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spk00: Good morning and welcome to the first quarter 2021 financial results conference call for core mining. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star one, star then one on your touch tone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Paul Departu, Director of Investor Relations. Please go ahead.
spk12: Thank you and good morning. Welcome to Core Mining's first quarter earnings conference call. Our results were released after yesterday's market closed and a copy of the press release and slides are available on our website. I would like to remind everyone that our press release slides and some of our comments today include forward-looking statements from which actual results may differ. Please review the cautionary statements included in our press release and presentation, as well as the risk factors described in our first quarter 10Q and 2020 10K. Now, I'll turn it over to Mitch, Mick, and Tom.
spk09: Thanks, Paul, and good morning, everyone. As we said in our release yesterday, our first quarter results were in line with our expectations and represent a strong start to the year. We're feeling confident in our ability to accomplish our key objectives and achieve full-year guidance at each of our sites. Turning to slide three of today's presentation and looking at the highlights for the quarter, solid production and higher realized prices help drive margin expansion, leading to significant double-digit year-over-year improvements in revenue, OCF pre-working capital, and adjusted EBITDA. These results were supported by the overall performance of our portfolio, particularly for gold. With over 85,000 ounces of gold produced and the first quarter expected to be our weakest of the year, we're feeling good about being a quarter of the way toward the midpoint of our full year production guidance, which is ahead of the 22% we indicated earlier this year. Additionally, overall cost performance has been well managed. All of our site level unit costs for gold ended the quarter either below or within their full year guidance ranges. We also achieved some important strategic milestones during the first quarter. The most noteworthy was the successful refinancing of our senior notes, which Tom will cover in more detail. We're extremely pleased with the outcome and how well positioned this leaves us for the future. The catalyst for this refinancing was really to shore up our balance sheet as we continue executing major construction at Rochester, which kicked off earlier this year. The project was approximately 20% complete at the end of the first quarter, with detailed design substantially finished and almost all the equipment procurement and service packages committed. If you turn to slide seven and eight, you can see a more comprehensive breakdown of the project timeline as well as the progress we're making on the new 300 million ton leach pad. Importantly, this company transforming project remains on schedule to be largely completed by late next year. Turning to slide 10, I'd be remiss not to mention exploration. Building on the strong double digit reserve growth in 2020, we decided to further bolster our efforts and plan to spend just under $70 million on exploration this year. Notably, we invested roughly $15 million in the first quarter, which is almost as much as we spent during all of 2015. We drilled nearly 40% more feet quarter over quarter as key programs at Silvertip and Crown ramped up while drilling campaigns continued to advance across the rest of our portfolio. Although it's still early, we're seeing encouraging results that continue to validate our ongoing commitment to this higher level of exploration investment and the high heroic it generates. With such an important program underway, we plan to provide some additional updates on our progress throughout the year, including one in a few weeks that will focus on Silver Tip and Crown. Before passing the call to Mick, I want to briefly mention our responsibility report that was published yesterday. We pride ourselves on being an ESG leader and the report does a fantastic job showcasing our commitment to transparently disclosing our ESG-related goals and accomplishments, including our initial target to reduce net greenhouse gas intensity by 25% over the next five years. With that, I will now turn the call over to Mick. Thanks, Mitch.
