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Coeur Mining Inc (NYSE:CDE)
Q1 2020 Earnings Call
Apr 23, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Coeur Mining First Quarter 2020 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Paul DePartout, Director of Investor Relations. Please go ahead.

Paul DePartout -- Director Investor Relations

Thank you, and good morning. Welcome to Coeur Mining's first quarter earnings conference call. Our results were released after yesterday's market close, and a copy of the press release and slides are available on our website.

I'd 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 10-Q and 2019 10-K.

Now I'll turn it over to Mitch.

Mitchell J. Krebs -- President and Chief Executive Officer

Thanks, Paul. Joining me on the line are Tom Whelan and Terry Smith, along with several other members of the management team.

Before discussing the quarter, I would like to provide a brief COVID-19 update. Since early March, our two objectives for navigating through the impacts of this global pandemic have been to protect the health and well-being of our fellow employees, their families, our contractors, and our communities where we operate, and to ensure the continuity of our business operations as best we can. To date, we have had no positive COVID-19 cases anywhere in the company. Early last month, we put a series of controls and procedures in place focused on controlling and limiting access to our operations, thoroughly screening employees and visitors and reducing exposure and transmission risk through a range of social distancing protocols and sanitizing and cleaning procedures. Office employees are all working from home and non-essential travel has been eliminated. We are continually reassessing these procedures as the situation evolves and as we gain additional information. The level of engagement support and outreach by our employees to the communities in Western South Dakota, Northern Nevada, Southeast Alaska, Chihuahua, Mexico and British Columbia has been truly inspiring. Slides 15 through 17, highlights several of the efforts being made by our employees.

In terms of business continuity. Our three US assets remain in operation with minimal adjustments or disruptions. Our Palmarejo mine suspended operating and exploration activities in accordance with the decree issued by Mexico in late March. Our Silvertip operation in British Columbia safely suspended mining and processing activities just ahead of the COVID-19 outbreak and all ongoing site activities along with our drilling program are continuing there. We remain in close contact with our suppliers and with our smelter and refinery customers and we have not experienced any significant disruptions to date. Like many companies, we have taken steps to increase our frequency and methods of communication, bolster our liquidity levels, and be as prepared as possible for a wide range of potential scenarios going forward.

Overall, I think our strategy is serving us well during these unprecedented times. Our focus on operating a balanced portfolio of assets located in North America with a particular focus on the US is helping us reduce our overall risk profile. Our shift over the past several years toward more gold and less silver has removed a significant amount of volatility and has us well positioned for the current environment. Our collection of organic growth projects offers investors compelling near medium and long-term growth and our commitment to a higher sustained level of exploration particularly near our existing assets provides our stockholders with exposure to the upside potential associated with new discoveries and to opportunities for high return mine life extensions from successful reserve and resource growth. And finally, our US listing and location as well as our liquidity and access to capital, are key differentiators especially during times like this.

Now turning to our results. Overall, the quarter was in line with our expectations mostly due to strong performances from Palmarejo and our Kensington gold mine in Alaska. Those two operations offset a lighter quarter from both Wharf and Rochester as anticipated, both of which are expected to deliver stronger results during the remainder of the year. I mentioned our collection of growth projects. The two most impactful near term opportunities are the expansion of Rochester and a potential restart of Silvertip.

At Rochester, we achieved a major milestone on schedule for the POA 11 expansion project when we received the Record of Decision from the Bureau of Land Management last month. We plan to accelerate work later this year and complete this important project by late 2022. We are also on track to issue an updated technical report in the fourth quarter, incorporating an updated capital estimate, optimized mine plan and economic analysis.

And at Silvertip, a pre-feasibility study for a potential mill expansion is now under way and we expect to have some results mid-year. The drilling program at Silvertip kicked off last month and we remain optimistic about what this program will deliver.

