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Coeur Mining Inc (NYSE:CDE)
Q2 2020 Earnings Call
Jul 31, 2020, 8:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. And welcome to the Coeur Mining Second 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. Please go ahead.

Paul DePartout -- Director of Investor Relations

Thank you, and good morning. Welcome to Coeur Mining's second 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 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 10-Q and 2019 10-K.

Now, I'll turn it over to Mitch.

Mitch J. Krebs -- President and Chief Executive Officer

Thanks, Paul. And good morning, everyone. Thanks for joining our call. I first like to introduce everyone to Mick Routledge, who joined us last month as our Chief Operating Officer. As we show on slide three in today's presentation, Mick is an accomplished leader and brings a lot of great experience to the company, which will help us improve our operational planning and execution.

Later in the call, he'll give you his initial thoughts on the operations, touch on some of the highlights from the quarter and summarize the key operational priorities looking ahead. Terry Smith is also on the line and has now transitioned to his new role as Chief Development Officer where he is overseeing our major projects and helping to advance our longer term growth pipeline. And in addition to Mick and Terry, Tom Whelan and several other members of the management team are also on the line. Second quarter cashflow was stronger than the first quarter despite losing 45 days of production and cash flow from Palmarejo, our largest operation due to the Mexican government's mandated suspension of mining activities as a result of the COVID-19 pandemic. However, the rest of our operating portfolio all located in the U.S. continued operating and two of them Kensington and Wharf delivered strong quarters and allowed us to generate some solid overall results and achieved several meaningful accomplishments that I'll quickly highlight and are summarized on slide four.

We successfully and safely restarted Palmarejo and expect it to generate strong free cash flow during the remainder of the year. As I mentioned our Wharf and Kensington gold operations both had very strong quarters. Kensington's free cash flow more than tripled and Wharf's free cash flow increased nearly nine fold on the back of a higher gold price and a 60% increase in production. We expect both assets will continue delivering strong gold production and free cash flow throughout the second half of 2020. Out in Nevada, we're set to break ground at Rochester next month on the POA 11 expansion. Construction is scheduled to be largely completed in late 2022, at which point Rochester should become the largest primary silver mine in the U.S. More importantly, we expect Rochester's free cash flow to exceed $100 million annually post completion, which is a major step change over the past three year average free cash flow of about $2.5 million.

We remain focused during the quarter on carrying out the largest exploration program in the company's history that is targeting new discoveries and resource growth to further extend our mine lives. Quarterly exploration investment increased 60% quarter-over-quarter and nearly doubled year-over-year. And we're excited to share the results of the program so far this year with you next month. Tom will cover our liquidity position and balance sheet in a few minutes. With cash up quarter-over-quarter, debt down, and adjusted EBITDA continuing to climb, we feel really good about our financial flexibility as we move into the second half of the year.

Before handing the call over to Mick, I want to quickly call your attention to a set of slides that highlight our best-in-class corporate governance, proactive ESG programs and priorities and our focus on fostering diversity and inclusion at our company and in our communities starting on slide 15. Finally, I want to highlight a few upcoming disclosures we're planning for the rest of the year. The first one is the exploration update that I touched on earlier, which we plan to publish in mid-August. And then later this fall, we'll have the results of the updated technical report for the Rochester expansion. And finally, we plan to end the year with a virtual investor day to provide you with a more fulsome overview, and outlook. We're all very excited about us how we have positioned the company, and we look forward to updating all of you on our progress along the way.

With that, I'll go ahead and turn it over to Mick.

Michael Routledge -- Senior Vice President and Chief Operating Officer

Good morning, everyone. Before going through operational results, I'd like to start off by sharing my perspective on the company after being here for just about 60 days. First, I want to highlight what a strong and balanced team I have joined. Everyone at Coeur works extremely hard and collaborates well, to make the company's strategy clear to the workforce with strong alignment across the leadership team. Next, and in particular, I want to mention Coeur's health and safety standards. The Company has great pride in taking care of its people. I look forward to building on this platform and working closely with leadership in the field. When we get healthy safety right, strong production performance follows.

From outside the company before starting with Coeur, I couldn't easily see the upside potential. What I see now was part of the team are exciting long term opportunities we are developing into a robust executable five year strategic plan. Now along with the team, we have a ton of excitement about the assets in our portfolio, and the potential to generate meaningful value. We have work to do, and we're confident in our ability to execute those plans, with the goal of unlocking all of that value for our stakeholders. Now turning to the operational results on slide six, beginning with Palmarejo. The team did an excellent job shutting down and then ramping up in a safe manner, starting with lower grade stock [Indecipherable] to balance the process plant. We are now maintaining solid performance and seeing good results over the past few weeks.