spk01: Before discussing the operational results, I want to quickly add to Mitch's comments on ESG. Slides 17 and 18 in today's presentation do an excellent job at highlighting our commitment to pursuing a higher standard. We're passionate about being responsible stewards of the environment and strong contributors in the communities where we operate. By setting goals aimed at reducing our overall impact on the environment, we are not only staying true to the purpose statement, we are also enhancing the integrity of our operations to drive them further down the cost curve. Now turning to slide 6 and starting with Palmarejo. Production results were ahead of expectations for the quarter, largely due to higher than planned recoveries, partially offset by lower mill throughput as a result of a change in mine sequencing. This was driven by some challenging ground conditions we encountered which led us to pivot and mine in different areas. Despite the change in the main plan, unit costs for both gold and silver ended below the low end of their guidance ranges. This quarter was a perfect example of how Palmyra was consistently able to produce results while balancing multiple priorities. Moving to Rochester, we anticipated a slower start to the year, which was broadly in line with our results for the quarter. Gold is a bit ahead of where we thought we would be, while silver has some catching up to do. We ran into some softer ore, which caused us to dial back throughput rates to help manage the amount of fines being sent to the leach pad. Importantly, we expect to improve those throughput rates and control fines during the second half of the year with the new secondary crusher that we have just commissioned. We also plan to place fresh material closer to plastic once the fourth phase of our interlift liner strategy is completed around mid-year. Shortly thereafter, we are scheduled to begin delivering overliner material for the new Stage 6 leach pad. While we have solid plans in place, we are anticipating some near-term variability in our production profile as we continue to operate with the Legacy Crusher and Stage 4 Leach Pad to maximise our learnings while POA 11 is completed. The valuable experience and runtime with the recently modified Crusher and In-Lift Liner on top of Stage 4 during the remainder of the year will be key to helping us further de-risk our ability to achieve the expected results from POA 11. Turning over to Kensington, production was slightly ahead of our expectations, albeit a little bit lower quarter over quarter as a result of a reduction in mill throughput and average grade. The decrease in throughput was primarily driven by a routine mill shutdown for maintenance that we moved from December into January, and slightly lower average grades were due to the targeted focus on ore development and stove drilling capacity earlier in the year. Unit costs for the quarter totaled roughly $990 per ounce, up slightly quarter over quarter, but below the low end of Kensington's guidance range. Overall, Kensington had a very solid quarter, and we are anticipating another great year for the operation. Lastly, at Wharf, operational results were ahead of plan. Production totaled roughly 19,000 ounces of gold, and unit costs came in below the low end of guidance. giving us a strong foundation for the rest of the year. With that, I'll pass the call over to Tom.
spk08: Thanks, Nick. I'm going to run through the financial results on slide five, which showcase the key points that Mitch and Nick already hit on. 2021 started much stronger than 2020, with revenue up 17%, a 42% increase in adjusted EBITDA, and a 6% expansion in margins. all of which contributed to a third consecutive quarter of gap earnings. We are pleased to be ahead of our internal expectations to start the year. We mentioned on our last call that we were anticipating relatively weaker cash flow in the first quarter based on the buildup of inventories on our leech pads, as well as the timing of tax payments in Mexico and annual incentive payouts across the company. We forecast a return to stronger operating cash flow over the remainder of 2021, to help fund the planned capital expenditures at Rochester and our aggressive exploration program. Turning over to slide 12, I wanted to provide a bit more color on the improvements we made to our balance sheet. We successfully refinanced our five and seven eighths senior notes that were set to mature in 2024 with $375 million of five and one eighths notes due in 2029. This represents a tremendous achievement on multiple fronts. First and foremost is the financial flexibility this gives us as we execute a period of significant capital investment. Next, we took the opportunity to upside the offering to further bolster our cash position and enhance our liquidity. We also made significant improvements to certain terms of the bond indenture. Finally, the five and one-eighth coupon represents the lowest coupon of any high-yield mid-cap precious metals bond ever. In addition to the bonds, we also extended the maturity on our $300 million revolving credit facility from October 2022 to March 2025. With no borrowings under the revolver and the additional cash from the refinancing, we ended the quarter with nearly $420 million of liquidity and a net leverage ratio of under one times. I'll now pass the call back to Mitch. Thanks, Tom.
spk09: Before moving to the Q&A, I want to quickly highlight slide 13 that summarizes our top priorities for the remainder of the year. By staying disciplined and executing our strategy, we're confident we can achieve these priorities and deliver solid results from our balanced portfolio of North American precious metals assets. With that, let's go ahead and open it up for questions.
spk00: We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw from the question queue, please press star then two. The first question is from Joseph Rieger with Roth Capital Partners. Please go ahead.
spk03: Morning, guys, and congrats on a solid start to the year.
spk09: Hey, thanks, Joe. Hi.
spk03: So... First question, G&A seemed to be a bit elevated, you know, compared to last year. Is that something we should expect to continue, or was that kind of a one-time thing?