And finally, speaking of exploration, other key elements of our 2020 exploration program, the largest in our company's 92-year history, are off to good starts. The bulk of our near-mine exploration investment during the first quarter went to Palmarejo and Kensington while our single largest allocation of resource expansion drilling went to the Sterling and Crown deposits in southern Nevada. We plan to provide a mid-year exploration update later this year given the size and importance of these programs for the company.

And with that, I'll go ahead and turn it over to Terry.

Terry Smith -- Senior Vice President, Operations

Thanks Mitch, and good morning everyone. Slide 6 highlights our production performance at each operation during the quarter and provides an outlook for the remainder of the year. Starting with Palmarejo, throughput increased by over 25% year-over-year and improved recovery rates from several optimization initiatives helped drive higher gold production quarter-over-quarter. As anticipated silver production decreased due to lower grades in our mine plan during the first quarter. Higher gold recoveries and throughput along with the slightly higher gold price combined to generate over $20 million of free cash flow at Palmarejo. It's also worth pointing out that we will be well positioned to safely and efficiently ramp back up once the suspension in Mexico is lifted.

Switching over to Rochester. We mentioned on the last call that crusher production was hitting its stride early in the year. I'm happy to report that crusher performance during the quarter was 11% higher than our target and 33% higher than the fourth quarter. We have now rebuilt momentum on our leach pad that we lost late last year, but have not yet seen the benefit of improved ore placement rates and restocked metal inventories as we were operating on deeper section for the pad in the first quarter. We expect production to improve during the second quarter and climb steadily through the remainder of the year.

Before moving on to Kensington, I'll add some color to Mitch's earlier comments on our expansion plans at Rochester. We plan to spend roughly $30 million to $35 million on the expansion this year, which includes a mix of procurement and early stage earthworks. We have several purchase agreements already in place for long lead items including crushing and process equipment. SNC-Lavalin our third-party EPCM contractor has progressed detailed design to around 50% completion to date. We are also conducting a targeted drilling program, which we are optimistic will help us upgrade our mine plan as we work toward an updated technical report at the end of the year.

Now switching over to Kensington. Production was on budget for the quarter as we saw a positive grade reconciliation from the Kensington Main deposit. Financial performance remain strong as unit cost decreased by 5% to under $930 per ounce, helping to generate just over $14 million in free cash flow during the quarter. We were able to produce just over 2500 ounces from Jualin at an average grade of 0.33 ounce per ton or 11.3 grams per ton. And now expect Jualin to account for 15% to 20% of Kensington's production for the full year. We expect a slightly weaker second quarter due to fewer anticipated Jualin tons, but expect Kensington will deliver another strong year for the company.

At Wharf, adverse weather impact -- impacted first quarter crusher performance leading to weaker-than-expected production levels. We have mobilized the third-party crusher contractor to accelerate our placement rates and help us catch up on and deliver on our full-year plan. As a reminder, we are planning to increase our strip throughout the year, but we expect it to revert to historical levels in 2021.

Before passing the call over to Tom, I'd like to thank our workforce for stepping up during this difficult period. We had a solid quarter of safety performance despite this additional time of stress and distraction. Please continue to be mindful and focus on the task at hand. We appreciate everything you're doing and your continued dedication to the company.

Next, Tom will cover the financial highlights for the quarter.

Thomas S. Whelan -- Senior Vice President and Chief Financial Officer

Thanks Terry. As presented on Slide 10, we have a very sound balance sheet with no near term maturities and over $250 million of liquidity. With improved margins, our LTM EBITDA increased 44% to $195 million versus $135 million just 12 months ago. Higher EBITDA along with our 2019 debt reduction initiatives led to total and net debt leverage ratios at the quarter end of 1.8 times and 1.5 times respectively.

We've been completing various scenario planning analysis to consider the potential impacts of COVID-19 on our business, specifically focusing on liquidity. From volatile gold and silver prices to estimating the impact of the temporary suspension at Palmarejo and other potential downside scenarios, we have modeled numerous cases to determine a range of financial impacts. We believe it is prudent to have a wide variety of options available to maximize our financial flexibility during these unprecedented times of volatility and uncertainty.

