What happened
Shares of gold and silver miner Coeur Mining (CDE 3.96%) were lower by 14% as of 1 p.m. on Thursday. The company released earnings after the market closed on April 22 and held a conference call the next day. Although the gold and silver miner tried to put a positive spin on the quarter in its earnings release and during the analyst call, there was material negative news in the update, and investors reacted by pushing the shares sharply lower.
So what
Coeur's adjusted earnings were basically breakeven in the quarter, up from a loss of $0.11 per share in the previous year. That was a positive note, buttressed by solid operating performance from a number of its exploration efforts and mines. Notably, gold production at the company's Palmarejo mine, located in Mexico, was up nearly 40% year over year. The mine accounted for roughly 37% of Coeur's overall gold production in the quarter.
Image source: Getty Images.
This positive news, however, is also a problem. Mexico announced plans to close down nonessential businesses on March 31, which includes gold mining. Coeur is honoring the Mexican government's efforts to contain the spread of COVID-19, effectively taking a material amount of its gold production offline. At this point, the government's closure is scheduled to end on May 18, though the company is asking the government to allow the mine to restart earlier. However, restarting the mine will take at least two or three weeks no matter when work resumes. Effectively, Coeur will lose a material amount of production from this asset even under a best-case scenario.
Although its three U.S.-located mines remain in operation, the drop in gold production from Palmarejo will have a significant impact on second-quarter results. If Mexico does not lift the closure as scheduled, or earlier, the impact will obviously extend further into the year. Partly as a result of the uncertainty here, the company made an additional draw on its revolving credit facility after the end of the quarter to fortify its liquidity position.
Although Coeur is doing the right things to deal with the impact of COVID-19, there is little it can do to soften the blow from the lost production at Palmarejo. The company estimates that a 30-day shutdown would reduce cash flow from the mine by around $10 million, a notable issue given that the company's 2020 capital exploration plan is the largest in its history.
Now what
Although all of the news at Coeur wasn't bad in the first quarter, the shutdown of Palmarejo was the headline that drew almost all of the attention during the conference call. And rightly so. Operations are mostly going well in other areas of the business, but losing the production from Palmarejo for even a single month will be a material financial headwind. And if the closure is extended beyond May 18, the problem will only get worse. With uncertainty about the near-term and long-term impacts of COVID-19, investors should keep a close eye on news about this asset in the weeks ahead.
