | | — | | | — | | | (32,217) | | | (24,828) | | | — | | | — | | | | | (575,911) | |
| 110,437 | | | 18,541 | | | — | | | 15,845 | | | 80,908 | | | 95,499 | | | 49,085 | | | — | | | 370,315 | |
| | | | | | | | | | | | | | | | | |
Mining properties, net | $ | 195,723 | | | $ | 131,663 | | | $ | 96,187 | | | $ | 26,876 | | | $ | 118,750 | | | $ | 98,507 | | | $ | 49,085 | | | $ | — | | | $ | 716,790 | |
NOTE 10 – LEASES
Right of Use Assets and Liabilities
The following table summarizes quantitative information pertaining to the Company’s finance and operating leases.
| | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
In thousands | | | | | 2021 | | 2020 | | 2019 |
Lease Cost | | | | | | | | | |
Operating lease cost | | | | | $ | 12,585 | | | $ | 12,036 | | | $ | 11,585 | |
| | | | | | | | | |
Short-term operating lease cost | | | | | $ | 11,219 | | | $ | 8,055 | | | $ | 12,975 | |
| | | | | | | | | |
Finance Lease Cost: | | | | | | | | | |
Amortization of leased assets | | | | | $ | 21,685 | | | $ | 23,921 | | | $ | 21,293 | |
Interest on lease liabilities | | | | | 4,632 | | | 3,634 | | | 4,150 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total finance lease cost | | | | | $ | 26,317 | | | $ | 27,555 | | | $ | 25,443 | |
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Supplemental cash flow information related to leases was as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
In thousands | | | | | 2021 | | 2020 | | 2019 |
Other Information | | | | | | | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | | | |
Operating cash flows from operating leases | | | | | $ | 24,009 | | | $ | 21,348 | | | $ | 24,560 | |
Operating cash flows from finance leases | | | | | $ | 4,632 | | | $ | 3,634 | | | $ | 4,150 | |
Financing cash flows from finance leases | | | | | $ | 31,544 | | | $ | 25,984 | | | $ | 25,975 | |
Supplemental balance sheet information related to leases was as follows:
| | | | | | | | | | | |
In thousands | December 31, 2021 | | December 31, 2020 |
Operating Leases | | | |
Other assets, non-current | $ | 30,987 | | | $ | 40,511 | |
| | | |
Accrued liabilities and other | 11,301 | | | 12,410 | |
Other long-term liabilities | 18,660 | | | 27,433 | |
Total operating lease liabilities | $ | 29,961 | | | $ | 39,843 | |
| | | |
Finance Leases | | | |
Property and equipment, gross | $ | 115,597 | | | $ | 104,433 | |
Accumulated depreciation | (63,879) | | | (60,272) | |
Property and equipment, net | $ | 51,718 | | | $ | 44,161 | |
| | | |
Debt, current | $ | 29,821 | | | $ | 22,074 | |
Debt, non-current | 24,407 | | | 25,837 | |
Total finance lease liabilities | $ | 54,228 | | | $ | 47,911 | |
| | | |
Weighted Average Remaining Lease Term | | | |
Weighted-average remaining lease term - finance leases | 1.62 | | 1.36 |
Weighted-average remaining lease term - operating leases | 3.17 | | 4.00 |
| | | |
Weighted Average Discount Rate | | | |
Weighted-average discount rate - finance leases | 5.08 | % | | 5.37 | % |
Weighted-average discount rate - operating leases | 5.20 | % | | 5.18 | % |
Minimum future lease payments under finance and operating leases with terms longer than one year are as follows:
| | | | | | | | | | | |
As of December 31, 2021 (In thousands) | | | |
| Operating leases | | Finance leases |
2022 | $ | 11,574 | | | $ | 25,657 | |
2023 | 10,868 | | | 15,836 | |
2024 | 8,812 | | | 8,404 | |
2025 | 213 | | | 6,839 | |
2026 | 220 | | | 3,309 | |
Thereafter | 946 | | | — | |
Total | $ | 32,632 | | | $ | 60,045 | |
Less: imputed interest | (2,671) | | | (5,817) | |
Net lease obligation | $ | 29,961 | | | $ | 54,228 | |
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 11 – DEBT
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
In thousands | Current | | Non-Current | | Current | | Non-Current |
2029 Senior Notes, net(1) | $ | — | | | $ | 368,273 | | | $ | — | | | $ | — | |
2024 Senior Notes, net(2) | — | | | — | | | — | | | 227,590 | |
Revolving Credit Facility(3) | — | | | 65,000 | | | — | | | — | |
Finance lease obligations | 29,821 | | | 24,407 | | | 22,074 | | | 25,837 | |
| $ | 29,821 | | | $ | 457,680 | | | $ | 22,074 | | | $ | 253,427 | |
(1) Net of unamortized debt issuance costs of $6.7 million and $0.0 million at December 31, 2021 and December 31, 2020, respectively.
(2) Net of unamortized debt issuance costs of $0.0 million and $2.4 million at December 31, 2021 and December 31, 2020, respectively.
(3) Unamortized debt issuance costs of $2.4 million and $1.5 million at December 31, 2021 and December 31, 2020, respectively, included in Other Non-Current Assets.
2029 Senior Notes
In March 2021, the Company completed an offering of $375.0 million in aggregate principal amount of senior notes in a private placement conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended, for net proceeds of approximately $367.5 million (the “2029 Senior Notes”). The 2029 Senior Notes are governed by an Indenture dated as of March 1, 2021 (the “Indenture”), among the Company, as issuer, certain of the Company's subsidiaries named therein, as guarantors thereto (the “Guarantors”), and The Bank of New York Mellon, as trustee (the “Trustee”). The 2029 Senior Notes bear interest at a rate of 5.125% per year from the date of issuance. Interest on the 2029 Senior Notes is payable semi-annually in arrears on February 15 and August 15 of each year, commencing on August 15, 2021. The 2029 Senior Notes will mature on February 15, 2029 and are fully and unconditionally guaranteed by the Guarantors.
At any time prior to February 15, 2024, the Company may redeem all or part of the 2029 Senior Notes upon not less than 30 nor more than 60 days’ prior notice at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) a make-whole premium as of the date of redemption, plus (iii) accrued and unpaid interest and additional interest, if any, thereon, to the date of redemption. In addition, the Company may redeem some or all of the 2029 Senior Notes on or after February 15, 2024, at redemption prices set forth in the Indenture, together with accrued and unpaid interest. At any time prior to February 15, 2024, the Company may use the proceeds of certain equity offerings to redeem up to 35% of the aggregate principal amount of the 2029 Senior Notes, including any permitted additional 2029 Senior Notes, at a redemption price equal to 105.125% of the principal amount.
The Indenture contains covenants that, among other things, limit the Company’s ability under certain circumstances to incur additional indebtedness, pay dividends or make other distributions or repurchase or redeem capital stock, prepay, redeem or repurchase certain debt, make loans and investments, create liens, sell, transfer or otherwise dispose of assets, enter into transactions with affiliates, enter into agreements restricting the Company's subsidiaries' ability to pay dividends and impose conditions on the Company’s ability to engage in mergers, consolidations and sales of all or substantially all of its assets. The Indenture also contains certain “Events of Default” (as defined in the Indenture) customary for indentures of this type. If an Event of Default has occurred and is continuing, the Trustee or the holders of not less than 25% in aggregate principal amount of the 2029 Senior Notes then outstanding may, and the Trustee at the request of the holders of not less than 25% in aggregate principal amount of the 2029 Senior Notes then outstanding shall, declare all unpaid principal of, premium, if any, and accrued interest on all the 2029 Senior Notes to be due and payable.
2024 Senior Notes
Concurrent with the offering of the 2029 Senior Notes, the Company commenced a cash tender offer (the “Tender Offer”) to purchase the outstanding $230.0 million in aggregate principal amount of its 5.875% Senior Notes due 2024 (the “2024 Senior Notes”). The Tender Offer was made on the terms and subject to the conditions set forth in the Offer to Purchase dated February 22, 2021. The Tender Offer expired at 5:00 p.m., New York City time, on February 26, 2021 (the “Expiration Time”). Holders of the 2024 Senior Notes who tendered (and did not validly withdraw) their notes at or prior to the Expiration Time were entitled to receive in cash $1,029.38 per $1,000 principal amount of 2024 Senior Notes validly tendered (and not validly withdrawn) and accepted for purchase by the Company in the Tender Offer, plus accrued and unpaid interest on such 2024 Senior Notes. $102.8 million aggregate principal amount of the 2024 Senior Notes were validly tendered and purchased by the Company on March 1, 2021. In accordance with the terms of the indenture governing the 2024 Senior Notes, the remaining $127.2 million aggregate principal amount of the 2024 Senior Notes were redeemed on March 31, 2021 at the redemption price specified in the indenture governing the 2024 Senior Notes ($1,029.38 per $1,000 principal amount redeemed, plus accrued and unpaid interest). The Company recorded a loss of $9.2 million as a result of the extinguishment of the 2024 Senior Notes.