Based on our analysis, we've taken the following key actions to be well positioned under various potential downside scenarios. First, we've added foreign currency hedges to lock in operating cash flow gains relative to our budget. Secondly, we drew down an additional $100 million after quarter end on our revolving credit facility. Third, we developed an internal list of opportunities where capex and exploration could be deferred. And fourth, we have also put a $100 million at-the-market equity program in place, which is available as a source of liquidity if needed. To date, we have not begun the deferral of any capital projects or exploration investments and we're not expect to reduce these key internal growth initiatives unless certain downside scenarios became likely.

Looking at our financial results on Slide 5. We expected the first quarter to be our weakest quarter of 2020 and are pleased to be ahead of our internal budget on operating and free cash flow. Digging into the numbers, our first quarter results include $47 million of adjusted EBITDA, which is 79% improvement over Q1 2019. With a strong kick off to our 2020 exploration programs and we had modest negative operating cash flow of $8 million, which was impacted by the timing of the annual Mexican EBITDA tax, payment of the annual -- of our annual bonuses across the company and the buildup of inventory on the leach pads at Wharf and Rochester.

The temporary cessation of active mining and processing activities at Silvertip also had a notable impact on our Q1 2020 results. Silvertip used $32 million of free cash flow during the quarter, a figure we will expect will be much smaller going forward as the site focuses on exploration, pre-feasibility work and ongoing maintenance activities. We forecast that ongoing carrying cost will be $4.5 million per quarter, down from the $6 million figure that we guided toward at the beginning of the year. Exploration and pre-feasibility costs remain in line with our previous estimates. One additional note on Silvertip, given the precipitous drop in zinc and lead prices during Q1 2020 and the significant increase in the 2020 benchmark treatment charges for zinc and lead concentrates, which were finalized during March 2020, we remain confident that the temporary cessation was a sound decision.

Before handing the call back to Mitch. I wanted to draw everyone's attention to Slide 11, where we summarized our hedging program. We continue to take advantage of the stronger gold price by implementing additional price protection. You'll see that we have extended our zero cost caller gold hedges to cover a portion of our production in 2020 with a $1,600 floor. As I mentioned earlier, we also laid in some foreign currency hedges over the next two years. Our hedging strategy is designed to support cash flow generation and help fund key internal growth projects, most notably the PLA 11 expansion at Rochester, which we anticipate funding with a combination of internally generated cash flow and borrowings from our revolving credit facility.

I'll now pass the call back to Mitch.

Mitchell J. Krebs -- President and Chief Executive Officer

Thanks, Tom. Just to quickly wrap up. Slide 12 hits several of our key priorities for the remainder of the year. Of course, our top priority remains the health of our employees, their families, and members of our communities as we continue to manage our way through the COVID-19 crisis. We remain optimistic about our exploration programs and the results we expect to see over the course of the year. We're also looking forward to seeing Rochester's production levels rise based on the higher crushing in placement rates, the team has been delivering. All of us are excited about the operations, future growth potential as POA 11 is set up to gain momentum during the second half.

I'm also enthusiastic about the work that is now under way on the pre-feasibility study at Silvertip and we look forward to sharing results with you later in the year. And finally, we will continue to further improve upon our strong safety and environmental performance as we strive to deliver consistent operating and financial results.

Okay, with that let's go ahead and open it up for any questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Michael Dudas with Vertical Research Partners. Please go ahead.

Michael Dudas -- Vertical Research Partners -- Analyst

Good morning, Mitch. Gentlemen and glad to hear things are going safely and healthy for everyone.

Mitchell J. Krebs -- President and Chief Executive Officer

Thanks, Mike. Good to hear from you.

