Coeur Mining’s 125% Stock Surge Backed by Las Chispas and $42 Silver

Key Concepts

• Core Mining: A mining company discussed in the transcript.
• Las Chispas Mining Sonor: A significant acquisition by Core Mining in Mexico.
• Rochester Mine: Core Mining's expansion project in Nevada.
• Kensington Gold Mine: Core Mining's investment in Alaska.
• Silver: A precious metal with increasing industrial and investment demand.
• Gold: Another precious metal, often leading silver in price movements.
• Gold-Silver Ratio: The ratio of the price of an ounce of gold to an ounce of silver.
• Industrial Demand: Demand for metals in manufacturing and technology.
• Investment Demand: Demand for metals as a store of value or speculative asset.
• Supply Deficit: A situation where demand for a commodity exceeds its supply.
• M&A (Mergers and Acquisitions): The process of combining companies.
• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): A measure of a company's operating performance.
• Free Cash Flow: The cash a company generates after accounting for capital expenditures.
• Share Repurchase Program: A company buying back its own stock.
• Capital Allocation: How a company decides to spend its money.

Core Mining's Performance and Strategic Acquisitions

Mitch Kreps, Chair, President, and CEO of Core Mining, discusses the company's highly successful year, largely driven by the acquisition of Silverest and its Las Chispas mine in Mexico. Core Mining is guiding for 450,000 ounces of gold production this year, with its share price up 125% year-on-year. The company's market capitalization has surpassed $10 billion USD.

Kreps highlights the significant capital investment over the past five years, including a $730 million expansion at the Rochester mine in Nevada, $300 million in exploration, and an $85 million multi-year investment in the Kensington gold mine in Alaska. These investments, coupled with the Las Chispas acquisition and higher metal prices, have come to fruition, leading to a rewarding period for the company and its employees. He notes that investors have personally thanked him for the positive impact Core Mining's performance has had on their lives.

The Silver Market Dynamics

The conversation delves into the recent surge in silver prices, exceeding $42 USD per ounce, after being relatively stagnant between $30 and $35 USD. Kreps attributes this to a "catch-up trade" where silver follows gold's lead. He emphasizes that the supply and demand fundamentals for silver are exceptionally strong.

Supply Side: Supply has been flat to declining, with a similar outlook for the future. Demand Side: Industrial demand has grown significantly, with photovoltaic (solar panel) demand being a major catalyst. While this growth is tapering, electrification-driven demand, particularly for AI data centers requiring more electricity (and thus more silver due to its conductivity), is emerging as the next growth phase.

This has resulted in five consecutive years of demand-supply deficits. Increased premiums in New York and London markets have also drawn more attention to silver, a relatively small market where capital inflows can cause rapid price movements.

Kreps, with 30 years in the mining industry, notes that silver's significant price rallies occur when strong industrial demand coincides with robust investor demand, a situation that is currently happening. He believes silver still has considerable upside potential compared to gold's all-time highs.

Gold-Silver Ratio and Silver Price Sustainability

The discussion touches upon the gold-silver ratio, currently around 86-88:1, significantly above its historical mean of 60:1. Kreps anticipates this ratio will compress, primarily through an increase in the silver price. He views silver's gradual, non-parabolic price increase as a healthy sign for sustainability.

Regarding the sustainability of silver prices above $40 USD per ounce, Kreps acknowledges past volatility (e.g., 2011 and the 1980s). However, he believes the evolution of demand fundamentals since 2011, with more sustainable end-uses like solar panels and AI data centers, could support higher prices long-term.

Silver Supply Inelasticity and Emerging Opportunities

Kreps points out that primary silver deposits are rare, making the silver market relatively inelastic to price increases. Most silver supply comes from secondary production. He mentions the significant M&A activity in the silver space, with approximately $5 billion USD spent on acquiring three major primary silver deposits (Mag Silver, Silver Gate, and the one acquired by Core Mining).

Looking ahead, emerging silver projects are being observed in Mexico, Argentina, and Bolivia. Core Mining, currently a North American producer with mines in Mexico and the US, has a presence in Bolivia and Argentina historically. While new primary silver projects are scarce in the US and Canada, Core Mining identifies Silver Tip in northern British Columbia as a standout project. This high-grade silver-zinc-lead deposit is seen as a potential source of significant future production growth, estimated at 5-6 million ounces of annual silver production in 5-7 years.

Core Mining's Identity and Investor Perception

Despite not having "silver" in its name, Core Mining is widely recognized as a silver producer. Kreps explains that while the company is two-thirds gold and one-third silver in terms of revenue, it trades more like a silver stock. This is attributed to its nearly 100-year history, originating in the Silver Valley of Northern Idaho. He humorously suggests the company might still trade as a silver stock even without producing silver due to this historical connection.

Kreps acknowledges the challenge of running a business with a volatile product like silver. Core Mining aims to balance meaningful silver exposure for investors with managing that exposure for a predictable business. Maintaining over 20% of revenue from silver is considered a good threshold, and with an estimated 20 million ounces of silver production annually, Core Mining ranks among the top five or six global silver producers.

Trading as a Silver Stock: Beta and M&A Strategy

Trading like a silver stock implies a higher beta, which Kreps views as a positive. Silver companies historically trade at a premium, offering an advantage for external growth and accretive acquisitions.

Regarding M&A strategy, Kreps emphasizes quality over size. While the company's market cap has grown significantly, allowing for potential stock leverage, the focus remains on acquiring assets in existing jurisdictions (Mexico, US, Canada). He would prefer to grow in gold if it means higher quality and better returns, rather than acquiring a silver asset in a new jurisdiction solely for the sake of diversification.

Core Mining is not looking to re-enter the project development phase after its recent heavy capital expenditure cycle. The priority is to find free cash-flowing opportunities with lower cost profiles than existing assets, aiming to reduce the company's cost curve and build a more resilient business. The goal is to create a company that can be opportunistic during price downturns, transforming from a struggling entity to a strong one.

Capital Allocation and Financial Outlook

Kreps provides a detailed financial outlook:

• 2023 EBITDA: $142 million
• 2025 Projected EBITDA: Over $900 million
• 2023 Free Cash Flow: -$300 million
• 2025 Projected Free Cash Flow: Over $500 million

The company is rapidly building cash and expects to be in a net cash position by year-end, with a cash balance starting with a "four" (implying $400 million or more). A $75 million share repurchase program is underway, with plans to potentially initiate another in 2026.

A healthy cash buffer for a $10 billion company is considered to be between $500 million and $1 billion, aligning with industry peers. The company has paid off its revolver and has $290 million in senior notes maturing in 2029. Building a substantial cash balance in 2026 is seen as a strategic move to ensure strength during potential price downturns.

Key Catalysts for the Next 6-12 Months

• Las Chispas Contribution: The full impact of the Las Chispas mine will be realized in the latter half of 2025.
• Rochester Expansion Ramp-Up: Achieving a steady state at the Rochester mine, targeting 8 million tons per quarter crushed and processed. This will drive increased silver and gold production.
• Production Growth: Core Mining is on track for a 20% year-over-year increase in gold production and a 60% increase in silver production in 2025.
• 2026 Outlook: Anticipated increases in production with Las Chispas contributing for a full 12 months and Rochester operating at a steady state.
• Kensington Mine: Following an $83 million investment, Kensington is expected to have a stronger second half of 2025, carrying over into 2026, contributing to incremental organic growth.

Kreps concludes by expressing optimism for 2026, projecting it to be an even better year than 2025.