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Revolving Credit Facility
In September 2017, the Company, as borrower, and certain subsidiaries of the Company, as guarantors, entered into a $200.0 million senior secured revolving credit facility (“RCF”) pursuant to a credit agreement, dated as of September 29, 2017 (as subsequently amended, the “Credit Agreement”), by and among the Company, as borrower, certain subsidiaries of the Company, as guarantors, Bank of America, N.A., as administrative agent and Bank of America, N.A., Royal Bank of Canada, Bank of Montreal, Chicago Branch, the Bank of Nova Scotia and ING Capital LLC, as lenders (the “Credit Agreement”) with an original term of four years. Loans under the RCF bear interest at a rate equal to either a base rate plus a margin ranging from 1.00% to 1.75% or an adjusted LIBOR rate plus a margin ranging from 2.00% to 2.75%, as selected by the Company, in each case, with such margin determined in accordance with a pricing grid based upon the Company’s consolidated net leverage ratio as of the end of the applicable period. In October 2018, the Company entered into an amendment to the Credit Agreement to increase the RCF by $50.0 million from $200.0 million to $250.0 million and extend the term by approximately one year to October 2022. In April and August of 2019, the Company entered into amendments to the Credit Agreement to, among other items, modify the financial covenants to provide greater flexibility in 2019. On December 14, 2020, the Company entered into an amendment to the Credit Agreement to increase the RCF from $250.0 million to $300.0 million and to include ING Capital LLC as an incremental lender on the RCF. On March 1, 2021, the Company entered into a fifth amendment to the Credit Agreement to, among other things, (i) extend the maturity date of the RCF to March 2025 and (ii) permit the Company to obtain one or more increases of the RCF, which is currently in the amount of $300.0 million, in an aggregate amount of up to $100.0 million in incremental loans and commitments, subject to certain conditions, including obtaining commitments from relevant lenders to provide such increase.
The RCF is secured by substantially all of the assets of the Company and its U.S. subsidiaries, including the land, mineral rights and infrastructure at the Kensington, Rochester and Wharf mines and the Sterling/Crown project as well as a pledge of the shares and other equity interests of certain of the Company’s subsidiaries. The Credit Agreement contains representations and warranties and affirmative and negative covenants that are usual and customary, including representations, warranties, and covenants that, among other things, restrict the ability of the Company and its subsidiaries to incur additional debt, incur or permit liens on assets, make investments and acquisitions, consolidate or merge with any other company, engage in asset sales and make dividends and distributions. The Credit Agreement requires the Company to meet certain financial covenants consisting of a consolidated net leverage ratio and a consolidated interest coverage ratio. Obligations under the RCF may be accelerated upon the occurrence of certain customary events of default.
At December 31, 2021, the Company had $65.0 million drawn at an interest rate of 2.4% and $35.0 million in outstanding letters of credit under the RCF.
Finance Lease Obligations
From time-to-time, the Company acquires mining equipment and facilities under finance lease agreements. In the year ended December 31, 2021, the Company entered into new lease financing arrangements primarily for mining equipment at Rochester and Kensington. Coeur secured a finance lease package for nearly $60 million during the year, a portion of which has been funded as of December 31, 2021. The package is earmarked for planned equipment purchases for POA 11 in 2021 and 2022, and has an interest rate of 5.22%. All finance lease obligations are recorded, upon lease inception, at the present value of future minimum lease payments. See Note 10 -- Leases for additional qualitative and quantitative disclosures related to finance leasing arrangements.
Interest Expense
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
In thousands | | | | | 2021 | | 2020 | | 2019 |
2024 Senior Notes | | | | | $ | 2,591 | | | $ | 13,513 | | | $ | 14,586 | |
2029 Senior Notes | | | | | 16,016 | | | — | | | — | |
Revolving Credit Facility | | | | | 2,296 | | | 3,165 | | | 5,358 | |
Finance lease obligations | | | | | 4,632 | | | 3,634 | | | 4,150 | |
Amortization of debt issuance costs | | | | | 1,726 | | | 1,525 | | | 1,491 | |
Accretion of Silvertip contingent consideration | | | | | — | | | — | | | 396 | |
Other debt obligations | | | | | 303 | | | 344 | | | 580 | |
Capitalized interest | | | | | (11,113) | | | (1,473) | | | (1,790) | |
Total interest expense, net of capitalized interest | | | | | $ | 16,451 | | | $ | 20,708 | | | $ | 24,771 | |
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 12 – RECLAMATION
Reclamation and mine closure costs are based principally on legal and regulatory requirements. Management estimates costs associated with reclamation of mining properties. On an ongoing basis, management evaluates its estimates and assumptions, and future expenditures could differ from current estimates. The estimated reclamation and mine closure costs were discounted using credit adjusted, risk-free interest rates ranging from 6.9% to 10.1%. The asset retirement obligation increased in 2021 due to overall inflationary impacts, increased reclamation and mine closure costs at Rochester associated with work completed to date for POA 11 and additional costs at Wharf and Rochester associated with the existing open pit and leach pad operations.
Changes to the Company’s asset retirement obligations for its operating sites are as follows:
| | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
In thousands | | | | | 2021 | | 2020 |
Asset retirement obligation - Beginning | | | | | $ | 137,120 | | | $ | 134,398 | |
Accretion | | | | | 11,815 | | | 11,574 | |
Additions and changes in estimates | | | | | 34,016 | | | (6,132) | |
Settlements | | | | | (3,845) | | | (2,720) | |
Asset retirement obligation - Ending | | | | | $ | 179,106 | | | $ | 137,120 | |
The Company accrued $2.8 million and $2.2 million at each of December 31, 2021 and December 31, 2020, respectively, for reclamation liabilities related to former mining activities, which are included in Reclamation.
NOTE 13 – INCOME AND MINING TAXES
The components of Income (loss) before income taxes are below:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
In thousands | 2021 | | 2020 | | 2019 |
United States | $ | (34,196) | | | $ | 40,890 | | | $ | (16,702) | |
Foreign | 37,832 | | | 21,782 | | | (341,323) | |
Total | $ | 3,636 | | | $ | 62,672 | | | $ | (358,025) | |
The components of the consolidated Income and mining tax (expense) benefit from continuing operations are below:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
In thousands | 2021 | | 2020 | | 2019 |
Current: | | | | | |
United States | $ | 25 | | | $ | 226 | | | $ | (334) | |
United States — State mining taxes | (5,691) | | | (8,384) | | | (4,001) | |
United States — Foreign withholding tax | (862) | | | (800) | | | (1,598) | |
Canada | — | | | 232 | | | 119 | |
Mexico | (31,175) | | | (36,066) | | | (19,619) | |
Other | — | | | 33 | | | (3) | |
Deferred: | | | | | |
United States | (651) | | | (49) | | | 236 | |
United States — State mining taxes | 1,037 | | | (354) | | | 251 | |
Canada | 1,224 | | | — | | | 32,084 | |
Mexico | 1,135 | | | 8,117 | | | 3,994 | |
Other | — | | | — | | | — | |
Income tax (expense) benefit | $ | (34,958) | | | $ | (37,045) | | | $ | 11,129 | |
The Company’s Income and mining tax benefit (expense) differed from the amounts computed by applying the United States statutory corporate income tax rate for the following reasons:
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
In thousands | 2021 | | 2020 | | 2019 |
Income and mining tax (expense) benefit at statutory rate | $ | (764) | | | $ | (13,161) | | | $ | 75,185 | |
State tax provision from continuing operations | 2,009 | | | (152) | | | 1,243 | |
Change in valuation allowance | (28,615) | | | (17,522) | | | (77,220) | |
| | | | | |
Percentage depletion | 4,968 | | | 5,056 | | | 820 | |
Uncertain tax positions | 920 | | | 2,321 | | | 2,358 | |
U.S. and foreign permanent differences | 4,105 | | | 3,844 | | | 2,272 | |
| | | | | |
Foreign exchange rates | (384) | | | 1,390 | | | (7,066) | |
Foreign inflation and indexing | (1,087) | | | 684 | | | (2,933) | |
Foreign tax rate differences | (4,901) | | | (3,971) | | | 19,729 | |
Mining, foreign withholding, and other taxes | (12,599) | | | (17,457) | | | (2,746) | |
Other, net | 1,390 | | | 1,923 | | | (513) | |
| | | | | |
Income and mining tax (expense) benefit | $ | (34,958) | | | $ | (37,045) | | | $ | 11,129 | |
At December 31, 2021 and 2020, the significant components of the Company’s deferred tax assets and liabilities are below:
| | | | | | | | | | | |
| Year Ended December 31, |
In thousands | 2021 | | 2020 |
Deferred tax liabilities: | | | |
Inventory | — | | | 5 | |
Royalty and other long-term debt | 1,495 | | | 1,094 | |
Foreign subsidiaries - unremitted earnings | — | | | 99 | |
| $ | 1,495 | | | $ | 1,198 | |
Deferred tax assets: | | | |
Net operating loss carryforwards | $ | 267,944 | | | $ | 241,985 | |
Mineral properties | 6,525 | | | 1,907 | |
Property, plant, and equipment | 13,161 | | | 10,841 | |
Mining royalty tax | 8,147 | | | 7,447 | |
Capital loss carryforwards | 15,404 | | | 17,341 | |
Asset retirement obligation | 39,262 | | | 38,761 | |
Unrealized foreign currency loss and other | 1,013 | | | 3,386 | |
Accrued expenses | 20,589 | | | 16,849 | |
Tax credit carryforwards | 26,594 | | | 29,809 | |
| 398,639 | | | 368,326 | |
Valuation allowance | (430,053) | | | (401,304) | |
| (31,414) | | | (32,978) | |
Net deferred tax liabilities | $ | 32,909 | | | $ | 34,176 | |
A valuation allowance is provided for deferred tax assets for which it is more likely than not that the related tax benefits will not be realized. The Company analyzes its deferred tax assets and, if it is determined that the Company will not realize all or a portion of its deferred tax assets, it will record or increase a valuation allowance. Conversely, if it is determined that the Company will ultimately be more likely than not able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced. There are a number of factors that impact the Company’s ability to realize its deferred tax assets. Based upon this analysis, the Company has recorded valuation allowances as follows:
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
| | | | | | | | | | | | | |
| Year Ended December 31, |
In thousands | 2021 | | 2020 | | |
U.S. | $ | 228,942 | | | $ | 215,396 | | | |
Canada | 165,561 | | | 146,611 | | | |
Mexico | 13,277 | | | 15,885 | | | |
New Zealand | 21,822 | | | 22,740 | | | |
Other | 451 | | | 672 | | | |
| $ | 430,053 | | | $ | 401,304 | | | |
The Company has the following tax attribute carryforwards at December 31, 2021, by jurisdiction:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In thousands | U.S. | | Canada | | | | Mexico | | New Zealand | | Other | | Total |
Regular net operating losses | $ | 466,708 | | | $ | 392,061 | | | | | $ | 44,257 | | | $ | 77,764 | | | $ | 919 | | | $ | 981,709 | |
Expiration years | 2022-2038 | | 2028-2041 | | | | 2022-2031 | | Indefinite | | 2022-2026 | | |
Capital losses | 56,534 | | | — | | | | | — | | | — | | | — | | | 56,534 | |
Foreign tax credits | 21,614 | | | — | | | | | — | | | — | | | — | | | 21,614 | |
The majority of the U.S. capital losses will expire in 2022. Foreign tax credits expire if unused beginning in 2022.