Michael Dudas -- Vertical Research Partners -- Analyst

So of first question regarding Palmarejo, maybe you could share some additional thoughts on expectations on -- from the government -- in the news, we're hearing about continued extension of the COVID situation. What maybe be other angles are being worked on down there to kind of alleviate that? And how -- and for first. And then secondly, how quickly do you think you can ramp up once you get the green light? And third, what are some of the carrying cost that we should anticipate in the Q2 given the cessation of the mining down there?

Mitchell J. Krebs -- President and Chief Executive Officer

Yeah, sure. Thanks. Thanks, Mike. I'll start and then Tom, I'll -- I'll ask you to step in as well. Just in terms of the overall status in Mexico. Just to rewind the clock, March 31 the Mexican government issued the emergency decree regarding restrictions on non-essential businesses and then we received some further clarification on April 6 that made it clear that precious metals mining was not an essential business according to the Decree. So then on April 7, we announced that we were going to begin the process of temporarily suspending operating activities at Palmarejo. That decree, earlier this week was officially extended out to May 30. However, there are areas with little COVID-19 impact that will be allowed to reopen on May 18. And currently Palmarejo sits in one of those, those zones of little to no COVID-19 impact. So we'll -- we'll kind of circle the18th of May, but meanwhile on a kind of a separate path we submitted an application for exemption to the decree under guidelines published by the Under Secretary of Mines and that's kind of a case by case process where they will take the applications discuss it with a public health officials to determine whether or not mines can restart sooner than those May dates. So we'll keep pushing on that angle as well as kind of gearing ourselves up for a restart, in of worst case hopefully in the middle of May. Kind of like the ramp down that takes two weeks or three weeks, there will be a similar kind of two weeks or three weeks ramp-up process to get ourselves back up and going whenever we do get the green light, whether it's 18th of May or sooner. And so that's how we're kind of thinking about it.

In terms of impact on cost. Obviously that depends heavily on when we are able to restart so that we can measure how many days, we were not producing, but Tom, do you want to go into another level of detail there as far as potential impact?

Thomas S. Whelan -- Senior Vice President and Chief Financial Officer

Yeah, sure. Hi, Mike. As we talked about, we've been thinking about tons of scenarios around this and the number of that that I would use for kind of a 30-day shutdown, which kind of feels like our best estimate at this stage, will be about $10 million in terms of less free cash flow for the year for Palmarejo. We really want to grind into how we came up with that just an estimate of the 12th of the revenue lost. We think we can reduce our operating cost by about 50%. We've obviously stopped the drilling and there'll be less capex, so that's kind of, to give you some numbers about how -- how to get to that $10 million. But the other thing I would just remind everybody, is that, I mean the peso is really devalued here. And as mentioned, we put on some hedges. The peso about 50% to 60% of our costs are denominated in Mexican peso. So with those hedges, we kind of locked in roughly the same amount of lost free cash flow from operation. So I mean, just to give you a sense we'll come back with obviously a clear picture as Q2, but hopefully that gives you some -- some numbers to play around with.

Michael Dudas -- Vertical Research Partners -- Analyst

Tom that's perfect, thank you. And Mitch, thank you for the thoughts on that and hopefully the 18th is sooner rather than then later. Second question is turning to Kensington. So I just -- just to clarify so it sounds like second half you're going be a lot more ore processed through Jualin. Jualin -- so that is that mix going to be, you said 15%, 20% is that over 12-month period or so therefore it will be maybe much higher mix in the second half of the year, is that how we should think about it?

Mitchell J. Krebs -- President and Chief Executive Officer

That's right. First quarter, Terry remind me, it was single-digits right in terms of contribution. And a lot of that Mike had to do back to COVID-19 in terms of workforce availability. A decent amount of our workforce at Kensington flies up from the lower 48 to work there, their scheduled rotations. And that has impacted in the first quarter and in particular March availability of workers in Jualin and so that is a reason why we were a little lower in the first quarter than -- than we expect to be in subsequent quarters. I kind of look at it is as good -- as a positive that with only 9% or whatever of the tons coming from Jualin, it had a great, a great quarter on its own. So hopefully, with a little bit higher contribution through the rest of the year we'll see -- see the results reflect that.