Our workforce capacity is currently limited to 85% based on government guidelines that aim to protect our more vulnerable employees. Right now, we are running just over half 4,600 tonnes a day through the mill, which is close to the 5000 tonnes per day normal runrate. And we intend to follow the mine plant and partially offset the lower tonnage with higher grades and better recoveries. This is expected to drive production in line with full year guidance ranges and generate strong free cash flow. Turning to Rochester, dilution impacted our results; however, we recently designed and implemented a new stacking plan to help counter balances headwinds. As highlighted on slide eight, a new plan utilizes an Inter-lift liner, allowing us to place or close to plastic, shortening the recovery cycle and giving us good visibility of our improved performance from HPGR.

We've also leveraged separate collection systems to better monitor the solution grids coming off the pad, and validate our expectations for this new plant. The team brought in some of the best heap leach experts in the world, and they are continuously helping us revise our models. We are already beginning to see encouraging results after having the new liner down for only a few weeks. We are confident in our ability to increase production in the second half and carry this momentum into 2021. Going back to slide six, and looking at Kensington. Production remains strong as we continue to see positive grid reconciliations from the Kensington main deposit. We also mined [Indecipherable] material during the quarter; most of that material was developed into ore, providing access to higher grid storage during the second half of the year.

We expect Kensington to finish the year strong, and be the largest free cash flow main in our portfolio. At Wharf, gold production increased significantly during, driven by improved weather conditions and higher grades. We also have much better crucial performance during the quarter, and we enhanced our maintenance strategies. Impressively, the team was able to stack nearly 50% more tons quarter-over-quarter. With this strong performance, we are now caught up on placement rates and have demobilized the third party crusher contractor. Before passing the call over to Tom, I want to thank the team for continuing to operate safely during the pandemic. Let's stay disciplined. Keep up the good work and finish the year with a very strong second half. Tom?

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

Thanks, Mick. Looking at slide five, our second quarter financial results reflect strong performances from Kensington and Wharf, which helped to partially offset the 45 days of production we lost at Palmarejo. Together with a higher gold price, this led to $154 million of revenue and $42 million of adjusted EBITDA, both of which were down only 10% quarter-over-quarter. By sustaining higher margins, our LTM EBITDA has increased nearly 80% to over $200 million versus $116 million just 12 months ago. We incurred $6 million of incremental operating costs associated with COVID-19 during the quarter and expect these costs to total approximately $10 million to $12 million for the year. Despite losing Palmarejo for 45 days, operating cash flow was $18 million higher and free cash flow improved by over $20 million, quarter-over-quarter. We expect both operating and free cash flow to be considerably stronger during the second half of the year, consistent with our updated production and cost guidance.

Before moving on, I want to hit on something that we discussed during our last call. Our decision not to defer any of our capital projects, including the expansion of Rochester, or our significant investments in exploration in the wake of the uncertainty related to COVID-19. The combination of improved financial results and the anticipation of a strong second half makes us confident this was the correct decision.

Turning over to slide 11, we continue to have a very sound balance sheet with no near term maturities and over $240 million of liquidity. If you recall, we took a precautionary revolver draw of $100 million back in April as a result of our downside scenario planning for COVID-19. I'm happy to report that we repaid $90 million before the end of the second quarter. We expect to repay the revolver in full by year-end, and hopefully sooner at current gold and silver prices. Additionally, we have not utilized the ATM and it remains in place for now during this unprecedented time, volatility and uncertainty. Total and net debt leverage ratios at quarter end were 1.7 times and 1.3 times respectively. We expect our leverage ratios to continue trending downward over the remainder of the year. Over the last 18 months we had increased liquidity, materially reduced debt and significantly lowered leverage, leaving us very well positioned for upcoming growth initiatives. Before handing the call back to Mitch, I wanted to quickly touch on our hedging program highlighted at the bottom of the slide. We continue to utilize zero-cost collars to achieve downside price protection, targeting up to 50% of expected gold production in 2021 and 2022, with a minimum price floor of at least 1600 dollars per ounce.

We believe it is prudent to underpin cash flow generation during the construction of POA 11. I'll now pass the call back to Mitch.

Mitch J. Krebs -- President and Chief Executive Officer

Thanks, Tom. Slide 12 outlines our key objectives for the second half of the year. First and foremost, it's essential that we maintain our rigorous health and safety protocols to continue protecting our workforce, their families, and members of our communities. Secondly, we need to develop the future of our business by sustaining our higher level of investment in exploration, and by successfully executing on our internal growth projects. And finally, it's critical that we execute our plans to deliver consistent, operating and financial results from each of our assets. We see a compelling future for our company. And we'll get there by continuing to pursue a higher standard and by executing our strategy to protect, develop and deliver from our North American based precious metals assets.