The utilization of U.S. net operating loss carryforwards, tax credit carryforwards, and recognized built-in losses may be subject to limitation under the rules regarding a change in stock ownership as determined by the Internal Revenue Code and state tax laws. Section 382 of the Internal Revenue Code of 1986, as amended, imposes annual limitations on the utilization of net operating loss carryforwards, tax credit carryforwards, and certain built-in losses upon an ownership change as defined under that Section. Generally, an ownership change may result from transactions that increase the aggregate ownership of certain shareholders in the Company’s stock by more than 50 percentage points over a three-year testing period. If the Company experiences an ownership change, an annual limitation would be imposed on certain of the Company’s tax attributes, including net operating losses and certain other losses, credits, deductions or tax basis. Management has determined that the Company experienced ownership changes during 2002, 2003, 2007, and 2015 for purposes of Section 382. Based on management’s calculations, the Company does not expect any of its U.S. tax attributes to expire unused as a result of the Section 382 annual limitations. However, the annual limitations may impact the timeframe over which the net operating loss carryforwards can be used, potentially impacting cash tax liabilities in a future period. The U.S. federal tax credits and state net operating losses may potentially be limited as well. We continue to maintain a full valuation allowance on our US net deferred tax assets since it is more likely than not that the related tax benefits will not be realized.
The Company may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a result, if the Company earns U.S. federal taxable income, it may be limited in the ability to (1) recognize current deductions on built-in loss assets and (2) offset this income with our pre-change net operating loss carryforwards and other tax credit carryforwards, which may be subject to limitations, potentially resulting in increased future tax liability to us. Under the Tax Cuts and Jobs Act of 2017 (“TCJA”), federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited to 80% of future taxable income. The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act suspended the 80% limitation on losses incurred in 2018 and in future years, for tax years beginning before January 1, 2021. The Company does not expect this to impact its net operating loss usage.
The Company intends to indefinitely reinvest earnings from Mexican operations.
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
A reconciliation of the beginning and ending amount related to unrecognized tax benefits is below (in thousands):
| | | | | |
Unrecognized tax benefits at December 31, 2019 | $ | 2,706 | |
Gross increase to current period tax positions | — | |
Gross increase to prior period tax positions | (122) | |
Reductions in unrecognized tax benefits resulting from a lapse of the applicable statute of limitations | (1,861) | |
Unrecognized tax benefits at December 31, 2020 | $ | 723 | |
Gross increase to current period tax positions | — | |
Gross increase to prior period tax positions | — | |
Reductions in unrecognized tax benefits resulting from a lapse of the applicable statute of limitations | (428) | |
Unrecognized tax benefits at December 31, 2021 | $ | 295 | |
At December 31, 2021, 2020, and 2019, $0.3 million, $0.7 million, and $2.7 million, respectively, of these gross unrecognized benefits would, if recognized, decrease the Company’s effective tax rate.
The Company operates in numerous countries around the world and is subject to, and pays annual income taxes under, the various income tax regimes in the countries in which it operates. The Company has historically filed, and continues to file, all required income tax returns and paid the taxes reasonably determined to be due. The tax rules and regulations in many countries are highly complex and subject to interpretation. From time to time, the Company is subject to a review of its historic income tax filings and, in connection with such reviews, disputes can arise with the taxing authorities over the interpretation or application of certain rules to the Company’s business conducted within the country involved.
The Company files income tax returns in various U.S. federal and state jurisdictions, in all identified foreign jurisdictions, and various others. The statute of limitations remains open from 2017 for the US federal jurisdiction and from 2013 for certain other foreign jurisdictions. As a result of statutes of limitations that will begin to expire within the next 12 months in various jurisdictions and possible settlement of audit-related issues with taxing authorities in various jurisdictions with respect to which none of these issues are individually significant, the Company believes that it is reasonably possible that the total amount of its unrecognized income tax liability will decrease between $0.5 million and $1.0 million in the next 12 months.
The Company classifies interest and penalties associated with uncertain tax positions as a component of income tax expense and recognized interest and penalties of $0.4 million, $1.1 million, and $2.3 million at December 31, 2021, 2020, and 2019, respectively.
NOTE 14 – STOCK-BASED COMPENSATION
The Company has stock incentive plans for executives and eligible employees. Stock awards include restricted stock, performance shares and stock options. Stock-based compensation expense for the years ended December 31, 2021, 2020, and 2019 was $13.7 million, $8.5 million and $9.3 million, respectively. At December 31, 2021, there was $9.4 million of unrecognized stock-based compensation cost which is expected to be recognized over a weighted-average remaining vesting period of 1.5 years.
Restricted Stock
Restricted stock granted under the Company’s incentive plans are accounted for based on the market value of the underlying shares on the date of grant and generally vest in equal installments annually over three years. Restricted stock awards are accounted for as equity awards. Holders of restricted stock are entitled to vote the shares and to receive any dividends declared on the shares.
The following table summarizes restricted stock activity for the years ended December 31, 2021, 2020, and 2019:
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
| | | | | | | | | | | | | | | |
| Restricted Stock | | |
| Number of Shares | | Weighted Average Grant Date Fair Value | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Outstanding at December 31, 2018 | 1,541,648 | | | $ | 7.14 | | | | | |
Granted | 1,586,590 | | | 4.90 | | | | | |
Vested | (797,025) | | | 6.36 | | | | | |
Canceled/Forfeited | (146,538) | | | 5.70 | | | | | |
Outstanding at December 31, 2019 | 2,184,675 | | | $ | 5.89 | | | | | |
Granted | 1,676,634 | | | 5.13 | | | | | |
Vested | (928,778) | | | 6.46 | | | | | |
Canceled/Forfeited | (207,807) | | | 5.36 | | | | | |
Outstanding at December 31, 2020 | 2,724,724 | | | $ | 5.26 | | | | | |
Granted | 932,442 | | | 8.88 | | | | | |
Vested | (1,179,857) | | | 5.53 | | | | | |
Canceled/Forfeited | (332,505) | | | 5.83 | | | | | |
Outstanding at December 31, 2021 | 2,144,804 | | | $ | 6.60 | | | | | |
At December 31, 2021, there was $4.4 million of unrecognized compensation cost related to restricted stock awards to be recognized over a weighted-average period of 1.3 years.
Performance Shares
Performance shares granted under the Company’s incentive plans are accounted for as equity awards at fair value using a Monte Carlo simulation valuation model. Performance shares granted during and subsequent to 2018 will vest at the end of a three-year service period if internal performance metrics are met, with the number of shares vesting impacted by the inclusion of a modifier based upon a relative stockholder return metric. The relative stockholder return metric is included in the determination of the grant date fair value of the performance shares; however, the recognition of compensation cost for performance share awards is based on the results of the internal performance metrics. Performance shares granted prior to 2018 vested at the end of the three-year service period if relative stockholder return and internal performance metrics were met. The existence of a market condition required recognition of compensation cost for the performance share awards over the requisite period regardless of whether the relative stockholder return metric was met.