spk09: Yeah, that's the highest quarter of the year. We'll still continue. end the year in that guidance range, which is what, 37 to 41? Yeah. I think. Yeah. Slight uptick in there, Joe, to reflect some additional costs we expect to incur to help get all the new SK-1300 technical reports done as we head into 2022. So we'll have some additional third-party resources in place to help us there. That's one. extra bump in this year's G&A. Tom, anything else?
spk08: No, the first quarter is always a bit lumpy with, as we true up annual bonuses, we estimate out what the long-term incentive is going to be. So those are the key things. But the main message there is we'll be on track to the guidance for the year. Joe?
spk03: Okay. Fair enough. And then on the cost front, have you guys started to see any inflation impacts on the cost side, whether it be reagents or any other items, even labor?
spk09: Yeah, I'll start, and then, Mick, maybe you can chime in. We're seeing some pressures on some commodity-related inputs. Joe, I know... Even though diesel is only about 6% of our overall costs, we saw, I think, about a 17% increase in the price per gallon in the first quarter versus fourth quarter. So that one's very real. We've all read headlines about lumber, cement, plastic, those kinds of things. We've seen some cost pressure. Not so much on the labor front. But Mick, anything that I'm missing?
spk01: Just, I mean, across the board, right, we expected some of that. So we built that into a model and we still expect to meet the cost guidance across the portfolio. But certainly there was some potential high exposures with the projects we're doing, particularly at Rochester. But because of the progress on that project, the majority of those contracts are locked in and that looks really good for us. So certainly some exposure there, Joe, and we're watching that carefully. But overall, we're in control.
spk03: Okay. Thanks. I'll turn it over. Thanks, Joe.
spk00: The next question is from Michael Dudas of Vertical Research. Please go ahead.
spk07: Good morning, gentlemen. Good to hear about the pushing the fixed costs onto the contractors on the price increases that we're going to certainly see in this inflationary environment. Hi. So first question is COVID. Could you just update us on The vaccination rates, how much through in your U.S. operations that you've gotten to and how things are in Mexico, and is it trending in the right direction to kind of get to the other side maybe as we get more vaccines over the next few months?
spk09: Yeah, great question. I'll start and then Mick, you can fill in any of the blanks. It's a function, Mike, largely as you might expect of where you're talking, right, out In the western U.S., our kind of layers of controls that we've put in place over the last year seem to be very effective, and we're operating very well, especially at WARF, Rochester, Kensington. That was the source of about 70% of our COVID-related costs last year were related to Kensington and quarantine, especially requirements there. We've now been able to kind of roll that back for those vaccinated. There's no quarantine, otherwise it's a three day quarantine. So that's a far cry from where we were about a year ago when we were dealing with about a two week quarantine. So that's allowed us to really reduce our COVID related costs, even quarter over quarter. I think they've gone from five and a half million to down to three in the threes. Mexico is still clearly the laggard. The controls that we have are effective, but when it comes to any vaccines or anything like that, I think we're still quite a ways away. Up at Silvertip, that asset sits just south of the border with Yukon, and we've managed to see some really great cooperation with the Yukon province in terms of PCR tests, and vaccines. And so that's really helped Silver Tip kind of catch up to where we are here in the U.S. You know, overall vaccination rates vary by site. Kensington's, I think, the highest, around 50 or even higher. We're still below 50 at Wharf and Rochester. Mick, do you want to pick up from there and fill in anything I didn't cover?
spk01: Yeah, for sure. Clearly, one of the higher exposures would be where fly-in, fly-out sites, Palm Reho and Kensington, and particularly Kensington where we had that strict quarantine. But we hit a milestone the other day. We actually have 75% of the workforce that have at least one vaccine and above 60% that have two. And so that program's going really well. And overall, the controls, both at Palmaré Hall and all of the other sites, are working very well. We have multiple layers of protection with testing and the other controls around hygiene and masks, and those controls are doing great.