With that, let's go ahead and open it up for questions.

Questions and Answers:

Operator

We will now begin the question and answer session [Operator Instructions].Our first question comes from Mark Mihaljevic with RBC. Please go ahead.

Mark Mihaljevic -- RBC -- Analyst

Hey, perfect. Thanks and good morning, everyone.

Mitch J. Krebs -- President and Chief Executive Officer

Hi Mark.

Mark Mihaljevic -- RBC -- Analyst

Hey, I'll start with Mick. And obviously kind of new to the role here just, kind of give us a few highlights of what you think, you might change or things you might, opportunities for improvement that you see in your first few months on the job.

Mitch J. Krebs -- President and Chief Executive Officer

Good question, Mick you want to go ahead and take that?

Michael Routledge -- Senior Vice President and Chief Operating Officer

Oh, sure. I'm really excited. I've been out to a couple of the sites already, and obviously with COVID restrictions that travel is a challenge, but we're working out how to -- how to do that. But what I see is strong teams already here and good assets, and what we're doing in this initial phase, we're joining up that strong exploration work that Hans and his team are doing. And we're lining that up with our strategic plan and then we have to get on next key pact [Phonetic].

I see that being the best opportunity for us is to draw that picture of the long game and then execute well in the short game. And I think we'll have the teams do that. And we certainly have the assets to use to do that. And, and it's a little bit of upside in the process, in the process assets and the equipment. And so, I think it's a great opportunity going forward.

Mark Mihaljevic -- RBC -- Analyst

Okay. And then I guess, digging in to some of the results here. Obviously, Rochester you had some challenges in Q2 and are making some changes, but can you just give us a sense of really what was different to plan? I mean, I guess you guys were expecting to be stacking up these higher lists -- higher areas of the pads. So kind of what was different than what you were expecting in the actual performance?

Mitch J. Krebs -- President and Chief Executive Officer

Yes, I'll, I'll start Mark and then Mick maybe you can jump in on the heels of couple of comments for me. You go back to rewind to the first of the year. Priority number one was really, dialing in that new crusher configuration and getting that running consistently, which, which we've been able to do. And then kind of transitioning into the second quarter, the real focus turned to that stage for Leach pad, kind of model calibration to align with the past six months, and then starting to make some adjustments to this new stacking plan and putting this interstage liner into place to obviously get ounces out faster and further validate the HPGR. So it's kind of been a step-by-step learning process and then making adjustments as we go. And I feel like we've learned a lot over the last, few months. I think now we've gained the knowledge that we can apply to set us up well for this expansion phase that we'll be going into now the next 24 months or so. But, Mick, do you want to go into a little more detail in terms of some of the learnings and in tweets that we've made here mid-year through the year?

Michael Routledge -- Senior Vice President and Chief Operating Officer

Yes, for sure. So particularly Pad IV [Phonetic] for when we look at how long pad has been in operation, it's been quite a period and so if you never get it for long time, and was particularly exhausted. So when we put the material on the top, and we certainly expected some dilution but didn't quite expect as much as we saw in the end and the models we had didn't predict that as well as we'd like. But now the new models are predicting that well, and that's encouraging us with our new plan to install, even potentially additional inter-lift liners to support the one we have in place right now. And that allows us to implement a short interval control and optimize our production process all the way back from the mine and blasting through the crusher circuits and the HPGR and under the heat, and then to fine tune that to get the best recovery that we can get from that from that heap. And yes, it was -- it was not as predictable as you thought, but now much more predictable and that the view going forward is the stronger.

Mark Mihaljevic -- RBC -- Analyst

Okay, perfect. And I think you probably gave the answer already. But just to confirm with the inter-lift liners, -- given where you're placing them, we shouldn't assume that you're losing any material pad inventory that you won't be able to irrigate anymore. You're only kind of stacking on a portion of it and it had already largely been under lease for a long time. So not much inventory left. Is that the way to think about it?

Mitch J. Krebs -- President and Chief Executive Officer

Yes, go ahead Mick.

Michael Routledge -- Senior Vice President and Chief Operating Officer

Yes. So yes, that's, that's the correct assumption. And there may be some slight impacts, but we're working on those plants, as well to ensure that we can recover that material over time. And the material that we already had on the pad was under irrigation. We're already seeing some, some benefits from coming into flumes. And but it's just going to take a little bit longer for that historic and that more recent material to give us the metal, but it is there. And it'll just take a little bit longer to come out. And we're optimistic that that will support the system go forward.