The following table summarizes performance shares activity for the years ended December 31, 2021, 2020, and 2019:
| | | | | | | | | | | | | | | |
| Performance Shares | | |
| Number of Shares | | Weighted Average Grant Date Fair Value | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Outstanding at December 31, 2018 | 1,538,315 | | | $ | 4.05 | | | | | |
Granted (1) | 946,000 | | | 4.71 | | | | | |
Vested | (969,903) | | | 1.77 | | | | | |
Canceled/Forfeited (1) | (300,267) | | | 1.84 | | | | | |
Outstanding at December 31, 2019 | 1,214,145 | | | $ | 6.93 | | | | | |
Granted (2) | 1,343,953 | | | 3.95 | | | | | |
Vested | (54,132) | | | 11.47 | | | | | |
Canceled/Forfeited (2) | (168,864) | | | 10.71 | | | | | |
Outstanding at December 31, 2020 | 2,335,102 | | | $ | 4.83 | | | | | |
Granted (3) | 602,933 | | | 10.13 | | | | | |
Vested | (143,312) | | | 7.39 | | | | | |
Canceled/Forfeited (3) | (404,710) | | | 6.12 | | | | | |
Outstanding at December 31, 2021 | 2,390,013 | | | $ | 5.80 | | | | | |
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(1) Includes 207,264 additional shares granted and 300,267 shares cancelled in connection with the vesting of the 2016 award in 2019 due to above-target and below target performance, respectively, in accordance with the terms of the award.
(2) Includes 6,226 additional shares granted and 143,808 shares cancelled in connection with the vesting of the 2017 award in 2020 due to above-target and below target performance, respectively, in accordance with the terms of the award.
(3) Includes 1,421 additional shares granted and 141,894 shares cancelled in connection with the vesting of the 2018 award in 2021 due to above-target and below target performance, respectively, in accordance with the terms of the award.
At December 31, 2021, there was $5.0 million of unrecognized compensation cost related to performance shares to be recognized over a weighted average period of 1.7 years.
Stock Options and Stock Appreciation Rights
Stock options and stock appreciation rights (SARs) granted under the Company’s incentive plans generally vest over three years and are exercisable over a period not to exceed ten years from the grant date. The exercise price of stock options is equal to the fair market value of the shares on the date of the grant. The value of each stock option award is estimated using the Black-Scholes option pricing model. Stock options are accounted for as equity awards and SARs are accounted for as liability awards and remeasured at each reporting date. SARs, when vested, provide the participant the right to receive cash equal to the excess of the market price of the shares over the exercise price when exercised.
The following table summarizes stock option and SAR activity for the years ended December 31, 2021, 2020, and 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| Stock Options | | SARs |
| Shares | | Weighted Average Exercise Price | | Shares | | Weighted Average Exercise Price |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Outstanding at December 31, 2018 | 319,086 | | | $ | 13.53 | | | 42,152 | | | $ | 14.14 | |
Exercised | (11,055) | | | 5.57 | | | — | | | — | |
Canceled/forfeited | (11,519) | | | 9.31 | | | — | | | — | |
Expired | (4,733) | | | 10.00 | | | (9,870) | | | 10.00 | |
Outstanding at December 31, 2019 | 291,779 | | | $ | 14.05 | | | 32,282 | | | $ | 15.40 | |
Exercised | (30,401) | | | 5.57 | | | — | | | — | |
Canceled/forfeited | (39,105) | | | 12.77 | | | — | | | — | |
Expired | — | | | — | | | (32,282) | | | 15.40 | |
Outstanding at December 31, 2020 | 222,273 | | | $ | 15.44 | | | — | | | — | |
Exercised | (57,721) | | | 7.74 | | | — | | | — | |
Canceled/forfeited | (16,455) | | | 18.45 | | | — | | | — | |
Expired | (16,844) | | | 27.45 | | | — | | | — | |
Outstanding at December 31, 2021 | 131,253 | | | $ | 16.91 | | | — | | | — | |
The following table summarizes outstanding stock options as of December 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
Range of Exercise Price | Number Outstanding | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life (Years) | | Aggregate Intrinsic Value (in thousands) | | | | | |
$ 0.00-$10.00 | 54,330 | | | $ | 7.49 | | | 4.4 | | NA | | | | | |
$10.00-$20.00 | 14,634 | | | $ | 16.28 | | | 0.9 | | NA | | | | | |
$20.00-$30.00 | 62,289 | | | $ | 25.27 | | | 0.7 | | NA | | | | | |
Outstanding | 131,253 | | | $ | 16.91 | | | 2.3 | | $ | — | | | | | | |
Vested and expected to vest | 131,253 | | | $ | 16.91 | | | 2.3 | | $ | — | | | | | | |
Exercisable | 131,253 | | | $ | 16.91 | | | 2.3 | | $ | — | | | | | | |
The total intrinsic value of options exercised for the year ended December 31, 2021 was $0.1 million. Cash received from options exercised for the year ended December 31, 2021 was $0.4 million for which there was no related tax benefit. The grant date fair value for stock options vested during the years ended December 31, 2021, 2020, and 2019 was nil.
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 15 – FAIR VALUE MEASUREMENTS
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
In thousands | | | | | 2021 | | 2020 | | 2019 |
Unrealized gain (loss) on equity securities | | | | | $ | (11,244) | | | $ | (11,539) | | | $ | 15,348 | |
Realized gain (loss) on equity securities | | | | | 768 | | | 19,140 | | | 860 | |
Interest rate swap, net | | | | | — | | | — | | | (178) | |
Exchange agreement embedded derivative | | | | | 9,933 | | | — | | | — | |
Fair value adjustments, net | | | | | $ | (543) | | | $ | 7,601 | | | $ | 16,030 | |
Accounting standards establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1), secondary priority to quoted prices in inactive markets or observable inputs (Level 2), and the lowest priority to unobservable inputs (Level 3).
The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis (at least annually) by level within the fair value hierarchy. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value at December 31, 2021 |
In thousands | Total | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | |
Equity securities | $ | 132,197 | | | $ | 132,197 | | | $ | — | | | $ | — | |
| | | | | | | |
| | | | | | | |
Provisional metal sales contracts | 86 | | | — | | | 86 | | | — | |
| $ | 132,283 | | | $ | 132,197 | | | $ | 86 | | | $ | — | |
Liabilities: | | | | | | | |
Gold zero cost collars | $ | 1,212 | | | $ | — | | | $ | 1,212 | | | $ | — | |
| | | | | | | |
Provisional metal sales contracts | 162 | | | — | | | 162 | | | — | |
| $ | 1,374 | | | $ | — | | | $ | 1,374 | | | $ | — | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value at December 31, 2020 |
In thousands | Total | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | |
Equity and debt securities | $ | 12,943 | | | $ | 12,943 | | | $ | — | | | $ | — | |
Foreign currency forward exchange contracts | 13,747 | | | — | | | 13,747 | | | — | |
Provisional metal sales contracts | 481 | | | — | | | 481 | | | — | |
| $ | 27,171 | | | $ | 12,943 | | | $ | 14,228 | | | $ | — | |
Liabilities: | | | | | | | |
Gold zero cost collars | $ | 24,883 | | | $ | — | | | $ | 24,883 | | | $ | — | |
Provisional metal sales contracts | 67 | | | — | | | 67 | | | — | |
| $ | 24,950 | | | $ | — | | | $ | 24,950 | | | $ | — | |
The Company’s investments in equity securities are recorded at fair market value in the financial statements based primarily on quoted market prices. Such instruments are classified within Level 1 of the fair value hierarchy.
The Company’s foreign currency forward exchange contracts are valued using pricing models with inputs derived from observable market data, including forward market prices and other unobservable inputs. The Company’s gold zero cost collars are valued using pricing models with inputs derived from observable market data, including forward market prices, yield curves, credit spreads. The Company’s provisional metal sales contracts include concentrate and certain doré sales contracts that are valued using pricing models with inputs derived from observable market data, including forward market prices. The model inputs can generally be verified and do not involve significant management judgment. Such instruments are classified within Level 2 of the fair value hierarchy.
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As described in Note 7 - Investments, the Exchange Agreement provided that Orion may be entitled to additional Coeur shares in the event Coeur acquires Victoria in the future for a higher per share consideration, subject to the terms and conditions of the Exchange Agreement. The Company determined that the potential for additional share consideration in the Exchange Agreement represents an embedded derivative that requires bifurcation. The obligation to deliver additional Coeur shares pursuant to the Exchange Agreement expired on October 31, 2021. The accounting treatment of derivative financial instruments required that the Company record the fair value of the embedded derivative as of the inception date of the Exchange Agreement and adjust the fair value as of each subsequent balance sheet date. The fair value of the outstanding embedded derivative was determined using a pricing model with inputs derived from observable market data, including stock prices, stock price volatility and risk-free rates and other unobservable inputs such as Monte Carlo simulations and probabilities of Coeur being contractually obligated to make a payment.
