Inside the Silver Boom: Coeur's CEO Mitch Krebs on Cash Flow Exploding & the Forces Fueling Silver

Key Concepts

• Core Mining: A North American-focused silver and gold producer with a history of transformation and strategic acquisitions.
• Rochester Mine (Nevada, USA): Core's largest mine, recently underwent a significant $730 million expansion, making it the largest domestic source of refined silver in the US.
• Los Chispas Mine (Mexico): Acquired through the Silver Crest transaction, this mine is characterized by high grades and a tight vein system, contributing significantly to Core's silver production.
• Silver Crest Acquisition: A recent acquisition that bolstered Core's silver production and brought in a strong operational team.
• Warf Mine (South Dakota, USA): A long-standing gold producer acquired in 2015, known for its significant free cash flow generation and potential for mine life extension.
• Palo Mario Mine (Chihuahua, Mexico): A consistent silver and gold producer with a unique gold stream agreement with Franco Nevada, driving strategic exploration to mitigate its impact.
• Kensington Mine (Alaska, USA): A gold mine that has seen a significant turnaround through investment in drilling and underground development, extending its mine life and contributing to free cash flow.
• Free Cash Flow (FCF): A key financial metric for Core, showing a significant upward trend, indicating strong operational performance and financial health.
• Return on Invested Capital (ROIC): A crucial metric for Core, particularly driven by the efficient exploration at Warf.
• Supply and Demand Deficit (Silver): A core argument for the bullish outlook on silver, driven by declining mine supply and increasing industrial and investment demand.
• Early Innings: A metaphor used to describe the current stage of the silver market and its potential for further growth.

Core Mining: Strategic Transformation and Growth in the Silver and Gold Sector

This summary details a conversation with Mitch Krebs, CEO of Core Mining, discussing the company's strategic repositioning, operational highlights, and outlook for the silver and gold markets.

Company Overview and Strategic Shift

Core Mining, with a 98-year history, has undergone a significant transformation over the past decade, moving from a globally dispersed operation to a focused North American producer. The company now operates five mines: two in Mexico and three in the US, with approximately 20 million ounces of silver produced annually on a run-rate basis, placing it among the top five global producers. This strategic consolidation has aimed to build a more resilient and profitable business.

Asset Portfolio and Production Mix

• Rochester Mine (Nevada, USA): This open-pit, heap-leach silver-gold mine is Core's largest. It recently completed a $730 million expansion, significantly increasing its production capacity. Historically producing 3-4 million ounces of silver and 35,000 ounces of gold annually, post-expansion, it is expected to produce 7-8 million ounces of silver and 70,000 ounces of gold per year. The expansion also led to a 25% reduction in costs due to higher throughput and scale. Rochester has a 16-year mine life based on current reserves, with significant exploration potential. It is now the largest source of domestically produced and refined silver in the US.
• Los Chispas Mine (Mexico): Acquired through the Silver Crest transaction in February, this mine is characterized by high grades and a tight epi-thermal vein system. It contributes significantly to Core's silver production, with a 50/50 silver-gold revenue split. Exploration efforts are focused on finding new veins and extending existing ones within the constrained land package, aiming to replace production and maintain a 6-7 year mine life. The drill budget for Los Chispas in 2025 is $18 million, with a focus on the gap zone between existing mining areas, where high-grade mineralization has been encountered.
• Warf Mine (South Dakota, USA): Acquired in 2015 for $99.5 million, Warf is a gold producer that has generated over $500 million in free cash flow since its acquisition. Despite an initial 5-year mine life, ongoing exploration is aimed at extending this to potentially double digits. Warf is a significant contributor to Core's Return on Invested Capital (ROIC), with a favorable exploration-to-production cost ratio. The company benefits from US tax loss carry-forwards associated with this historic property.
• Palo Mario Mine (Chihuahua, Mexico): This mine produces approximately 6 million ounces of silver and 100,000 ounces of gold annually. A key feature is an $800 per ounce gold stream agreement with Franco Nevada, which impacts profitability. Core is strategically consolidating land to the east of the stream-covered area to develop new mining areas where gold can be sold at spot prices, aiming to enhance margin and cash flow. Over 60% of Palo Mario's exploration budget is directed to this eastern area.
• Kensington Mine (Alaska, USA): After an 18-year permitting process, Kensington was built in 2010 with an initial 8-year mine life. Through significant investment ($85 million in drilling and underground development over three years), its mine life has been extended to five years, and it is now contributing free cash flow. The mine produces about 100,000 ounces of gold annually.

Financial Performance and Outlook

Core Mining has demonstrated a strong upward trend in free cash flow. The first quarter of the year saw $16 million in FCF, increasing to $146 million in the second quarter, with expectations for continued growth. The company is transitioning from a highly leveraged balance sheet (net debt to equity peaked at 4.5 times) to a net cash position by year-end. This financial strength is enabling a share repurchase program and a focus on delivering results to investors.

The company's mission is framed around three values: "produce, protect, and deliver." This encompasses operational excellence, environmental and community stewardship, and consistent delivery of results. Core emphasizes its commitment to safety, being recognized as the safest mining company in America for the last three years based on its Total Reportable Incident Frequency Rate (TRIFR).

Market Perspective: Silver and Gold Cycles

Mitch Krebs presents a bullish outlook for silver, citing a significant lack of investment in new supply, declining mine production (peaked 5-7 years ago), and increasing demand from both industrial (electronics, photovoltaics, electrification, AI data centers) and investment sectors. He highlights that the market is currently in its fifth year of supply-demand deficits.

He contrasts the current situation with 2011, when silver prices last surged, noting that then there was a surplus of silver, whereas now there is a deficit. The industrial demand for silver is seen as a strong floor, representing 60% of total demand, a significant shift from the past where 35mm film was a major component.

Krebs believes the company is in the "early innings" of higher prices flowing through financial results. He suggests that current stock valuations are cheap when considering current spot prices. He anticipates strong earnings growth across the sector in the next two to three quarters, with Core itself projecting over $500 million in full-year free cash flow and $900 million in EBITDA, a substantial increase from two years prior. He believes that as long-term consensus prices for gold and silver catch up to reality, the market will recognize that silver equities are not overvalued.

Future Strategy and M&A

While Core is focused on optimizing its existing asset base and improving its balance sheet, it remains open to opportunities that could reduce costs, supplement cash flow, and align with its current jurisdictions and metals. However, the company is not looking to re-enter the "big capital project game" and is prioritizing cash flow and a stronger balance sheet. There are no plans for rare earth projects.

Conclusion

Core Mining has successfully executed a strategic transformation, building a robust North American silver and gold portfolio. With significant operational improvements, a strengthening balance sheet, and a positive outlook for the silver market driven by fundamental supply-demand dynamics, the company is well-positioned for continued growth and value creation. The recent acquisition of Los Chispas and the expansion of Rochester are key drivers, complemented by the consistent performance of its other mines. The company's focus on safety, sustainability, and delivering results underpins its strategy.