Mark Mihaljevic -- RBC -- Analyst

Okay, perfect. And then I guess not much commentary around Silvertip on the call today, kind of any updated thoughts and kind of how do the current silver prices, adjust your thinking on the asset or kind of where do you sit on it right now?

Mitch J. Krebs -- President and Chief Executive Officer

Yes, yes fair question. Second quarter, there was a lot of heavy lifting done. Rochester on that expansion. Third quarter will be a lot of heavy lifting, I think on the Silvertip. PFS, kind of pulling the different pieces together. We're starting to get different components of the work that's been going on since February and so we'll be kind of fitting those different pieces together whether it's on the metallurgy flow sheet, a potential expansion of that -- of that milling facility. That work starting to come to an end. Meanwhile, we're continuing to drill, the exploration program there that's intended to give us confidence in a much larger, longer mine life to support any potential restart, that we'll have more to say about during that exploration update here in a couple of weeks.

And then, the third piece that sits outside of our control obviously is the, the zinc and lead concentrate markets primarily. And then you mentioned the silver price that obviously, will be one factor that will go into the, the analysis, but I want to make sure that we you know, despite all of our strong desires to get Silvertip right, that we don't rush too fast, that we adhere to a discipline process. We go through those steps, we assess the business case thoroughly that the underlying technical fundamentals, and then look at the returns, look at the timing, how does it fit in or not, with our other priorities, and then make a sober clear eyed decision on Silvertip once we have more bits of information. So not a lot to say at this point, more to say in the coming months, and we'll obviously keep you posted.

Mark Mihaljevic -- RBC -- Analyst

Okay, perfect. And then I guess just last one for me and obviously, you guys are going to be putting out a bigger, more comprehensive exploration update next month. But are there any highlights you'd like to share with us today and kind of you know, what parts are really going to be the most exciting that we should be watching out for?

Mitch J. Krebs -- President and Chief Executive Officer

I mean, I wish Hans was in my in the room with me right now, so I could pull the reins in on him. Because he would love to talk a lot about I think. I'm expecting Silvertip will be a big a big theme, a big story. Rochester and the drilling that's going on to support this updated 43-101 that we'll have finalized later this year along with updated capital, updated mine plan and hopefully more tons as a result of this drilling. And then down in Southern Nevada, there's a lot going on there at the crown project. It's a busy neighborhood down there. There's a lot of excitement, a lot of activity and so we're looking forward to highlighting that as well. Those are the ones that stick out to me. Hans, did I leave any, any off without stealing that off, under completely.

Hans Rasmussen -- Senior Vice President, Exploration

Mark, thanks for the question like Mitch said, I'm jumping up and down excited about our program this year. Even though we did have a slow down at Palmarejo, we're still seeing excellent new results there too, for growth. This is a year for resource growth and discovery. With 80% of the budget focused on that, and one of our largest budgets I ever saw. The news release will demonstrate that we have been successful at achieving that with a few new discoveries that will be discussed in the news release. You've gotten a taste of one of them from Coeur's release on July 16.

One of our holes, cut some mineralization on their property, adjacent cars, which gives you a taste of a part of our project called seahorse at Crown, where we have 18 holes drilled and that's one of them. For the news release, we only have six back from the lab. But yet super exciting year, and pretty much all sites are delivering on their programs. It's almost like we had a bunch of pent up demand in geologic targets and once we got approval from the board to drill this year, the drills were put in the right place.

Mark Mihaljevic -- RBC -- Analyst

Perfect. That's great to hear and looking forward to the update in August. That's it for me, and thanks for that.

Mitch J. Krebs -- President and Chief Executive Officer

Yes, thanks, Mark.

Operator

Our next question comes from Michael Dudas with Vertical Research Partners. Please go ahead.

Michael Dudas -- Vertical Research Partners -- Analyst

Good morning, gentlemen. And welcome aboard, Mick.

Mitch J. Krebs -- President and Chief Executive Officer

Hey Mike.

Michael Routledge -- Senior Vice President and Chief Operating Officer

Thanks.

Michael Dudas -- Vertical Research Partners -- Analyst

Mitch, maybe you could -- talked about COVID, share some comments on how successful the ramp up had been at Palmarejo, but you're looking internally and all your operations share the COVID protocols are still as you mentioned, they're still place. How you think productivity, how well it's worked out for the organization in Mexico? Certainly there's been some concern about wave two that could come by, and how is this labor, the community, the government officials are fitting in and thinking about it relative to that potential as you look through Palmarejo, you can ramp up and hopefully maintain its output during the second half of the year?