In October 2017, the Company acquired the Silvertip mine from shareholders of JDS Silver Holdings Ltd (the “Silvertip Acquisition”). The consideration for the Silvertip Acquisition included two $25.0 million contingent payments, which were payable in cash and common stock upon reaching a future permitting milestone and resource declaration milestone, respectively. The fair value of the Silvertip contingent consideration was estimated based on an estimated discount rate of 2.5% for the contingent permitting payment and 2.9% for the contingent resource declaration payment and was classified within Level 3 of the fair value hierarchy. During 2019, the Company paid the $25.0 million due for the permitting milestone in the form of cash and common stock, and in the first quarter of 2020, the Company paid the remaining $25.0 million due for the resource declaration milestone in the form of cash and common stock.
No assets or liabilities were transferred between fair value levels in the year ended December 31, 2021.
The following tables present the changes in the fair value of the Company's Level 3 financial assets and liabilities in the year ended December 31, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
In thousands | Balance at the beginning of the period | | | | Initial valuation | | Revaluation | | Settlements | | Balance at the end of the period |
Liabilities: | | | | | | | | | | | |
Exchange agreement embedded derivative | $ | — | | | | | $ | 9,933 | | | $ | (9,933) | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
In thousands | Balance at the beginning of the period | | | | Initial valuation | | Revaluation | | Settlements | | Balance at the end of the period |
Liabilities: | | | | | | | | | | | |
Silvertip contingent consideration | $ | 25,000 | | | | | $ | — | | | $ | — | | | $ | (25,000) | | | $ | — | |
The fair value of financial assets and liabilities carried at book value in the financial statements at December 31, 2021 and December 31, 2020 is presented in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
In thousands | Book Value | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | | | |
| | | | | | | | | |
Liabilities: | | | | | | | | | |
2029 Senior Notes(1) | $ | 368,273 | | | $ | 337,384 | | | $ | — | | | $ | 337,384 | | | $ | — | |
Revolving Credit Facility(2) | $ | 65,000 | | | $ | 65,000 | | | $ | — | | | $ | 65,000 | | | $ | — | |
(1) Net of unamortized debt issuance costs of $6.7 million
(2) Unamortized debt issuance costs of $2.4 million included in Other Non-Current Assets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
In thousands | Book Value | | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | | | |
| | | | | | | | | |
Liabilities: | | | | | | | | | |
2024 Senior Notes(1) | $ | 227,590 | | | $ | 229,874 | | | $ | — | | | $ | 229,874 | | | $ | — | |
Revolving Credit Facility(2) | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
(1) Net of unamortized debt issuance costs of $2.4 million.
(2) Unamortized debt issuance costs of $1.5 million included in Other Non-Current Assets.
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The fair value of the 2029 Senior Notes was estimated using quoted market prices. The fair value of the RCF approximates book value as the liability is secured, has a variable interest rate, and lacks significant credit concerns.
NOTE 16 – DERIVATIVE FINANCIAL INSTRUMENTS & HEDGING ACTIVITIES
The Company is exposed to various market risks, including the effect of changes in metal prices, foreign currency exchange rates and interest rates, and uses derivatives to manage financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for trading or speculative purposes.
The Company may elect to designate certain derivatives as hedging instruments under U.S. GAAP. The Company formally documents all relationships between designated hedging instruments and hedged items as well as its risk management objectives and strategies for undertaking hedge transactions. This process includes linking all derivatives designated as hedges to either recognized assets or liabilities or forecasted transactions and assessing, both at inception and on an ongoing basis, the effectiveness of the hedging relationships.
Derivatives Not Designated as Hedging Instruments
Exchange Agreement Embedded Derivative
The Exchange Agreement provided that Orion may be entitled to additional Coeur shares in the event Coeur acquires Victoria in the future for a higher per share consideration, subject to the terms and conditions of the Exchange Agreement. The Company determined that the potential for additional share consideration in the Exchange Agreement represents an embedded derivative that requires bifurcation. The obligation to deliver additional Coeur shares pursuant to the Exchange Agreement expired on October 31, 2021. The accounting treatment of derivative financial instruments required that the Company record the fair value of the embedded derivative as of the inception date of the Exchange Agreement and adjust the fair value as of each subsequent balance sheet date. The obligation to deliver additional Coeur shares pursuant to the Exchange Agreement expired on October 31, 2021.
Provisional Metal Sales
The Company enters into sales contracts with third-party smelters, refiners and off-take customers which, in some cases, provide for a provisional payment based upon preliminary assays and quoted metal prices. The provisionally priced sales contracts contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable recorded at the forward price at the time of sale. The embedded derivatives do not qualify for hedge accounting and are marked to market through earnings each period until final settlement.
At December 31, 2021, the Company had the following derivative instruments that settle as follows:
| | | | | | | | | | | |
In thousands except average prices and notional ounces | 2022 | | 2023 and Thereafter |
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Provisional gold sales contracts | $ | 29,481 | | | $ | — | |
Average gold price per ounce | $ | 1,798 | | | $ | — | |
Notional ounces | 16,393 | | | — | |
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The following summarizes the classification of the fair value of the derivative instruments:
| | | | | | | | | | | | | | | | | |
| December 31, 2021 | | | | | | |
In thousands | Prepaid expenses and other | | Accrued liabilities and other | | | | | | |
| | | | | | | | | |
Provisional metal sales contracts | $ | 86 | | | $ | 162 | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| December 31, 2020 |
In thousands | Prepaid expenses and other | | Accrued liabilities and other | | | | | | |
Provisional metal sales contracts | $ | 481 | | | $ | 67 | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following represent mark-to-market gains (losses) on derivative instruments in the year ended December 31, 2021, 2020, and 2019, respectively (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year Ended December 31, |
Financial statement line | Derivative | | | | | 2021 | | 2020 | | 2019 |
Revenue | Provisional metal sales contracts | | | | | $ | (490) | | | $ | 959 | | | $ | 337 | |
Fair value adjustments, net | Exchange agreement embedded derivative | | | | | 9,933 | | | — | | | — | |
| | | | | | | | | | |
Fair value adjustments, net | Interest rate swaps | | | | | — | | | — | | | (178) | |
| | | | | | $ | 9,443 | | | $ | 959 | | | $ | 159 | |
Derivatives Designated as Cash Flow Hedging Strategies
To protect the Company’s exposure to fluctuations in metal prices the Company entered into Asian (or average value) put and call option contracts in net-zero-cost collar arrangements. The contracts are net cash settled monthly and, if the price of gold at the time of expiration is between the put and call prices, would expire at no cost to the Company. If the price of gold at the time of expiration is lower than the put prices or higher than the call prices, it would result in a realized gain or loss, respectively. The Company has elected to designate these instruments as cash flow hedges of forecasted transactions at their inception.
To protect the Company’s exposure to fluctuations in foreign currency exchange rates for subsidiaries whose functional currency is U.S dollar and are exposed to forecasted transaction denominated in the Mexican Peso and the Canadian Dollar, in March 2020, the Company entered into foreign currency forward exchange contracts to manage this risk and designated these instruments as cash flow hedges of forecasted foreign denominated transactions. The Company has elected to designate these instruments as cash flow hedges of forecasted transactions at their inception. As of December 31, 2021, there were no outstanding foreign currency forward exchange contracts.
At December 31, 2021, the Company had the following derivative cash flow hedge instruments that settle as follows:
| | | | | | | | | | | | | | | |
In thousands except average prices and notional ounces | | | 2022 | | 2023 and Thereafter | | |
Gold put options | | | | | | | |
Average gold strike price per ounce | | | $ | 1,630 | | | $ | — | | | |
Notional ounces | | | 132,000 | | | — | | | |
| | | | | | | |
Gold call options | | | | | | | |
Average gold strike price per ounce | | | $ | 2,038 | | | $ | — | | | |
Notional ounces | | | 132,000 | | | — | | | |
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The effective portions of cash flow hedges are recorded in accumulated other comprehensive income (loss) (“AOCI”) until the hedged item is recognized in earnings. Deferred gains and losses associated with cash flow hedges of metal sales revenue are recognized as a component of Revenue in the same period as the related sale is recognized. Deferred gains and losses associated with cash flow hedges of foreign currency transactions are recognized as a component of Costs Applicable to Sales or Pre-development, Reclamation and Other in the same period the related expenses are incurred.
At inception, the Company performed an assessment of the forecasted transactions and the hedging instruments and determined that the hedging relationships are considered perfectly effective. Future assessments are performed to verify that critical terms of the hedging instruments and the forecasted transactions continue to match, and the forecasted transactions remain probable, as well as an assessment of any adverse developments regarding the risk of the counterparties defaulting on their commitments. There have been no such changes in critical terms or adverse developments.
As of December 31, 2021, the Company had $1.2 million of net after-tax loss in AOCI related to losses from cash flow hedge transactions, of which $1.2 million of net after-tax losses is expected to be recognized in its Consolidated Statement of Comprehensive Income (Loss) during the next 12 months. Actual amounts ultimately reclassified to net income are dependent on the price of gold for metal contracts.