spk09: And just the last thing, Mike, I'd say is that here in the office, it's actually a full room here this morning in person. And June 1st, we'll be going to more of a hybrid return to office model, and we'll see how that works. But that's a lot of signs of a return to something approaching normalcy.
spk07: Yeah, that's certainly encouraging, Mitch. I'm glad to hear that. Maybe for Tom, you highlighted the working capital headwinds this quarter. the reversals and how much of a tailwind we think we'll see in timing over the next couple quarters?
spk08: Yeah, you know, the first quarter is when we tend to build up the heat bleach inventory, the stockpiles at both Rochester and Wharf, as well as we have a really lumpy one-time Mexican tax payment as we pay the annual EBITDA tax and the and true up our 2020 tax bill. So those are kind of behind us. And so I wouldn't expect to see any large buildups. And, again, I hope we'll be monetizing what was put on the stockpiles or on the heap leeches as fast as possible.
spk07: I appreciate that. And final question then maybe for Mitch or for Mick. As we're looking at the Rochester buildout, What are, you know, and a nice summary on the slide deck, but what are some of the things we're seeing this quarter, maybe into the summer, that are milestones that we should be concerned or focused about as we ramp up to percent complete, you know, above what you were at, 20%?
spk09: Yeah, I'll start, and then Mick and Terry Smith is here as well. That stage six leech pad is moving along nicely. I think if we haven't, we will soon be starting to put over liner material out there on stage six. That'll be in the second quarter. The new power line with Nevada Energy is moving along on schedule. We'll see that. Not complete, but I think later this fall will be completed. We've kicked off, obviously, on not only the Leach Pad, but the Merrill Crow. And... What's the third? And the crushing train. Yeah. And so those are more of a mid to third quarter 2022 completion. But in the summer, any other big highlights that we should be looking for in the second quarter? Not really.
spk05: I think you hit most of them, Mitch. It's really a lot of excavation work that we're working through this year. The big milestone that we'll try to hit is getting all of that over-liner material out through the third quarter and complete that leach pad before snow hits us in the forest.
spk02: Good. Excellent. Thanks, gentlemen. Thanks, Mike.
spk00: As a reminder, if you have a question, please press star then one. The next question is from Brian MacArthur of Raymond James. Please go ahead.
spk02: Good morning. My question has to do with Palmoreo. Your costs in the first quarter were $6.21, but you're guiding towards $7.10 to $8.10 for the year. So that implies a pretty big increase later this year. Is that a relation to the switch in the Franco mine ounces land, or is there something going on? I'm just surprised because it looks like the annualized production, you're sort of on schedule. So I'm just trying to figure out if there's anything else going on there.
spk09: Nothing, we came in lower than planned in the first quarter. Let's hope that that continues throughout the remaining three. But, Mick, is there anything that you want to point out there?
spk01: Yeah, it's absolutely expected. The grades will continue to go down a little bit across the year, and we'll continue to optimize and move more tons to hit that production profile. So right now we expect to be in the guidance range for costs, but, of course, we're striving to be at the bottom end of that guidance or below. But for the moment we expect to be in the guidance. Yeah.
spk02: Sorry, just to follow up, you don't hedge the peso or anything there, or do you? Is there any peso effect that's happening as well?
spk08: There is. And, Tom, you want to summarize on that? Yeah. So, Brian, in the guidance, we gave the guidance pre-any hedging. Right. But when we report, it includes the impact of hedging. So we have... roughly $50 million of pesos hedged in 2021. And, you know, we had a benefit of about a million bucks a month through the first quarter. If you look to the financial statements, the forwards are on the balance sheet as an asset of about $9 million. So if the FX rate stayed where it is, we'd have a $9 million additional benefit. tailwind on cost, but that's how we handle the hedging profile for the rest of the year.
spk09: And that FX rate is what, 25? 25, yeah.
spk02: Okay, that's very helpful, but I could also assume there's not a real big mix in which materials coming off Franco lands versus non-Franco lands, because again, that might affect the cost, but obviously if you get more of your stuff, you get a better revenue. There's no other function going on there or anything.