Mitch J. Krebs -- President and Chief Executive Officer

Yes, sure. Obviously, top area focus for us and as everyone on the call can attest to, a lot of -- a lot of layers, a lot of complexities, a lot of a lot of moving parts. And Tom, maybe, after I give some comments. Tom, if you want you can talk more about the financial impacts as we see it. Starting with just the footprint of our assets has served us well for the most part with three of our four operating mines been in the U.S. under the Department of Homeland Security. A designation of mining has been an essential or critical business, has really given us kind of that license to continue operating, obviously, with a lot of new protocols and procedures in place, here in the U.S. Some adjustments, some more adjustments at Kensington and then maybe the other sites just given the, the location up there in Southeast Alaska, a requirement to quarantine coming in from the lower 48 before going out to the mine. So we've had to adjust some rotations and work schedules and things like that.

Mexico has been probably the -- not only because of the 45 days that we lost at Palmarejo but just the logistics there of our workforce, a camp set up, people coming from all over Mexico, some of some of whom live in higher risk areas and not able to travel back. Mexico, as Mick mentioned has designated this vulnerable section of their population, whether it's age or pre-existing conditions. And that's kept us about 120 people short of a full roster there. So we've been managing through that and doing the best that we can with what we have. I'm particularly proud of the fact that we have, I think, been very proactive in the testing infrastructure that we've put in place, the technology that we've put in place. We've now tested 100% of our population. PCR tests, other than a couple of rotations who have yet to come to site. I think one at Kensington, maybe one at Palmarejo. So we've been very -- I'm very proud of what our team has been able to put together in a short period of time to get that testing done for thousands of people.

We have had some positive tests, almost all of them with, I think it's with the exception of one have been asymptomatic. But the important thing is we're catching these cases through our test, proactive testing through those procedures and protocols that we have in place before anybody enters a site. And we've got robust contact tracing and all the other things that everyone talks about around the screening and the sanitizing and the distancing. Here in Chicago, we're still mostly remote. People can come back to the office under certain set of criteria, and health procedures. But for the most part, we're maintaining our productivity at the headquarters, despite everybody, mostly everybody being remote. I think, just it goes without saying probably, but just not letting our guard down. And with COVID fatigue, maybe setting in, we need to resist that urge to take our foot off the gas, and continue to maintain the discipline that we've had around these, these procedures and protocols that seemed to have served us well so far. So I don't know, Mike, if that helps?

Michael Dudas -- Vertical Research Partners -- Analyst

Yes, it does. Just, how do you think from the Mexican government standpoint, and how they're thinking about if things were to get worse -- is there more sensibility of a more central aspect to the mining versus what we had in early indicators or any sense or any observational methods?

Mitch J. Krebs -- President and Chief Executive Officer

The -- it feel like it took the Mexican government a little while there in late March, April, as they were kind of quickly putting in place some, some mandate, some decrees. But then in May when they, when they came out and designated mining to be an essential industry or an essential business, since then things have been pretty straightforward. Obviously, if we're putting a lot of effort into implementing the kinds of requirements that they issued in conjunction with that designation of our industry being essential. And so, we want to obviously maintain a safe and healthy workforce. We've got very strong screening and testing procedures down there, complying with everything that the government has rolled out. But since that designation was put in place in May, we have had a much more straightforward experience down there and it's allowed us to get back up and going with those, obvious restrictions still in place.

Michael Dudas -- Vertical Research Partners -- Analyst

I appreciate those answers. Thank you, Mitch and well, one follow up. Welcoming CDs, higher gold and silver prices for sure. Certainly this is going to improve cash flow and balance sheet metrics dramatically here, assuming base maintains near these levels. Are you -- is that how you guys are thinking about just kind of setting up and may have a better position to implement the spending program at the Rochester or you change thinking we're beginning think about other things that might be mitigated or enhanced the -- if things start to continue to be at a reasonable rate going forward? Including on the hedging policy, and how you how that may be changes now versus what it was maybe month or six weeks ago?

Mitch J. Krebs -- President and Chief Executive Officer

Yes, sure. I'll take a shot. Tom feel free to chime in on anything I miss. We have that capital allocation framework. I think that slide is in the deck today. And we keep kind of preaching that here that we got to follow, follow the framework, fund, fund things according to returns, and stay stick to the plan, organic growth, exploration to the extent there's excess free cash flow and there's debt, further debt reduction opportunities. Capital can -- access capital can flow there, and if there's still excess capital beyond that, which is probably going to be more likely on the back of the expansion at Rochester. Then, returning any access back to stockholders becomes a very relevant discussion and topic and so we're not deviating from that framework. Maybe we spend more on ex -- a little bit more on exploration for example as long as there are good business cases made to justify it but that's how we're continuing to think about how do these higher prices impact our decision making and I just say around the hedging question look our rationale there is that this Rochester expansion is a very, for us it's a large project. It's a important project in 2021 and 2022 is the capital spend.