Michael Dudas -- Vertical Research Partners -- Analyst

That's agreement and I appreciate that Mitch. And just finally and maybe back to Terry on the -- on the scenario analysis or maybe the hedging part, so I assume since you've been putting through this hedge program on gold over the last few quarters, you're going to continue to think through that as the markets move forward and with higher collar balances, I would assume. And from a -- and from I guess on the scenario of concept, looking at the potential spend on the deferrals and such it seems you -- it seems like you feel like you have enough liquidity into kind of crushed through this and not have to defer some of the important work that you are doing, but what will it be just price change or concerns about that or Palmarejo would be out for several months, would that be some of the negative scenarios that would impact that?

Mitchell J. Krebs -- President and Chief Executive Officer

Yeah, I'll start and then Tom, you can -- you can chime in with our thoughts on the -- on the market and the hedging program that we've been carrying out. Having a $1,600 floor under a good chunk of our gold production goes a long way toward helping to ensure that we've got sufficient cash flow from Rochester and elsewhere to fund that expansion project. That's a project that doesn't have a lot of room to be deferred or moved because as we stack on the Stage IV leach pad, there's a point at which that pad is full and we need to have this new pad down and ready to start stacking on and that is sort of late 2022. So we're, we're working on that. On that basis and on that schedule, in between our revolver and cash flow especially we're feeling better about that downside of $1,600 gives us a lot of comfort that that's sufficient. Now if Mexico continues on longer than what we all hope and expect that makes the numbers obviously a little bit tighter, but we still feel comfortable that we'll will have sufficient liquidity.

And then just Mike on separate, but related point. I mentioned Silvertip and the pre-feasibility study and a potential scenario of a restart. That's a project that we have a lot of flexibility on in terms of if and when we would ever pursue that and so obviously we're thinking through and mindful of not only relative returns on these projects, but how do they sequence and slot in to our financial capacity to deliver on them. But Rochester is clearly the one that has the highest priority. Tom anything on the hedging that you want to add?

Thomas S. Whelan -- Senior Vice President and Chief Financial Officer

Yeah, I'd just -- I'd reiterate Mitch that $1,600 floor is definitely a target and the beauty of doing it in layering is we're not trying to time the market and obviously we're -- the more patient you are the higher the ceiling that we're were able to achieve. And just as a reminder, I mean in March, we did see gold drop below $1,500 and silver went below $12. So we definitely want to protect the downside to ensure that we've got sufficient funding for POA 11 as Mitch mentioned. I mean that timing is we really don't have that much flexibility to move around that capital spend.

Michael Dudas -- Vertical Research Partners -- Analyst

Appreciate all the thoughts gentlemen. Please stay healthy.

Mitchell J. Krebs -- President and Chief Executive Officer

Yeah, you too Mike. Thanks. Take care.

Operator

Our next question will come from Joseph Reagor with ROTH Capital Partners. Please go ahead.

Joseph Reagor -- ROTH Capital Partners -- Analyst

Good morning, guys, thanks for taking my questions.

Mitchell J. Krebs -- President and Chief Executive Officer

Hi, Joe.

Joseph Reagor -- ROTH Capital Partners -- Analyst

Hi. I guess first thing, thinking about the scenario with Rochester with building out the additional leach pads, would you need to have all like the capital to do that in hand when you embarked on that or is that something where you can kind of have a certain portion day one that you would make you feel comfortable?

Mitchell J. Krebs -- President and Chief Executive Officer

I think it's the latter, Joe in terms of we have the revolver balance day one, but with the cash flow from Rochester and then from the other operations that of course will come overtime during 2021 in 2022 to act as a another key source of the funding. So that would come sort of as we -- we go. Tom, anything to add to that?