spk08: That really only impacts the revenue line, Brian. Right. So I think in the first quarter, the revenue, we had 34% where we only received that $800, which is quite a bit lower than the fourth quarter, which was 44%. That 34% is probably the right number to be thinking about for the rest of the year based on the budget. So I hope that clarifies that.
spk02: Yes, thank you all very much. That's very helpful. Thank you very much. Thanks, Brian.
spk00: And this question is from Dalton Barreto of Canada Accords. Please go ahead.
spk11: Thank you. Good morning, guys. Just one question for me. Hey, guys. As you move forward towards a decision on silver tips, Just given what's happening with the industrial commodities, is there an opportunity on you guys considering hedging out a substantial portion of the zinc and lead production there?
spk09: Great question, and it's an active topic. Tom's smirking over here on the other side of the table. Do you want to take that, Tom? The short answer, spoiler alert, is yes.
spk08: Tom, you want to? Yeah, no, look, we've been, I think we've demonstrated with the Rochester build, we're not afraid to put on hedges during periods of capital intensity. It makes sense. People on the credit side and the equity side completely get it. And, you know, as we advance those discussions, as the feasibility study comes to a conclusion here in the second half of the year and begin our discussions primarily around offtake financing, we would expect to include some element of hedging.
spk11: That's great. That's what I thought you'd say, Tom. You know the Zinc market better than most. That's all from me, guys. Thank you. Thanks, Alden. Thanks, Alden.
spk00: The next question is from Ryan Thompson of BMO. Please go ahead.
spk10: Hey, guys. Thanks for the update. Just a quick one for me. Can you just give us an update on Southern Nevada with Crown and Sterling and Seahorse and just sort of some of the activity there and what the latest sort of update and thinking is there? Thanks.
spk09: Yeah, sure, Ryan. Thanks for the question. And Hans is on the call as well. Hans, you can chime in after me if I miss anything. But it's a very dynamic area down there around Beatty in Nye County, southern Nevada. The Crown Sterling Complex is one of our biggest allocations of exploration spend this year, which is a reflection of how enthusiastic we are about what we're seeing down there, in particular up there to the north in that crown block. You know, you'll recall, Ryan, when we bought Northern Empire, the crown block consists of SNA, Secret Pass, and Daisy. And then about a year ago right now, we made the discovery of Seahorse, which has been exciting. Now we've been drilling on all four of those, and what we are planning to do is continue to drill, spend that budget that we've allocated this year, and then pull together a PEA middle of next year that reflects a mine plan and hopefully a future operation for us that encompasses all four of those deposits in some sort of sequence. And so that's kind of where our focus is. We'll be putting out, I think I mentioned this in my prepared comments, next month, an exploration update, and CROWN will be a focus in that release. So there will be some good information and drill results for you to see next month. Hans, did I leave anything out?
spk06: Hey, Ryan, just a couple of points about what our focus is there. Mitch pretty much described it. It's a big area. We're focused only on resource expansion at the moment. There's so many things to drill, and we just got our 300-acre plan of operation drill disturbance last October. So, you know, with a limited area at Crown, or at Seahorse, I mean, where we only had five acres to drill, we pulled the rigs down to these other assets at Daisy, Secret, and SNA to focus on expansion around them. We've done a lot of geologic work down there, and we've got some great targets that we're drilling and seeing some good visual results. uh, indications of, of growth there too. Uh, in, in addition to the seahorse, uh, that we've been talking about for the last year. So it's, it's really exciting. Three RC rigs are turning right now, one core rig. And, uh, we've, we've doubled, almost doubled the budget there, uh, over last year. So you can tell we're quite excited about that area.
spk10: Perfect. Thanks. Uh, thanks for the update, uh, Mitch and Hans and looking forward to, uh, watching the results as they come out there. That's all I have. Thanks.
spk09: Yeah, thanks.
spk10: Okay.
spk00: This concludes our question and answer session. I would like to turn the conference back over to Mitch Krebs for closing remarks.
spk09: Thanks, everybody. I know a busy day here. Thanks for your time, and thanks for the questions, and we look forward to speaking with you this summer to discuss our second quarter results. So thanks. Have a good day. Bye.
spk00: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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