We think it's going to generate a really great return and fundamentally change the company and in that process we think it's going to unlock a bunch of value for stockholders and we don't want to fund that thing with external issuing shares or dilution or anything like that. It's important to us that we self-fund that project and that means relying on free cash flow and by relying on free cash flow we think it's important to have a floor or have that underpinned with a minimum price. As we think about it the risk reward, the downside versus upside there's almost like, it's almost asymmetric like what Rochester should deliver in terms of fundamental cash flow and value should far outweigh, should we give up a few dollars an ounce on the gold price on the upside ensuring that we've got funding sufficient from internal sources is kind of our first and highest priority and then just the last little thing I'd say is we talk about up to 50% of '21 and '22 gold production -- remember gold is about 70%-75% of our total revenue, so that's up to 50% of that portion not doing anything with silver that's still awfully volatile, awfully expensive and letting silver do what it's going to do is still our frame of mind as it relates to silver and any kind of hedging but that's how we are thinking about that. Tom, did I miss anything or anything you want to add?

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

No. I just say 90 days ago we confidently stated we plan to fund POA 11 with our existing operating cash flow and the existing debt capacity that we've got and here we are 90 days later feeling that much more positive around it and we've got that downside protection underpinned and ready to roll.

So I think we're feeling really comfortable with the balance sheet and that the entire team knows this capital allocation framework is in our DNA. We've actually changed our long-term incentive to have return on invested capital. So this is like weird. It's more than just something you see on a slide we're living it every day at core.

Michael Dudas -- Vertical Research Partners -- Analyst

That's well said gentlemen. Thanks for your thoughts. Appreciate it.

Mitch J. Krebs -- President and Chief Executive Officer

Thanks Mike.

Operator

Our next question comes from Joseph Reagor with Roth Capital Partners. Please go ahead.

Joseph Reagor -- Roth Capital Partners -- Analyst

Good morning, guys. Thanks for taking the questions. I guess kind of following on the questions about the free cash flow, given current gold and silver, do you guys have a rough estimate where -- what you think you can generate for free cash flow for the rest of the year?

Mitch J. Krebs -- President and Chief Executive Officer

Good question. A tricky one to answer without any kind of with the guidance that we have out there the new the revised guidance, I should say undoubtedly but positive, I can point to that. Tom do you want to give any more general direction?

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

Yes. Look again, we try and be pretty transparent with the guidance to give you what the cause is and we kind of leave it to everyone on for themselves to figure out what gold price they want to plunk in there but certainly as we did our second quarter forecast, we used actually 1615 and 1650, keep it simple 1615 gold and 1650 silver to plan out our updated forecast and we had an upside which shows that we intend to repay our revolver throughout the rest of the year. So it's really up. We leave it to the analysts to figure out what side they want to or what price they want to use to figure out free cash flow but we feel confident that we'll have the revolver paid that gives at least some indication of how much free cash flow we expect to generate.

Joseph Reagor -- Roth Capital Partners -- Analyst

Okay. And can you remind us what's remaining on that?

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

60 million.

Joseph Reagor -- Roth Capital Partners -- Analyst

Okay. And then switching gears. So at Palmarejo cash costs the first half of the year been low. I realize it's really a quarter and a half not two full quarters but it kind of suggests either higher costs in the second half of the year or that the cost guidance is a little bit higher than maybe it could be. Can you give me any additional color there?

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

Yes. Mitch do you want to take a crack at that one?

Mitch J. Krebs -- President and Chief Executive Officer

Yes. So overall the team have worked very hard to maintain costs and of course with us being at 85% for the workforce we'll have to watch that really closely and I'm confident that we will maintain our current trajectory certainly will expect if we move more tons throughout the second half the year to spend a little bit more but the guidance that we've issued is based on a solid forecast for the year and I think we will deliver on that.

Joseph Reagor -- Roth Capital Partners -- Analyst

Okay. So is it, I guess what I am trying to get at though is for the analysts for modeling purposes we should just model what we have to kind of get within that guidance range for the costs or is it possible to come in below it for the year?

Mitch J. Krebs -- President and Chief Executive Officer

I would say sure it's possible. We were very careful in setting those ranges to set us up for a high likelihood of meeting or beating. So that's the job that we have ahead of us here for the second half.