Thomas S. Whelan -- Senior Vice President and Chief Financial Officer

No. I -- you have nailed it again. Joe, we think we've got between the internally generated free cash flows from our mines as well as the revolver capacity based on the scenarios that we run we're feeling pretty good about our ability to fund POA 11.

Joseph Reagor -- ROTH Capital Partners -- Analyst

Okay. Also Rochester, a big portion of kind of the decline in production there has been related to tonnage. And then you know that step back up in Q1, but that probably won't flow through till Q2. Just as you rebuild inventory, but is there any difference in the ore makeup from say, mid last year to now. Like are you guys experiencing any changes, even though maybe the model says it should be fine, like is there anything geologically different about the ore that you're mining today?

Mitchell J. Krebs -- President and Chief Executive Officer

Terry, do you want to cover that?

Terry Smith -- Senior Vice President, Operations

Hi, Joe. Yeah, thanks for the question. No, there is nothing significantly different over that time period that you're thinking about. One of the things that we benefit from at Rochester is just uniformity. I think there is some differences in terms of hardness, we see drilling differences and crushing impacts from hardness, but nothing geologically or mineralogically that is different.

Joseph Reagor -- ROTH Capital Partners -- Analyst

Okay. So given that and given my layman's terms understanding of the high pressure grinding you're doing there is really nothing, but time standing between you guys and getting to where you want to be?

Mitchell J. Krebs -- President and Chief Executive Officer

I think that's fair. Every time we put HPGR crushed ore on or near liner we see the kind of recovery results that all the test work had indicated. So that's certainly comforting and validating. It's really about the timing, like you said Joe, of getting not only ounces down through deeper sections of that Stage IV pad, but building up that tonnage, those stacking rates and placement rates that the guys out there have done a good job of reestablishing in large part is blasting in the pit has gone a long way toward helping improve the crusher performance, but we're -- we like we see at HPGR and you're right, it's more of a time -- function of time than anything.

Joseph Reagor -- ROTH Capital Partners -- Analyst

Okay. I just wanted to confirm and cross all the t's. One last one. Just at Silvertip, are there any remaining payments or did you guys make the final contingent payments in Q1?

Mitchell J. Krebs -- President and Chief Executive Officer

Yeah, we made that. No now to go.

Joseph Reagor -- ROTH Capital Partners -- Analyst

Okay, great. I'll turn it over. Thanks guys.

Mitchell J. Krebs -- President and Chief Executive Officer

Okay. Thanks Joe.

Operator

[Operator Instructions] Our next question will come from Brian MacArthur with Raymond James. Please go ahead.

Brian MacArthur -- Raymond James -- Analyst

Good morning. I have three quick questions. Just back to Tom's point about layering, you said you had 99,000 ounces in 2021 and in the press release you sort of give us [Indecipherable] with the first half and the second half. Can I assume those other ounces were sort of layered in in the first half and the second half equally?

Mitchell J. Krebs -- President and Chief Executive Officer

Tom, you want to cover that?

Thomas S. Whelan -- Senior Vice President and Chief Financial Officer

Yes, is the answer. There is probably a little bit more weighting to the first half of the year, but the goal would be to have them spread out evenly when we complete the program.

Brian MacArthur -- Raymond James -- Analyst

Okay, great. It just there are only 56 -- you kindly gave us 56.500 [Phonetic] ounces of prices in the press release and I saw you got up to 99 as you said in your presentation. Second thing, just the $100 million drawn on the revolver. I mean I get it. If you draw $200 million you're going to pay more under fees or whatever. Is there any math -- I assume that $100 million was sort of in the context of guaranteeing cash to finance Rochester, obviously you'd want to have a buffer, just in case things didn't go wrong, is that kind of just the way you came up with a 100, you did all you're testing, you made analysis and 100 sort of seem like the right number. And I mean, you could have taken, I presume a 150 or 200 and max it out and then you'd have more cash on the balance sheet. Is that kind of the thinking that went into where the $100 million came from?