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The following summarizes the classification of the fair value of the derivative instruments designated as cash flow hedges:
| | | | | | | | | | | | | | | | | |
| December 31, 2021 | | | | | | |
In thousands | Prepaid expenses and other | | Accrued liabilities and other | | | | | | |
Gold zero cost collars | $ | — | | | $ | 1,212 | | | | | | | |
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| December 31, 2020 | | | | | | |
In thousands | Prepaid expenses and other | | Accrued liabilities and other | | | | | | |
Gold zero cost collars | $ | — | | | $ | 24,883 | | | | | | | |
Foreign currency forward exchange contracts | 13,747 | | | — | | | | | | | |
| $ | 13,747 | | | $ | 24,883 | | | | | | | |
The following table sets forth the pre-tax gains (losses) on derivatives designated as cash flow hedges that have been included in AOCI and the Consolidated Statement of Comprehensive Income (Loss) for the year ended December 31, 2021, 2020, and 2019, respectively (in thousands).
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | | | 2021 | | 2020 | | 2019 |
Amount of Gain (Loss) Recognized in AOCI | | | | | | | | | |
Gold zero cost collars | | | | | $ | 22,733 | | | $ | (32,345) | | | $ | (136) | |
Foreign currency forward exchange contracts | | | | | 50 | | | 19,911 | | | — | |
| | | | | $ | 22,783 | | | $ | (12,434) | | | $ | (136) | |
| | | | | | | | | |
Amount of (Gain) Loss Reclassified From AOCI to Earnings | | | | | | | | | |
Gold zero cost collars | | | | | $ | 938 | | | $ | 7,598 | | | $ | — | |
Foreign currency forward exchange contracts | | | | | (13,797) | | | (6,164) | | | — | |
| | | | | $ | (12,859) | | | $ | 1,434 | | | $ | — | |
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Credit Risk
The credit risk exposure related to any derivative instrument is limited to the unrealized gains, if any, on outstanding contracts based on current market prices. To reduce counter-party credit exposure, the Company enters into contracts with institutions management deems credit-worthy and limits credit exposure to each institution. The Company does not anticipate non-performance by any of its counterparties.
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 17 – ADDITIONAL COMPREHENSIVE INCOME (LOSS) DETAIL
Pre-development, reclamation, and other consists of the following:
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
In thousands | | | | | 2021 | | 2020 | | 2019 |
COVID-19 | | | | | $ | 6,618 | | | $ | 15,555 | | | $ | — | |
Silvertip ongoing carrying costs | | | | | 24,928 | | | 16,384 | | | — | |
Silvertip suspension costs | | | | | — | | | 11,199 | | | — | |
Gain on modification of right of use lease | | | | | — | | | (4,051) | | | — | |
Asset retirement accretion | | | | | 11,988 | | | 11,754 | | | 12,154 | |
Other | | | | | 5,144 | | | 4,813 | | | 6,267 | |
Pre-development, reclamation and other | | | | | $ | 48,678 | | | $ | 55,654 | | | $ | 18,421 | |
Other, net consists of the following:
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
In thousands | | | | | 2021 | | 2020 | | 2019 |
Foreign exchange gain (loss) | | | | | $ | (2,779) | | | $ | (2,245) | | | $ | (4,346) | |
Gain (loss) on sale of assets | | | | | 4,111 | | | (2,849) | | | (714) | |
VAT write-down | | | | | (25,982) | | | — | | | — | |
Gold zero cost collars novation fee | | | | | — | | | (3,819) | | | — | |
Gain (loss) on sale of Manquiri NSR consideration | | | | | — | | | 365 | | | 133 | |
RMC receivable write-down | | | | | — | | | — | | | (1,040) | |
Gain (loss) on Silvertip contingent consideration | | | | | — | | | 955 | | | — | |
Interest income on notes receivable | | | | | — | | | — | | | 198 | |
Other | | | | | 1,725 | | | 1,652 | | | 2,576 | |
Other, net | | | | | $ | (22,925) | | | $ | (5,941) | | | $ | (3,193) | |
NOTE 18 – NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of the Company’s common stock outstanding during the period. Diluted net income (loss) per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock.
For the years ended December 31, 2021, 2020 and 2019, there were 634,419, 389,629 and 1,137,726 common stock equivalents, respectively, related to equity-based awards were not included in the diluted earnings per share calculation as the shares would be antidilutive.
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
In thousands except per share amounts | | | | | 2021 | | 2020 | | 2019 |
Net income (loss) available to common stockholders | | | | | | | | | |
Income (loss) from continuing operations | | | | | $ | (31,322) | | | $ | 25,627 | | | $ | (346,896) | |
Income (loss) from discontinued operations | | | | | — | | | — | | | 5,693 | |
| | | | | $ | (31,322) | | | $ | 25,627 | | | $ | (341,203) | |
| | | | | | | | | |
Weighted average shares: | | | | | | | | | |
Basic | | | | | 250,044 | | | 240,803 | | | 218,812 | |
Effect of stock-based compensation plans | | | | | — | | | 1,746 | | | — | |
Diluted | | | | | 250,044 | | | 242,549 | | | 218,812 | |
| | | | | | | | | |
Income (loss) per share: | | | | | | | | | |
Income (loss) from continuing operations | | | | | $ | (0.13) | | | $ | 0.11 | | | $ | (1.59) | |
Income (loss) from discontinued operations | | | | | — | | | — | | | 0.03 | |
Basic | | | | | $ | (0.13) | | | $ | 0.11 | | | $ | (1.56) | |
| | | | | | | | | |
Diluted income (loss) per share: | | | | | | | | | |
Income (loss) from continuing operations | | | | | $ | (0.13) | | | $ | 0.11 | | | $ | (1.59) | |
Income (loss) from discontinued operations | | | | | — | | | — | | | 0.03 | |
Diluted | | | | | $ | (0.13) | | | $ | 0.11 | | | $ | (1.56) | |
On April 23, 2020, the Company entered into an ATM Equity Offering Sales Agreement (the “Sales Agreement”) with BofA Securities, Inc. and RBC Capital Markets, LLC as sales agents (the “Sales Agents”) and filed a prospectus supplement for the sale of its common stock, par value $0.01 per share, by way of an “at the market” offering having an aggregate offering price of up to $100,000,000 (the “ATM Program”). Sales under the ATM Program, if any, will be made pursuant to the terms of the Sales Agreement. At December 31, 2021, the Company had not sold any shares of its common stock under the ATM Program.
NOTE 19 - SUPPLEMENTAL GUARANTOR INFORMATION
The following summarized financial information is presented to satisfy disclosure requirements of Rule 13-01 of Regulation S-X resulting from the guarantees by Coeur Alaska, Inc., Coeur Explorations, Inc., Coeur Rochester, Inc., Coeur South America Corp., Wharf Resources (U.S.A.), Inc. and its subsidiaries, Coeur Capital, Inc., Coeur Sterling, Inc., Sterling Intermediate Holdco, Inc., and Coeur Sterling Holdings LLC (collectively, the “Subsidiary Guarantors”) of the 2029 Senior Notes. The following schedules present summarized financial information of (a) Coeur, the parent company and (b) the Subsidiary Guarantors (collectively the “Obligor Group”). The summarized financial information of the Obligor Group is presented on a combined basis with intercompany balances and transactions between entities in the Obligor Group eliminated. The Obligor Group’s amounts due from, amounts due to and transactions with certain wholly-owned domestic and foreign subsidiaries of the Company have been presented in separate line items, if they are material. Each of the Subsidiary Guarantors is 100% owned by Coeur and the guarantees are full and unconditional and joint and several obligations. There are no restrictions on the ability of Coeur to obtain funds from the Subsidiary Guarantors by dividend or loan.
