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spk07: Good day and welcome to the Core Mining First Quarter 2022 Financial Results Conference Call. All participants will be in a 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 then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Mitchell Krebs, Chief Executive Officer. Please go ahead.
spk05: Good morning, and thank you for joining our first quarter 2022 earnings call. Joining me here are Mick Routledge and Tom Whelan, along with other members of our team. Before I begin, please note our cautionary language on forward-looking statements in our slide deck and refer to our SEC filings, which are available on our website. Our first quarter results were in line with expectations and position us to achieve our full year production and cost guidance ranges as we look to deliver sequential production growth over the remainder of 2022. Palmareo and Wharf led the way with solid starts to the year, offset by slower starts at Kensington and Rochester. As those who follow the sector are keenly aware, lingering effects from COVID and inflationary pressures were two key themes during the quarter. However, COVID-related disruptions appear to be dissipating and we're managing our way through the supply chain shortages, disruptions, and higher cost environment through our commitment to continuous business improvement initiatives at each of our operations. Both Mick and Tom will go into more detail on operating costs. We provided an update on several important steps we've taken to materially bolster our liquidity levels to support the ongoing Rochester expansion, which Tom will detail shortly. The expansion is gaining momentum and advancing according to plan. You can see from the photos on slides 10 and 11 that the key elements of the project are quickly coming together. Mick will provide a more detailed update in a couple of minutes. On the exploration front, we provided another update last week, this time highlighting new high-grade intercepts at our Kensington and Palmareo operations that point to future potential mine life additions. Meanwhile, the exploration team at Silvertip hit the ground running this year after delivering strong double-digit resource growth last year with several additional high-grade intercepts, including a new discovery called Camp Creek West that is opening up even greater possibilities at this emerging world-class deposit. Another first-quarter highlight that flew a bit under the radar was the receipt of the final record of decision from the United States Forest Service to increase the tailings and waste rock storage capacity at Kensington. As our recent exploration success at Kensington indicates, we think the mine may have a much longer life than the current reserve suggests, and receiving this record of decision provides us room to accommodate another decade of future growth. Finishing up with the highlights, we released our 2021 ESG report last week, which detailed our efforts to extend our leadership position in these critical areas of our business. We have substantially increased our commitment to reducing our greenhouse gas emissions net intensity, raising our goal to a 35% reduction by 2024 compared to last year's goal of a 25% reduction by 2025. A summary of highlights from the ESG report can be found in the deck beginning on slide 17. I'll now pass the call over to Mick.
spk01: Thanks, Mitch. Slide six includes the details of our first quarter operating results and how we're tracking versus the balance of the year. As Mitch mentioned, the first quarter is expected to be our weakest, but we are pleased with the overall start to 2022. Starting with Palmarejo, gold production ticked up slightly compared to the prior quarter, while silver production remained consistent. Turning to costs and what will be a common theme as I go through operations, Higher consumable costs led to increases in unit costs for both gold and silver. Completion of the Mexican peso hedging program we had in place last year also contributed to higher costs compared to prior periods. As expected, Palma Rejo's first quarter cash flows were impacted by the annual Mexican EBITDA tax payment. In short, a solid start to the year ahead of production for Palma Rejo. Switching over to Rochester, lower ore placement at the end of last year and into January led to a slower start to 2022 production, compounded by lower average silver grade on Pad 4. On the plus side, tons placed increased 14% this quarter, driven by better fleet availability and supplemented by 1.5 million tons of run-of-mine material during the quarter. The team is making solid progress dialing in the optimum crush size with some excellent work in the pit at the current XPIT crusher and out on Pad 4. You'll recall that we're incorporating pre-screens into both the existing crusher and the new Limerick crusher that has been constructed to maximise our flexibility to process or mind with varying hardness and provide control of fines which if too high can affect solution floors through the heap leach and potentially negatively impact recoveries. An important next step in this process will be the installation of prescreens on the existing XPIT crusher, where work is already underway with concrete now being poured for the