Mitchell J. Krebs -- President and Chief Executive Officer

Right. You're definitely on the right track there. Tom, you want to provide.

Thomas S. Whelan -- Senior Vice President and Chief Financial Officer

Yeah. Thanks, Brian. Look the -- we went through a bunch of different scenarios and the last -- so a couple of comments, one this is a different crisis than '08 it's not a banking crisis, it's economic crisis. So we chatted with all the banks and just made sure that there is no restrictions to be able to draw on the revolver, and so this had nothing to do with that. But it was just we thought as a precautionary measure. Just to make sure that we had some cash on hand. If some of these downside scenarios where to come together. I mean the hope is that we'll never need to draw on it. And again, I'd just reiterate, as right as of this moment, we have no intentions to stop any capex or exploration. Again at $1700 gold we're feeling actually pretty good. But last thing you want to do is rest on your laurels and get cut short in a time like this. We've never seen times like this. And so we just thought it was the prudent thing to do.

Brian MacArthur -- Raymond James -- Analyst

Yeah, it makes total sense and a lot of other companies have done that, too. I just -- I figured that's where that number came from as opposed to say, I mean I could argue, just to be really sure you take the whole $200 million I guess is the debate.

Thomas S. Whelan -- Senior Vice President and Chief Financial Officer

Yeah and we just sorry, just to -- we also thought, again we've talked about all of the responses that -- our response to COVID-19 and we just didn't think drawing all of it was commensurate with all of the risk mitigation that has happened and we thought it would probably send the wrong signal. As you point out, we could have done the whole thing, but it just didn't feel right to us.

Brian MacArthur -- Raymond James -- Analyst

That makes sense. And I guess my just my third question just with Silvertip and as you mentioned with TCR fees up, zinc price is down and you put in the final payment of $25 million. You know, I guess, the stress testing for a write down, what's the general thought process on that? I assume you're going to wait until you get the new study, because then you sort of have a adjusted long-term plan. Maybe you don't need to do, what I'm not saying you do or don't. I was just kind of curious whether that had to be stress tested this quarter?

Mitchell J. Krebs -- President and Chief Executive Officer

Tom, you want to cover that Please.

Thomas S. Whelan -- Senior Vice President and Chief Financial Officer

Sure. Yeah, again the assumptions that we used in the impairment analysis contemplated a restart in 2022. And so again looking out to where long-term prices would be, I think it was disclosed in the 10-K what we used in terms of zinc and lead prices sort of back to more long term. And so again, whatever happens to the zinc and lead price here over the next 18 months is not going to impact the amount of the impairment.

Brian MacArthur -- Raymond James -- Analyst

Great. Thank you both very much appreciate it. That was very helpful.

Mitchell J. Krebs -- President and Chief Executive Officer

Thanks, Brian. Take care.

Operator

Our next question will come from Adam Graf with B. Riley FBR. Please go ahead.

Adam Graf -- B. Riley FBR -- Analyst

Thanks. Guys, just a couple of quick questions. One at Rochester, the study that you guys are targeting for the end of the year. Can you just remind us if that's going to include Lincoln or Wilco or is it the next study for Rochester?

Mitchell J. Krebs -- President and Chief Executive Officer

No. Hi, Adam. It's Mitch. The plan would be updated capital and then a mine plan that would be optimized and expanded to hopefully include some of those East Rochester ounces that sit underneath old Stage I and Stage II pads. And then some additional material from Lincoln Hill, but nothing from Wilco or Gold Ridge further to the west of Lincoln Hill.

Adam Graf -- B. Riley FBR -- Analyst

Got it. And then could you guys just give us maybe some color on any, any progress in the first quarter, exploration at Preciosa and at Sterling and Crown?