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
SUMMARIZED BALANCE SHEET
DECEMBER 31, 2021
| | | | | | | | | | | | | | | | | |
In thousands | Coeur Mining, Inc. | | Guarantor Subsidiaries | | | | | | |
ASSETS | | | | | | | |
CURRENT ASSETS | | | | | | | | | |
Cash and cash equivalents | $ | 2,499 | | | $ | 16,126 | | | | | | | |
Receivables | (14) | | | 5,607 | | | | | | | |
Ore on leach pads | — | | | 81,128 | | | | | | | |
Inventory | — | | | 24,954 | | | | | | | |
Prepaid expenses and other | 8,660 | | | 813 | | | | | | | |
| | | | | | | | | |
| 11,145 | | | 128,628 | | | | | | | |
NON-CURRENT ASSETS | | | | | | | | | |
Property, plant and equipment, net | 1,476 | | | 188,721 | | | | | | | |
Mining properties, net | — | | | 514,397 | | | | | | | |
Ore on leach pads | — | | | 73,495 | | | | | | | |
Restricted assets | 1,496 | | | 206 | | | | | | | |
Equity and debt securities | 132,197 | | | — | | | | | | | |
| | | | | | | | | |
Net investment in subsidiaries | 794,254 | | | 56,623 | | | | | | | |
Other | 47,317 | | | 53,511 | | | | | | | |
TOTAL ASSETS | $ | 987,885 | | | $ | 1,015,581 | | | | | | | |
| | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | |
CURRENT LIABILITIES | | | | | | | | | |
Accounts payable | $ | 1,624 | | | $ | 59,463 | | | | | | | |
Other accrued liabilities | 16,729 | | | 45,676 | | | | | | | |
Debt | — | | | 23,608 | | | | | | | |
Reclamation | — | | | 1,561 | | | | | | | |
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| 18,353 | | | 130,308 | | | | | | | |
NON-CURRENT LIABILITIES | | | | | | | | | |
Debt | 463,318 | | | 53,166 | | | | | | | |
Reclamation | — | | | 125,695 | | | | | | | |
Deferred tax liabilities | 751 | | | 7,422 | | | | | | | |
Other long-term liabilities | 3,266 | | | 20,826 | | | | | | | |
Intercompany payable (receivable) | (298,065) | | | 286,655 | | | | | | | |
| 169,270 | | | 493,764 | | | | | | | |
STOCKHOLDERS’ EQUITY | | | | | | | | | |
Common stock | 2,569 | | | 19,356 | | | | | | | |
Additional paid-in capital | 3,738,347 | | | 340,701 | | | | | | | |
Accumulated deficit | (2,939,442) | | | 31,452 | | | | | | | |
Accumulated other comprehensive income (loss) | (1,212) | | | — | | | | | | | |
| 800,262 | | | 391,509 | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 987,885 | | | $ | 1,015,581 | | | | | | | |
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
SUMMARIZED BALANCE SHEET
DECEMBER 31, 2020
| | | | | | | | | | | | | | | | | |
In thousands | Coeur Mining, Inc. | | Guarantor Subsidiaries | | | | | | |
ASSETS | | | | | | | |
CURRENT ASSETS | | | | | | | | | |
Cash and cash equivalents | $ | 12,727 | | | $ | 28,515 | | | | | | | |
Receivables | 381 | | | 3,631 | | | | | | | |
Ore on leach pads | — | | | 74,866 | | | | | | | |
Inventory | — | | | 27,223 | | | | | | | |
Prepaid expenses and other | 20,872 | | | 1,375 | | | | | | | |
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| 33,980 | | | 135,610 | | | | | | | |
NON-CURRENT ASSETS | | | | | | | | | |
Property, plant and equipment, net | 1,946 | | | 148,640 | | | | | | | |
Mining properties, net | — | | | 353,818 | | | | | | | |
Ore on leach pads | — | | | 81,963 | | | | | | | |
Restricted assets | 1,482 | | | 206 | | | | | | | |
Equity and debt securities | 12,943 | | | — | | | | | | | |
| | | | | | | | | |
Net investment in subsidiaries | 514,705 | | | 72,785 | | | | | | | |
Other | 198,587 | | | 51,528 | | | | | | | |
TOTAL ASSETS | $ | 763,643 | | | $ | 844,550 | | | | | | | |
| | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | |
CURRENT LIABILITIES | | | | | | | | | |
Accounts payable | $ | 1,978 | | | $ | 52,177 | | | | | | | |
Other accrued liabilities | 36,183 | | | 46,023 | | | | | | | |
Debt | — | | | 14,506 | | | | | | | |
| | | | | | | | | |
Reclamation | — | | | 1,584 | | | | | | | |
| | | | | | | | | |
| 38,161 | | | 114,290 | | | | | | | |
NON-CURRENT LIABILITIES | | | | | | | | | |
Debt | 227,592 | | | 33,321 | | | | | | | |
| | | | | | | | | |
Reclamation | — | | | 93,349 | | | | | | | |
Deferred tax liabilities | 100 | | | 8,457 | | | | | | | |
Other long-term liabilities | 3,629 | | | 29,916 | | | | | | | |
Intercompany payable (receivable) | (199,318) | | | 176,914 | | | | | | | |
| 32,003 | | | 341,957 | | | | | | | |
STOCKHOLDERS’ EQUITY | | | | | | | | | |
Common stock | 2,438 | | | 20,401 | | | | | | | |
Additional paid-in capital | 3,610,297 | | | 340,700 | | | | | | | |
Accumulated deficit | (2,908,120) | | | 27,202 | | | | | | | |
Accumulated other comprehensive income (loss) | (11,136) | | | — | | | | | | | |
| 693,479 | | | 388,303 | | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 763,643 | | | $ | 844,550 | | | | | | | |
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
SUMMARIZED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 2021
| | | | | | | | | | | | | | | | | |
In thousands | Coeur Mining, Inc. | | Guarantor Subsidiaries | | | | | | |
Revenue | $ | — | | | $ | 512,553 | | | | | | | |
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| | | | | | | | | |
Gross profit (loss) | $ | (714) | | | $ | 67,941 | | | | | | | |
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Income (loss) from continuing operations | $ | (31,324) | | | $ | 3,204 | | | | | | | |
Net income (loss) | $ | (31,324) | | | $ | 3,204 | | | | | | | |
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NOTE 20 – COMMITMENTS AND CONTINGENCIES
Mexico Litigation Matters
As of December 31, 2021, $26.0 million is due from the Mexican government associated with VAT that was paid under Coeur Mexicana, S.A. de C.V.’s (“Coeur Mexicana’s”) prior royalty agreement with a subsidiary of Franco-Nevada Corporation, which was terminated in 2016. Coeur Mexicana applied for and initially received VAT refunds associated with the royalty payments in the normal course; however, in 2011 the Mexican tax authorities began denying Coeur Mexicana’s VAT refunds based on the argument that VAT was not legally due on the royalty payments. Accordingly, Coeur Mexicana began to request refunds of the VAT as undue payments, which the Mexican tax authorities also denied. The Company has since been engaged in ongoing efforts to recover the VAT from the Mexican government (including through litigation and potential arbitration as well as refiling VAT refund requests). Despite a favorable ruling from Mexican tax courts in this matter in 2018, litigation has continued at the administrative, appeals court and supreme court levels, most of which has been determined unfavorably to Coeur (including during 2021) based on interpretations of applicable law and prior court decisions which the Company and its counsel believe are contrary to legal precedent, conflicting and erroneous. While the Company believes that it remains legally entitled to be refunded the full amount of the VAT receivable and intends to rigorously continue its VAT recovery efforts, based on the continued failure to recover the VAT receivable and recent unfavorable Mexican court decisions, the Company determined to write down the carrying value of the VAT receivable at September 30, 2021. Coeur Mexicana may still elect to initiate an arbitration proceeding under Chapter 11 of the North American Free Trade Agreement, or NAFTA. Outcomes in NAFTA arbitration and the process for recovering funds even if there is a successful outcome in NAFTA arbitration can be lengthy and unpredictable.
In addition, ongoing litigation with the Mexican government associated with enforcement of water rights in Mexico, if unsuccessful, may impact Coeur Mexicana’s ability to access new sources of water to provide sufficient supply for its operations at Palmarejo and, if material, may have a material adverse impact on the Company’s operations and financial results.
Palmarejo Gold Stream
Coeur Mexicana sells 50% of Palmarejo gold production (excluding production from certain properties acquired in 2015) to a subsidiary of Franco-Nevada Corporation (“Franco-Nevada”) under a gold stream agreement for the lesser of $800 or spot price per ounce. In 2016, Coeur Mexicana received a $22.0 million deposit toward future deliveries under the gold stream agreement. In accordance with generally accepted accounting principles, although Coeur Mexicana has satisfied its contractual obligation to repay the deposit to Franco-Nevada, the deposit is accounted for as deferred revenue and is recognized as revenue on a units-of-production basis as ounces are sold to Franco-Nevada. At December 31, 2021 the remaining unamortized balance was $8.2 million, which is included in Accrued liabilities and other and Other long-term liabilities on the Consolidated Balance Sheet.
Kensington Prepayment
In June 2019, Coeur entered into a transaction with an existing metal sales counterparty whereby it amended its existing sales and purchase contract for gold concentrate from its Kensington mine (the “Amended Sales Contract”). From time to time, the Amended Sales Contract has been further amended to allow for additional prepayments, the latest occurring in July 2021, with an effective date as of June 28, 2021, to include options for Coeur to receive up to two additional prepayments of up to $15.0 million. In December 2020, Coeur exercised an option to receive the $15.0 million December 2020 Prepayment. In the first half of 2021, the Kensington mine delivered $15.0 million in satisfaction of the December 2020 Prepayment. In June 2021, Coeur exercised an option to receive the $15.0 million June 2021 Prepayment, and delivered $15.0 million against that $15.0 million in the second half of 2021. In December 2021, the Company exercised the option to receive the $15.0 million December 2021 Prepayment. The remaining deliveries of $15.0 million under the December 2021 Prepayment are recognized as a deferred revenue liability and are presented in Accrued liabilities and other on the Consolidated Balance Sheet. Under the
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
relevant terms of the Amended Sales Contract, Coeur maintains its exposure to the price of gold and expects to recognize the remaining value of the accrued liability by December 31, 2022.
POA 11 Expansion Project
In the second half of 2021 the Company began seeing inflationary pressures on bids for remaining unawarded contracts on the POA 11 expansion project at Rochester during the second half of 2021, most notably on two structural, mechanical, piping, electrical and instrumentation (“SMPEI”) construction contracts for the Merrill-Crowe process plant and crushing circuit, respectively. Coeur recently selected the general SMPEI contractor for construction of the Merrill-Crowe process plant and crusher corridor based on a revised commercial approach from the previous lump-sum commercial model to a single contract. SMPEI work under the initial contract is beginning to advance.