Joseph Reagor -- Roth Capital Partners -- Analyst

Okay. Fair enough, Mitch. One final thing, with the exploration update you're providing in August what areas you know are we going to get drill results from, I mean besides, I guess you guys already touched on six holes from southern Nevada but any other greenfield stuff?

Mitch J. Krebs -- President and Chief Executive Officer

So Hans do you want to take that?

Hans Rasmussen -- Senior Vice President, Exploration

No other greenfields specifically but all the programs are reporting on expense exploration. So resource growth. Silvertip, we're doing some big step outs. So that now we've got holes with mineralization visual, a kilometer north of our prior resources and a kilometers and a half south of our prior resources now. So these are almost greenfield step outs at Silvertip. We wanted to start testing edges and we still haven't found the edge. So that's good news. That's about it for the closer to greenfields type portion of the release. Everything else will be resource growth, expense exploration discussions. Very little infill this year just at Palmarejo that was it.

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

The only other thing I'd hop in to say not directly related to your question Joe but on the greenfields or earlier stage side not that we'll have any drilling to talk about in August but I look now at that Allio gold transaction that we did and other similar things like that in the past few years when markets and sentiment were very different and we have a ton of drilling and growth ahead of us on that earlier stage side of exploration and I know Hans and his team are out there on the ground developing those targets but you go west of Rochester and there is a series of projects and deposits there that we control. When we when we did that deal with Allio I think we more than doubled our land package there at Rochester off to the west and so there is a lot to do out there and then Hans already talked about crown and Seahorse and then we have sterling down there all of that down in southern Nevada. There is a lot of drilling ahead and hopefully a lot of new discovery and a lot of resource growth. So no shortage of exploration opportunity.

Joseph Reagor -- Roth Capital Partners -- Analyst

Okay and if I could just on your point of prior transactions remind me La Preciosa you don't get a lot of value obviously in the market for it but with silver now in the approaching the mid-20s, is there any opportunity to either relook at that or maybe even vend it out to somebody who could do some work on it and capture some value there?

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

Yes and yes really. We have had a process of kind of reexamining optimizing La Preciosa kind of late last year earlier this year there's some ongoing work right now and then you plop in current silver price and that project as it sits today starts to look pretty interesting. Now does it fit in to our capital spend profile? How does it compete in terms of relative returns that lies ahead but your other point there about what else could we do with La Preciosa.

So it doesn't have to be a 100% us. That's another angle that we're considering and anything we can do to daylight some value there because I agree that we're not probably for good reason at least up until recently haven't been getting a lot of attention or value out of that big silver resource sitting down there in Durango.

Joseph Reagor -- Roth Capital Partners -- Analyst

Okay. Thanks for the color. I will turn it over.

Mitch J. Krebs -- President and Chief Executive Officer

Yes. Thanks Joe.

Operator

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

Adam Graf -- B. Riley FBR -- Analyst

Hey guys.

Mitch J. Krebs -- President and Chief Executive Officer

Hey Adam.

Adam Graf -- B. Riley FBR -- Analyst

Thanks for taking my question. Welcome Mitch. Congrats on the strong quarter. I think most of my questions have been asked and answered. Quick question for Hans, I know Mitch has got your hands tied but the step outs that you guys are doing at Silvertip what's your feeling or what's your bet that it's contiguous with the main ore body there?

Hans Rasmussen -- Senior Vice President, Exploration

Don't Mind if I jump in, Mitch. You got me excited Adam. Visually the mineralization looks exactly the same and on these big step-out holes and stratigraphically it's in the exact same horizon as the mineralization in the ore body. So all indications are it should be a continuation but we don't have really any, we have zero holes in between in both cases of those step outs I mentioned.

So as a result of these successes we'll fund a winter program that will include three rigs full time through the winter on that northern piece that is a kilometer north of our discovery ore body and that will essentially the reason we're doing the winter is we want to do as much step out now as we can in the higher terrain, higher elevations and then once the snow hits we'll be down closer to camp.

The higher elevation hits down south on Silvertip mountain are approaching a magnetic feature that we have always thought as the source of mineralization. So between now and when we shut this program down in mid-September probably because of the snow we anticipate three or four more holes in that area including into that magnetic anomaly and we should have a pretty good idea that that is the source and that we've got exponential to grow based on that being the source in the future. That's been the enigma on the project ever since silver [Indecipherable] even what is the source of mineralization. So to answer your question, I believe it will be continuous but we have no evidence yet because we have no infill holes.