Mitchell J. Krebs -- President and Chief Executive Officer

Yeah. Hans, you want to cover that.

Hans Rasmussen -- Senior Vice President, Exploration

Hey, Adam. La Preciosa continues with the engineers looking at our updated geologic and resource model. We got actually a meeting at the end of next week will review it. So sometime in May we'll have a much better idea what we're going to do there. The Crown and Sterling projects started out with three rigs turning, two up at the Crown area, one down at Sterling. The Crown area had a large truck rig is one of the rigs testing a new geophysical target because of the success of that target now we've moved our smaller RC rig up there and have continued drilling on this target, it's called Seahorse. I'm not sure if we've shown that in any of our maps, but it's up about a mile and half north of SNA resource in an area that was -- where no prior drilling was, it's a geophysical target. So we've been quite busy with one rig up there. We sent the truck rig home and we're continuing to drill around the Sterling area. At Sterling we'll move a core rig starting on Sunday and the core rig will start doing the infill large diameter core that we're going to use for metallurgical work, engineering work and look at a pit design at Sterling itself. Both Crown and Sterling has had some nice upside hits in the drill results which we're going to talk about midyear updates in places we didn't expect. So these will be -- these will be results that I can disclose we will put that news release out and hopefully by that news release we'll have somewhere around between 5 holes and 10 holes to report in those new zones. So it's going really well at Crown and Sterling.

Mitchell J. Krebs -- President and Chief Executive Officer

Hans, just in terms of the biggest components of the program this year, Palmarejo and Kensington. Obviously Palmarejo right now is drills aren't turning, but we have 10 rigs there ready to get back into action, and so we're looking forward to that. That program and the results from there. Kensington also we'll have some good results to talk about in a mid-year update. And then Rochester and Wharf are both more kind of middle to the second half of the year waited. So we have a lot of good things going on in a lot of places.

Hans Rasmussen -- Senior Vice President, Exploration

Silvertip just got started near the mid to end of March and is up to three rigs. We will have five rigs by the middle of the second quarter. Visually things are looking really good there too.

Adam Graf -- B. Riley FBR -- Analyst

Hans, can you remind us at Palmarejo, is the focus, more resource conversion or resource expansion?

Hans Rasmussen -- Senior Vice President, Exploration

We started out the year with a bit more resource conversion just because of our annual resources and reserves calculations. Typically, we have a data cut off end of June. So if you look at our money spent and feet drilled or meters drilled, there are a bit more in the infill reserve resource conversion category right now. However it's super important that we find some new veins, new clavos to expand into in a couple of years. And so you'll see for the remainder of the year that the focus will be dominantly expansion and we're finding some interesting looking stuff that we're going to end up like Mitch said we got 10 rigs queued up to start up and aggressively drill some new areas north of Independencia and east Independencia where we've got some good intercepts. We'll talk about in the mid-year report.

Adam Graf -- B. Riley FBR -- Analyst

Great. Thank you guys.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mitchell Krebs for any closing remarks.

Mitchell J. Krebs -- President and Chief Executive Officer

Okay, thanks. Well, we appreciate everyone's time this morning and we look forward to speaking with you again in the summer when things are hopefully returning to normal to discuss our second quarter results. In the meantime, I hope you all stay healthy and safe and thanks again for your time. Bye.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Paul DePartout -- Director Investor Relations

Mitchell J. Krebs -- President and Chief Executive Officer

Terry Smith -- Senior Vice President, Operations

Thomas S. Whelan -- Senior Vice President and Chief Financial Officer

Hans Rasmussen -- Senior Vice President, Exploration

Michael Dudas -- Vertical Research Partners -- Analyst

Joseph Reagor -- ROTH Capital Partners -- Analyst

Brian MacArthur -- Raymond James -- Analyst

Adam Graf -- B. Riley FBR -- Analyst

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