foundation. It's important to point out that prescreen construction is expected to inhibit our ability to crush material for up to 30 days during the second quarter. We look forward to measuring the impact of the screens at Rochester's second half operating performance and, of course, applying these learnings to further de-risk the POA 11 project and incorporating them into our post-expansion operating plan. Before covering the other operations, I want to provide a brief update on the progress taking place at the Rochester expansion project, starting on slide nine. The pace of activity is entering a new phase. with the majority of essential materials and components now at site. Approximately $283 million has now been spent towards the project, and a total of $477 million of the estimated capital has now been committed, representing about 80% of the total capital. With the majority of the Stage 6 leach pad now complete, structural steel for the Merrill Crow processing facility is being erected, and concrete at the new Crusher Corridor is being poured. We look forward to sharing our progress as this important year unfolds. Turning to Kensington, fantastic news as Mitch shared earlier that Kensington received the permits required to extend the tailings and waste rock capacity by up to 10 years. COVID-19 related workforce availability impacted mine sequencing and led to lower than anticipated production during the quarter. Thankfully, the excellent controls we have in place developed over the last two years led to a quick resolution. Workforce availability has since resumed to normal levels and the team is working to catch up on delayed stoke development. Lastly, at Wharf, Gold production was delivered slightly ahead of plan due to solid production rates as mining takes place in a lower-grade area of the pit throughout 2022. On the cost side, the team did a great job with fleet efficiency improvements, helping offset increased prices for consumables. With that, I'll pass the call over to Tom.
spk06: Thanks, Mick. Turning to slide four, I'll quickly run through our consolidated financial results. before spending some time to review the recent balance sheet enhancements. Strong performances at Palmareo and Wharf were offset by weaker-than-expected performances at Rochester and Kensington, leading to quarterly revenues and costs that were in line with our expectations. Revenues decreased 9% quarter over quarter based on a 15 and 6% decrease in gold and silver ounces sold, respectively, partially offset by a 4% increase in average realized gold and silver prices. Operating costs were in line with our expectations as our 2022 budgeting process has generally captured most of the cost inflation pressures other than diesel. We typically consume 16 to 18 million gallons of diesel per year and are currently running approximately 60 cents per gallon over budget through the end of the first quarter. A couple of other items to note on the first quarter. Operating cash flow was negative $6 million, reflecting the chunky outflows typical of our first quarter, including the annual Mexican EBITDA tax, and annual employee incentive payments, as well as the semiannual interest payment on our senior notes. Capital expenditures for the quarter were $70 million, reflecting lower than expected POA 11 expenditures, primarily due to timing of invoices. Our guidance for expected POA 11 expenditures in 2022 remains unchanged at between $217 to $257 million. With production and cash flows expected to increase over the course of 2022, coupled with the recent actions that have significantly enhanced the balance sheet, we're confident in our ability to fully fund our growth objectives both this year and in 2023 as POA 11 construction winds down. Turning to slide 12, the initiatives that we have taken since our year-end conference call strongly positions the company to be able to comfortably fund the remainder of the POA 11 expansion and our other internal growth initiatives according to our capital allocation framework. As of March 31, adjusted to reflect recent initiatives I'll describe in a moment, we had liquidity of approximately $378 million. We've completed three important initiatives to significantly enhance our liquidity. First, we took advantage of elevated gold prices during the quarter to significantly bolster our gold hedging program to provide a meaningful source of downside protection during this time of price volatility and elevated capital investment. Second, we expanded our revolving credit facility by $90 million to $390 million. As of March 31st, we had $55 million drawn on the facility. We would like to thank the banks in the syndicate, including Goldman Sachs, who joined the lender group for their confidence in supporting our strategic plans. Third, we completed our previously announced ATM program during the first quarter for gross proceeds of $100 million. We also continue to hold approximately $160 million of equity investments. With roughly $378 million of pro forma liquidity, and the additional potential liquidity from our equity investments, we feel very comfortable that the balance sheet will provide the required flexibility during this time of significant investment and expected high return growth initiatives. I will now pass the call back to Mitch.