Coeur has also advanced work related to implementation of pre-screens as part of the POA 11 expansion project and has elected to proceed with this scope change enhancement. As previously disclosed, the Company plans to integrate pre-screens into the current crushing system at Rochester, which is expected to drive improved performance while providing valuable operating experience and knowledge that can be applied to the new crushing circuit as part of the POA 11 expansion. Coeur has commenced detailed engineering for pre-screens and intends to align construction of the pre-screens with the completion of the crusher corridor. Installation of pre-screens on the existing crusher system is scheduled for the first half of 2022 with commissioning expected to begin around mid-year.
In connection with the items discussed above, the Company has conducted a comprehensive re-baselining of the overall schedule and costs associated with the original scope of POA 11.
Coeur now estimates the total construction capital for POA 11 to be approximately $597 million, which includes the 10-15% previously announced potential cost escalation as well as $70 - $80 million related to pre-screen implementation and additional porject contingency to reflect ongoing COVID and schedule risk. As of December 31, 2021, the Company has incurred approximately $236 million in the expansion and 61% of the capital is now committed (excluding the recently-awarded SMPEI contract, which is expected to be formalized in the first quarter).
Excluding capital leases, Coeur forecasts capital expenditures related to POA 11 to be approximately $217 - $257 million and $131 - $171 million in 2022 and 2023, respectively. Additional details on expected production and capital expenditures for Rochester can be found in the Technical Report Summary filed by the Company with the U.S. Securities and Exchange Commission on February 16, 2022.
Other Commitments and Contingencies
As part of its ongoing business and operations, the Company and its affiliates are required to provide surety bonds, bank letters of credit, bank guarantees and, in some cases, cash as financial support for various purposes, including environmental remediation, reclamation, collateral for gold hedges and other general corporate purposes. As of December 31, 2021 and December 31, 2020, the Company had surety bonds totaling $315.1 million and $311.9 million, respectively, in place as financial support for future reclamation and closure costs. The obligations associated with these instruments are generally related to performance requirements that the Company addresses through its ongoing operations and from time-to-time, the Company may be required to post collateral, including cash or letters of credit which reduce availability under its revolving credit facility, to support these instruments. As the specific requirements are met, the beneficiary of the associated instrument cancels and/or returns the instrument to the issuing entity. Certain of these instruments are associated with operating sites with long-lived assets and will remain outstanding until closure. The Company believes it is in compliance with all applicable bonding obligations and will be able to satisfy future bonding requirements through existing or alternative means, as they arise.
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 21 – ADDITIONAL BALANCE SHEET DETAIL AND SUPPLEMENTAL CASH FLOW INFORMATION
Accrued liabilities and other consist of the following:
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In thousands | December 31, 2021 | | December 31, 2020 |
Accrued salaries and wages | $ | 28,408 | | | $ | 30,457 | |
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Deferred revenue (1) | 16,093 | | | 16,425 | |
Income and mining taxes | 13,856 | | | 26,118 | |
Accrued operating costs | 5,592 | | | 3,327 | |
Unrealized losses on derivatives | 1,374 | | | 24,950 | |
Taxes other than income and mining | 3,284 | | | 3,616 | |
Accrued interest payable | 8,038 | | | 1,855 | |
Operating lease liabilities | 11,301 | | | 12,410 | |
Accrued liabilities and other | $ | 87,946 | | | $ | 119,158 | |
(1) See Note 20 -- Commitments and Contingencies for additional details on deferred revenue liabilities
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that total the same such amounts shown in the statement of cash flows in the year ended December 31, 2021 and 2020:
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In thousands | | | | | December 31, 2021 | | December 31, 2020 |
Cash and cash equivalents | | | | | $ | 56,664 | | | $ | 92,794 | |
Restricted cash equivalents | | | | | 1,625 | | | 1,376 | |
Total cash, cash equivalents and restricted cash shown in the statement of cash flows | | | | | $ | 58,289 | | | $ | 94,170 | |
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| Year ended December 31, |
Non-cash financing and investing activities: | 2021 | | 2020 | | 2019 |
Finance lease obligations | $ | 37,860 | | | $ | 5,283 | | | $ | 16,615 | |
Capital expenditures, not yet paid | $ | 40,904 | | | $ | 30,682 | | | $ | 8,188 | |
Non-cash extinguishment of senior notes | $ | — | | | $ | — | | | $ | 20,009 | |
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Non-cash Silvertip contingent consideration | $ | — | | | $ | 5,295 | | | $ | 5,973 | |
Non-cash acquisition of Victoria Gold Corp common stock | $ | 118,777 | | | $ | — | | | $ | — | |
Other cash flow information: | | | | | |
Interest paid | $ | 19,655 | | | $ | 20,634 | | | $ | 24,428 | |
Income and mining taxes paid | $ | 57,200 | | | $ | 35,600 | | | $ | 33,700 | |
NOTE 22 – ASSET AND LIABILITIES HELD FOR SALE
On October 27, 2021, the Company entered into a definitive agreement (the “Agreement”) to sell its La Preciosa project located in the State of Durango, Mexico to Avino Silver & Gold Mines Ltd. (“Avino”). The transaction is subject to customary closing conditions, including required regulatory approvals and expected to close in the first quarter of 2022.
Under the Agreement, Avino will acquire the La Preciosa project from Coeur for the following consideration:
•$15.0 million upon closing of the transaction,
•$5.0 million promissory note that matures prior to the first anniversary of the transaction closing,
•Equity consideration of 14.0 million units, payable on closing, each consisting of one share of Avino common stock and one half of one common share purchase warrant of Avino common stock, priced at a 25% premium to the 20-day volume weighted average price prior to announcement,
Coeur Mining, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
•Deferred cash consideration of approximately $8.8 million to be paid no later than the first anniversary of initial production from any portion of the La Preciosa project,
•Contingent payments of $0.25 per silver equivalent ounce (subject to an inflationary adjustment) on any new mineral reserves discovered and declared outside of the current resource area at the La Preciosa project, up to a maximum payment of $50.0 million, and
•Two royalties covering the La Preciosa land package, including (i) a 1.25% net smelter returns royalty on properties covering the Gloria and Abundancia areas of the La Preciosa project and (ii) a 2.00% gross value royalty on all areas of the La Preciosa project other than the Gloria and Abundancia areas, offset by the amount of any new mineral reserve contingent payments made to Coeur.
The Company classified the La Preciosa project as held for sale as of December 31, 2021 and the associated assets and liabilities are classified separately on the consolidated balance sheets. The major classes of assets and liabilities associated with the La Preciosa project as of December 31, 2021 are as follows:
| | | | | |
In thousands | December 31, 2021 |
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Cash and cash equivalents | $ | 234 | |
Receivables | 1,211 |
Prepaid expenses and other | 1,338 |
Property, plant and equipment, net | 1,626 |
Mining properties, net | 49,085 |
Other | 746 | |
TOTAL ASSETS | $ | 54,240 | |
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Accounts payable | $ | 311 | |
Deferred tax liabilities | 10,958 | |
TOTAL LIABILITIES | $ | 11,269 | |
NOTE 23 – DISCONTINUED OPERATIONS
In December 2017, the Company and certain of its subsidiaries entered into a definitive agreement (as amended, the “Manquiri Agreement”) to sell all of the outstanding capital stock of Empresa Minera Manquiri S.A. (“Manquiri”), which is the operator of the San Bartolomé mine and processing facility (the “Manquiri Divestiture”). On February 28, 2018, the Manquiri Divestiture was completed, and, in accordance with the Manquiri Agreement, the capital stock in Manquiri was sold to Ag-Mining Investments, AB, a privately-held Swedish company (the “Buyer”), in exchange for, among other items, (A) 2.0% net smelter returns royalty on all metals processed through the San Bartolomé mine’s processing facility (the “NSR”) and (B) promissory notes payable by the Buyer with an aggregate principal amount equal to $27.6 million (the “Manquiri Notes Receivable”). In September 2018, the Company entered into the Letter Agreement with the Buyer pursuant to which the total aggregate principal amount of the Manquiri Notes Receivable was reduced to $25.0 million, and the Buyer made a concurrent cash payment of $15.0 million to the Sellers in respect of the Manquiri Notes Receivable. In addition, the Company also agreed to forgo any rights to any value added tax refunds collected or received by Manquiri.
On February 28, 2019, the parties executed a letter agreement (the “February Letter Agreement”), which amended certain terms of the Manquiri Agreement. Pursuant to the February Letter Agreement, the Buyer agreed to accelerate repayment of the remaining aggregate $6.0 million owed under the Manquiri Notes Receivable, which was received. As of the date of the entry into the February Letter Agreement, the remaining obligations under the Manquiri Agreement (including post-closing indemnification obligations) terminated. The Company recorded a $5.7 million gain on the sale Manquiri following the release of the indemnification liability (associated with termination of post-closing indemnification obligations) pursuant to the February Letter Agreement.
In January 2020, the Buyer purchased the NSR from Coeur by making a payment to Coeur of $4.5 million. Coeur recorded a gain of $0.4 million following the payment.