Silver and gold miner Coeur Mining (NYSE:CDE), one of the largest primary silver producers in the United States, recently reported weak first-quarter production results. That wasn't particularly good news given that the company's 2018 full-year results failed to inspire investors when they were reported in late February. Here's what the numbers were, and why they suggest that earnings will be less than impressive in the first quarter of 2019 -- and also why management remains upbeat for the full year.

A tough spell

Coeur's first quarter gold production fell 8% year over year and 21% sequentially from the fourth quarter. Silver production was off 22% year over year and 29% sequentially. And while lead and zinc production were up materially year over year and sequentially, the precious metals miner's top and bottom lines are largely driven by gold and silver.

A man holding up a large silver nugget

Image source: Getty Images

When the company discusses earnings on May 2 it isn't likely to be a very good tale. However, management remains upbeat, with CEO Mitchell Krebs explaining in a news release, "First quarter operating results were in-line with our expectations." He noted further that, "...our full-year financial and operating results are anticipated to be second half weighted." In fact, the company maintained its full-year guidance, which it released along with first-quarter earnings earlier in the year.

What went wrong and what has to go right?

Production at the company's Palmarejo mine in Mexico was a major detractor. This single mine represented roughly 30% of gold production and half of silver production in the quarter. Gold production was off 22% at this mine year over year in the first quarter, with silver production falling nearly 37%.

These numbers are a little disheartening, but not unexpected. Coeur was projecting lower results for this asset in 2019 as it transitioned from one mining area to another, which meant it had to work through a section with less gold and silver content.  Moreover, the company has a development project at the mine that will ramp up in the second half of the year. That in turn should help it meet its annual targets.

At the company's Rochester mine in Nevada it was the weather that got in the way, with heavy snow causing delays. This mine represented roughly 36% of the company's silver production in the first quarter and 10% of the gold it produced. Silver production was off 17% year over year and 35% sequentially, with gold production down 28% year over year and 48% sequentially.

Production

Q1 2019

Q1 2018

Year over year Change

Q4 2018

Sequential Quarter Change

Gold 

78,336 oz

85,383 oz

-8%

99,460 oz

-21%

Silver 

2.5 million oz

3.2 million oz

-22%

3.5 million oz

-29%

Zinc 

3.7 million pounds

3.1 million pounds

19%

Nil

NMF

Lead 

3.1 million pounds

1.7 million pounds

82%

Nil

NMF

Data source: Coeur Mining

Although Rochester's first-quarter shortfall wasn't expected (nobody can accurately predict the weather), full-year targets haven't been altered. That's partially because, as with Palmarejo, Coeur has development projects in the works that it believes will lead to higher production in the second half of the year. And those projects remain on track.

Production at Coeur's Kensington mine in Alaska (roughly 38% of gold production) also fell short, dropping 15% year over year and sequentially compared to the fourth quarter. However, the development of a new project at Kensington shifted into production mode late in the fourth quarter of 2018. As this project continues to shift from ore development activities to full production activities, it should boost Kensington's results and help lift full-year production from this asset above 2018's final results.

The company's Warf mine in South Dakota (about 22% of first-quarter gold production and a minor contributor on silver), was roughly flat sequentially from the fourth quarter of 2018, and down about 6% year over year. However, production was above targeted levels and is expected to increase throughout the year.

The company's Silver Tip mine in British Columbia, meanwhile, is still ramping up after opening late in the third quarter of 2018. Production of silver, zinc, and lead at this mine was effectively non-existent a year ago. The production from this mine will be a net positive over the full year, helping to offset any weakness at other mines.

Keep an eye on operations

At the end of the day, Coeur looks like it had a tough quarter production-wise, driven largely by some one-time items, like weather, and expected declines due to investment activities. At this point, it doesn't appear that investors should get too worried about the production weakness in the first quarter. However, that doesn't mean that first-quarter results will be good. Although gold and silver prices rose modestly through the first quarter, any benefit is unlikely to offset the production shortfalls, which were quite material.

Still, with management sticking to its full-year production targets despite weak first quarter numbers, investors will need to pay closer attention to Coeur's operating results as the year progresses. That's doubly true since full-year production results are predicated on the successful execution of a number of development efforts. At this point there's no reason to panic -- just realize that earnings news on May 2 is likely to be less than inspiring.