Adam Graf -- B. Riley FBR -- Analyst

You are not seeing any gradation in the alteration or the mineral assemblage that would let you believe you're moving in one direction or another, you're moving closer or farther from the source?

Hans Rasmussen -- Senior Vice President, Exploration

To the north we're seeing more pyrite but we've also seen more pyrite on the fringes of the discovery east zone. So that's our only clue that we may be hitting closer to the northern edge up to the north which is still 3.5 kilometers from that southernmost hole ore. So quite large quite a lot of infill to do on that. That's about it. This hole to the south that we've just hit looks very strong alteration around the massive sulfide looks very strong. So yes, and we're still waiting for assays to compare actual metal grades.

Adam Graf -- B. Riley FBR -- Analyst

Yes. Well great. Thanks for that and you and I should follow up offline because I've got experience with similar systems. Anyway great. Congratulations again guys on the strong quarter.

Mitch J. Krebs -- President and Chief Executive Officer

Thanks Adam.

Operator

Our next question comes from Brian MacArthur with Raymond James. Please go ahead.

Brian MacArthur -- Raymond James -- Analyst

Good morning. I have two questions. Just first on Rochester you made a comment you could make more than $100 million in free cash flow. Is that at the 1615 gold price and 1650 silver price is that sort of what you're assuming and I realize it's a general number?

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

Yes. Generally speaking yes and then obviously you can play with the model and see how much torque there is for current prices yes exactly.

Brian MacArthur -- Raymond James -- Analyst

Okay. Let's give you a second question but just before I do that and is that assuming I assume that's using tax pools going forward and things like that or is that just purely on a fundamental PA or sorry fundamental study basis?

Mitch J. Krebs -- President and Chief Executive Officer

Well, that would be using our NOLs, so it's an after tax number but taking into consideration the fact that we've got I don't know close to $0.5 billion of U.S. NOLs.

Brian MacArthur -- Raymond James -- Analyst

Perfect. That's what I thought. Now the second part was I think where you're going with this, I mean philosophically in the past you have made a number of things to balance the portfolio but as you look forward and when Rochester is up and running I could make the case that it's a very significant asset and kind of dominates everything else. How do you and I realize that in the future how do you philosophically think about that is five minds the right thing out then? Does it make more sense take advantage of high prices that move something out right now realize some value to fund this because it's so important or how are you just sort of thinking about that going forward because obviously Rochester kind of I would argue dominate to a large degree going forward or maybe that's philosophically wrong I just like your comments on that.

Mitch J. Krebs -- President and Chief Executive Officer

Yes. No. You're thinking about it the right way. Between the POA 11 expansion and then all that potential to the west Rochester is likely to be the dominant. They call it whatever you want cornerstone or whatever foundation for a long time and sitting there in northern Nevada is a great place, a place we've been for 30 years so we've got very deep and meaningful relationships there with the state, with community and then you look down south and on an earlier stage basis what we've got going down there with Crown and Sterling and this Seahorse thing that Hans mentioned.

The western U.S. kind of long life heat bleach, gold dominant type of assets work well for us. We know how to do that well. I think if we can have five to seven assets each of them generating in excess of $50 million of free cash flow a year that sets us up nicely to be kind of an attractive call it senior intermediate or somewhere in there between the intermediate and senior space where there I think is kind of a lack of good quality especially U.S. centric U.S. domiciled and that's a pretty attractive looking company I think and that's kind of how we're thinking about it and where we're trying to take the company from a high level perspective.

Brian MacArthur -- Raymond James -- Analyst

Great. Thanks very much, Mitch.

Mitch J. Krebs -- President and Chief Executive Officer

Yes. Thanks, Brian.

Operator

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

Mitch J. Krebs -- President and Chief Executive Officer

Okay. Well, hey thanks. We appreciate everybody's time and look forward to that exploration release here in a few weeks. So hopefully we can talk to you again then and in the meantime or if we don't talk then I hope you all have a great rest of the summer and stay healthy and safe and thanks again for your time and interest. Bye. Bye.

Operator

[Operator Closing Remarks]

Duration: 55 minutes

Call participants:

Paul DePartout -- Director of Investor Relations

Mitch J. Krebs -- President and Chief Executive Officer

Michael Routledge -- Senior Vice President and Chief Operating Officer

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

Hans Rasmussen -- Senior Vice President, Exploration

Mark Mihaljevic -- RBC -- Analyst

Michael Dudas -- Vertical Research Partners -- Analyst

Joseph Reagor -- Roth Capital Partners -- Analyst

Adam Graf -- B. Riley FBR -- Analyst

Brian MacArthur -- Raymond James -- Analyst

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