spk05: Thanks, Tom. As these recent actions highlight, we continue to systematically build in certainty and eliminate risk as we advance CORE's growth strategy. With proper execution, we expect to conclude 2022 on the cusp of a new phase of multi-year growth in production and cash flow from our North American asset base. Before opening it up for questions, I just want to take a moment to extend my appreciation for the tireless efforts of the entire core workforce. I was recently at Palmareo in Rochester and was reminded once again of everyone's incredible dedication. I'm very proud of the combined efforts of our nearly 2,000 dedicated employees and hundreds of contractors who are pulling together to consistently, safely, and responsibly deliver results and pursue a higher standard. I'd also like to welcome our newest member of this team, Aoife McGrath, CORE's new Senior Vice President of Exploration. Aoife joined us last month, bringing with her an impressive track record of value creation over a distinguished career. We look forward to benefiting from her leadership and expertise going forward. With that, let's go ahead and open it up for questions.
spk07: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Once again, pressing star then one will allow you to ask a question. At this time, we will pause momentarily to assemble our roster. And once again, if you'd like to answer the question queue, please press star then 1. Thank you. And our first question will come from Trevor Turnbull with Scotiabank. Please go ahead.
spk02: Yeah, thanks for taking my call, guys. I was looking at the slide deck, and I was quite impressed. I thought it was just a good way to see the impact of inflation, the way you presented it, and perhaps you've done that in the past, but it was the first time I'd noticed it. I was curious... Can you comment a little bit on some of the capex inflation pressures? You gave a really good breakdown of some of the operating cost pressures and how they've changed. But can you make any comment on things like maybe structural steel and the bigger hard items that you might have to order? Can you just comment on how inflation has played a role in those?
spk05: Yeah, sure. Appreciate that feedback. And this was a first time for this slide. We just thought given the focus both internally and externally on these pressures that this might be a good slide to create and include, so appreciate that feedback. On the capital side, I'll let Mick talk a little bit more specifically. We started to see those pressures on the capital side really sort of mid-summer last year and going into the fall as we had a couple of large remaining contracts to award relating to the Rochester expansion. And maybe between Mick and Tom, you guys can give Trevor a little bit of color on how inflation has shown up on the capital side.
spk01: Yeah. So on the project, the great thing is that we're about 80% committed on the project at P11. And we predicted quite well from last year's planning process that expectation. So when we re-baselined the project and looked at the new schedule and capital, we then communicated that last time around and were sticking with that guidance. So on the capital project front, we're pretty happy with where we're at with PUA 11. And on the operations side, in fact, the planning process was a robust one last year, and we built a lot of that expectation for some inflation into this year, and that's why we're holding the cost guidance for 2022.
spk05: Tom, anything to add? No. Trevor, I think just to put a fine point on what Mick said, I think third quarter last year, we flagged 10% to 15% potential inflation on the project. And then when we came back early this year with a rebaseline estimate, it came in right in that range, kind of the high end of that range, mostly on the Yeah, on the steel, piping, electrical, and then labor. And really, one of the big themes that I took away from that was just how contractors were kind of inflating their bids to reflect the risk of labor scarcity and trying to incorporate that into their estimates. And that was a source of probably some of the more significant escalation that we were seeing.
spk02: Right, and I do recall you telegraphed that back in Q3.
spk05: Yeah, yeah. Happy to follow up offline and give you more color if you'd like.
spk02: No, I appreciate that. And I hate to harp on inflation, but I haven't heard this asked before, and I am just a bit curious. Does exploration, is it starting to reflect inflation as well in terms of drilling rates? And what's availability like these days? It just seems like there's so much interest in the sector for exploration. Are you starting to see cost pressures just from trying to keep rigs available and so forth?
spk05: Yeah, the place that I think of first is on the labor side. Drill crews, very tough. And then also in the assay labs. scarcity of labor there is impacting turnaround times on assay results. On the actual cost side, we're not really seeing that. But I know, Riggs, are we seeing a little?
spk01: Yeah, we're seeing a little bit of pressure. But the great thing is we got what we needed so far and well planned for this year. And the efficiencies that we're seeing across our portfolio, in fact, cost efficiencies per foot are helping us to stave off some of that inflation. Good point.
spk02: Great. Thank you. And just while we're talking about exploration, I'll use it as an excuse to congratulate both you and Aoife on her appointment. But that's all I had. Thank you, Mitch.
spk05: Thanks, Trevor.
spk02: Thanks a lot.
spk07: The next question will be from Ryan Thompson from BMO. Please go ahead.
spk03: Hey, guys. Thanks for the update. I would echo Trevor's comments on that slide. I thought that was a very informative slide, so thanks for that. Maybe just a couple of questions for me, first on Kensington. Can you maybe just dig in a little bit more on that record of decision that you got, and how do you see the mine life sort of evolving there over the next, call it, 12 to 24 months?
spk05: Yeah, sure. We started that permitting process almost five years ago, just to give you a sense of how long those things can take here in the U.S. We said in the earnings materials that that should give us another decade or so of capacity for both tailings and waste rock. Now the onus is on us to fill up that next 10 years. We've been investing mostly on the expansion side of the drilling budget at Kensington. We've built up a pretty decent inventory of resources. Reserves declined year over year, but now the focus is to convert some of that resource into reserve this year. Some of the drilling results that we put out last week were from Kensington, which I found very encouraging in terms of some of the results coming from the upper areas of Kensington, of the main Kensington zone where we've been mining since the mine started up in 2010. And so going up higher there in what we call zone 30, 30A, 30B, that's an interesting development that we think can give us some additional resources and then ultimately reserves. Mick, do you want to add anything to that or have I, some of the other deposits besides the main Kensington?
spk01: No, we have obviously IFA joined us, and we're really excited about that to get some strategic interpretation of that region. And Cal, Robert Callaghan, joined us, who has a lot of experience in that region as well, and we've put together a great target list, and we're going to work through that conversion pipeline. We'll have a strong tiered approach, Tier 4, 3, 2, and all the way down to reserves at Tier 1, and we're going to get after those targets. When you look at... We have options to get after there and we're hopeful that we'll find the right targets to convert and fill up that capacity over time.
spk03: Perfect. Thanks for that and looking forward to tracking that as the work unfolds there. Maybe just another one for me. Can you just give us an update on Crown and Sterling? Are you still active there? What's the latest thinking on that project?
spk05: Yeah, still active. A pretty healthy allocation of our exploration budget is to southern Nevada. A lot of activity in the area, as I think most people know. And the reason there's a lot of activity is because there's a lot of potential in that historic district that's now sort of got a new lease on life with Anglo Gold announcing a resource just immediately to the north of us on what they call silicon, and then them acquiring Corvus Gold right there in the region. There's just been a lot of corporate activity and a lot of exploration investment taking place. So, look, we're going to continue to invest in drilling and keep growing our resource base. We're having continued very good success there. You know, that said, if, like I think always said, if there's a compelling opportunity that that comes along to really unlock value in Southern Nevada, share risk, rationalize capital, whether it's partnerships, consolidation. We're always open to those conversations, whatever we can do to maximize the value of Southern Nevada. But you look at the map down there, we really like the land position that we have. We kind of have the guts of that district tied up. And so it's an exciting part of of the longer-term growth story that we have here.
spk03: Perfect. Thanks a lot for the update. That's all I've got. Thanks, Ryan.
spk07: The next question will be from Carl Blunden from Goldman Sachs. Please go ahead.
spk04: Hi. Good morning. Thanks for the time. Just wanted to focus in on CapEx and the full-year guidance there. When you look at that and the main factors that could drive you to be toward the lower or higher end of that range, I'd be interested to hear what the big buckets are, perhaps more focused on those that are not really in your control, so unhedged material costs or something of that nature.
spk05: Yeah, on an overall CapEx basis for 2022, obviously the lion's share of of that is dedicated to the ongoing Rochester expansion. And we've started to kind of transition out of what was a lot of procurement risk and now much more toward just the project management risk, which sits more in our control than the procurement phase. We still have to nail down the pre-screen capital estimate that we're going to design in and incorporate into the expanded crusher facility. But the nature of the spend out there at Rochester is starting to kind of shift from that procurement to more project management, management of contingency, owner's costs, et cetera, et cetera. Tom, that's the bulk of it. The next biggest bucket of our CapEx this year is really underground development, capitalized development at our underground mines, which I think we've got a good process, good controls over those buckets at Kensington and Palmareo. Did I leave anything out?
spk01: Just on the P-REA 11 construction and the risk profile, of course, when we're digging holes in the ground and we're doing civil work, there's always a risk there. But once we get above ground, which we largely are now for this project, then the control of that work on construction and execution is much tighter and largely in our control. So we're pretty happy with that risk profile.
spk04: That's very helpful. And great to see on slide 12 the – basically the summary of all of the balance sheet enhancements they're getting into the total liquidity number that you disclosed there, 378. As you think about the revolver capacity that you'd like to maintain, is there kind of a range that you'd be comfortable with even as we go through kind of the build phase of Rochester? You know, the addition is certainly helpful there, but interested in just kind of the sensitivities to the downside.
spk05: Tom, do you want to go ahead? Yeah, sure.
spk06: We've always stated $100 million is kind of what we would like to have as a minimum level of availability to make sure that we've got the flexibility that we need as a multinational company with opportunities that pop up from time to time, it's always good to have at least that amount of cushion. That's what we target, Carl. Again, a big part of the math that we did around putting on those hedges was to, in fact, ensure that we've got that $100 million of liquidity available. The hedge program that we put in with 70% of 2022 hedge and 50% of the first half of 2023, we've added on a little bit more in the second half of 2023. It's all geared up to just make sure we've got that downside protection during the construction out at Rochester.
spk04: That's helpful. Thanks very much. Thanks, Carl.
spk07: And again, if you have a question, please press star and one. The next question is from Mark Reichman from Noble Capital Markets. Please go ahead.
spk00: Good morning, and thanks for taking my question. Well, it may be a little early, but with the expiration success at Silvertip, have you received any encouraging signs from the market yet? whether that be, you know, discussions of offtake agreements or even interest from other parties in buying the project, that you're making the right decision on that project, you know, moving it forward. And what are your expectations for Silvertip at this point?
spk05: Yeah, thanks for the question. I'll start, and then, Tom, maybe you can tack on anything, especially on the offtake side. Like we've said, Mark, we'll know a lot more here in the late this year as we gain some clarity from the work that's going on. We certainly like the grade profile we always have. I think that's starting to get a bit more attention even from other companies that see that this is among the highest grade silver, zinc, lead deposits anywhere in the world. And now they're starting, like us, to see the tonnage increase fairly rapidly. And so that's creating some interest. The fact that it's sitting in British Columbia also checks the box for external parties and it always has for us. And we're looking forward to getting to the end of this year and seeing what does some potential higher tonnage scenarios look like in terms of the overall economics for the project. And then most importantly, we need to find a way to make that capital and the sequencing of the project work for the economics of the project and for us as a company. you know, balancing other priorities like de-levering on the back of POA 11, getting Rochester obviously completed. Those come first, but certainly is attracting a lot of interest externally and a lot of excitement here internally. Tom, do you have any other?
spk06: Yeah, I would just talk about all the various metallurgical testing that we've done across all the zones. And certainly the concentrate grades that we have come out of those testing are showing that both the zinc and the lead cons are going to be highly desirable. And given the geographic location, logistics was never an issue to get the concentrate out to market. And so there continues to be heavy interest. And again, we'll come out with more news here towards the end of the year.
spk05: And I think just to one last thought there is with everything going on in Eastern Europe, um, just disruptions, supply disruptions, geopolitical uncertainty, that's even put more of, and with the higher base metals prices has, has created more of a, of a buzz around, around silver too.
spk06: Yeah. Particularly at a higher tonnage, it's going to be even that much more interesting. So wait and see.
spk00: Yeah. So, so it sounds like, uh, there's growing recognition that, that, uh, the project is really shaping up to look very competitive. And whether you decide to hang on to it or decide to do something else with it, at this point you're feeling pretty good about how it's progressing in terms of as you're working towards your process at the end of the year.
spk05: Yeah, I think that's well said, Mark. I'm looking at Mick over here to see if he's nodding or shaking his head and he's nodding his head.
spk00: Well, that's better than a no anyway. Hey, thanks very much. That's really helpful and very much appreciated. Thanks, Mark.
spk07: Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Mitchell Krebs for any closing remarks.
spk05: Okay. Well, hey, we appreciate everybody's time this morning. Look forward to speaking with everybody again this summer. So thanks again for the time. I know it's a busy reporting week. and have a great day. Thanks.
spk07: Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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