Good morning, and welcome to the Coeur Mining Second Quarter 2021 Financial Results Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Paul DePartout, Director, Investor Relations. Please go ahead.

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 second quarter 10-Q and 2020 10-K. Now, I’ll turn it over to Mitch, Mick and Tom.

Thanks, Paul, and good morning, everyone. I’ll start off on slide three of today’s presentation with some highlights from the quarter. Improved topline performance was driven by an increase in gold and silver ounces sold and an uptick in our average realized silver price. These factors, along with some positive changes in working capital, led to significantly higher operating cash flow both quarter-over-quarter and year-over-year. This revenue and cash flow growth was largely a result of a 27% quarter-over-quarter increase in gold production at Wharf and a 15% quarter-over-quarter increase in silver production at Rochester. Kensington’s gold production was down slightly due to timing and Palmarejo production was essentially flat due to slightly lower grades offset by higher throughput. Looking ahead to the back half of the year, we are reiterating our production guidance and expect a strong second half at each of our operating locations for reasons that Mick will touch on. Overall, operating costs increased during the period, reflecting higher throughput and underground development rates, additional maintenance expense, general inflationary pressures and a non-cash charge at Rochester. Mick will also provide a bit more color on these items in a few minutes. We continue to advance our largest exploration campaign in company history and established a new record for meters drilled in a single quarter of nearly 100 kilometers with 27 drill rigs currently turning. We highlighted some of our progress in a press release we issued back in mid-June, which showcased a new high-grade mineralized zone at our Silvertip mine in northern British Columbia and more excellent results from our Crown exploration property in southern Nevada. Turning to slide eight, you can see we have upped our exploration guidance for the year to keep building on the successes we’re having. We now plan to invest approximately $75 million in exploration in 2021, which is nearly 50% higher than last year’s record and 2.5 times more than our investment in 2019. We continue to view our investment in exploration, which is one of the largest programs in our sector, as a very attractive allocation of capital and an important differentiator. Continuing with the growth narrative, I want to touch on the company’s two major development priorities, the ongoing expansion at Rochester and the potential expansion and restart at Silvertip. Starting with Rochester and looking at slides 11 through 13, POA 11 is advancing on schedule, with overall progress approximately 31% complete and over 90% of the contracts committed, representing roughly $334 million of capital at the end of June. Like most companies going through a large capital project right now, we’ve started to see the impact of inflation in areas such as contractor labor, building materials and fuel on a small number of remaining uncommitted contracts. We’ll be evaluating these last few contracts as they come in over the coming months and we’ll provide an update on our next call. Finally, our technical team continues to carry out optimization work to incorporate all the important learnings being generated during this transition period until the new infrastructure at Rochester is completed late next year. Turning over to Silvertip and looking at slide 14, the ongoing technical work and success of our exploration program, combined with much more favorable market conditions, have us feeling confident in a potential expansion and restart of Silvertip. As a result, we have accelerated our level of investment to take advantage of the summer construction season to complete a range of mostly surface projects. We plan to pull the ongoing exploration and technical work into an updated Technical Report, which is expected to be filed in early 2022. Without question, we believe the growing high-grade deposit at Silvertip is well worth the efforts, despite the challenges we’ve had there in the past. With a retooled flowsheet and a larger, more reliable processing plant, we see Silvertip becoming a high-margin cash flow contributor over a very long mine life in an attractive jurisdiction. Before passing the call to Mick, I want to briefly mention the strategic investment we made in Victoria Gold. It was a unique opportunity to acquire the 18% block from Orion Mine Finance that aligns with our strategy and further bolsters our portfolio of precious metals assets in high-quality jurisdictions. We are pleased to be a Victoria shareholder with how the investment has performed and with how the Victoria team is advancing its new Eagle open pit heap leach operation. Beyond that, I’m not going to speculate on today’s call about potential scenarios or next steps which I’m sure you can appreciate. With that, I’ll now turn the call over to Mick.

Thanks, Mitch. Before going through the operational results, I want to point out a set of slides that highlight our steadfast commitment to protecting our people and upholding our top health and safety initiatives, starting on slide 20. In order to continuously enhance our safety culture and achieve great performance, we must work free of any uncontrolled exposures. We truly believe that health and safety do not improve unless the exposure is contained, reduced or eliminated. As such, I’m proud to report that we recently completed our recertification for the National Mining Association’s CORESafety program, and year-to-date, we’re running toward the lowest lost-time injury rate in our company history. And as I mentioned on my first call a year ago, when companies get health and safety right, strong operational performance follows. Now turning to slide six and beginning with Palmarejo. Higher mill throughput and better metallurgical recoveries helped to offset lower grades as we continue to encounter some geotechnical challenges. This led us to accelerate the rehabilitation of historical ground controls and re-sequence the mine plan. This is expected to result in more ounces coming from the area covered by the gold stream, which results in a higher proportion of costs allocated to silver on a Coeur product basis. We are confident in our ability to achieve production targets for the year and expect these impacts to be limited to 2021. And with annual EBITDA tax behind us, Palmarejo was able to generate roughly $24 million of free cash flow, almost seven times higher than the prior period. This was a great example of how the team can routinely balance multiple priorities and still produce solid results for the business. Moving to Rochester. With a laser focus on short interval controls, we are beginning to see better results from material placed on inter-lift liners, which drove a 15% increase in silver production during the quarter. Gold production was also higher supported by an aggressive run-of-mine campaign. It’s also worth noting that these production levels represent significant improvements from where we were 12 months ago. Additionally, we commissioned a new secondary crusher over an 18-day period, which allowed us to begin placing overliner on the new Stage VI leach pad approximately six weeks ahead of schedule. Importantly, initial results from the new crusher have been quite positive. We’ve been able to operate at higher throughput rates, produce a more consistent crush product and improve the leachability of HPGR-crushed ore relative to what we saw over the last few quarters. Building on this momentum, the team also successfully completed the fourth and final phase of our inter-lift liner strategy on the legacy Stage IV leach pad, allowing us to place fresh material closer to the plastic liner during the transition period. Unit costs came in higher than anticipated, largely driven by a change in our recovery assumptions on historically placed ore on the legacy pad. However, by switching to a coarser crush size and remaining focused on improving those short interval controls, we now expect to achieve a 56% recovery rate for silver on Stage IV over the next five years as we finish leaching that part. As Mitch mentioned, all the valuable experience and key learnings are helping us further de-risk and optimize POA 11 as we continue to execute on this pivotal expansion project. Switching over to Kensington, we saw slightly lower production as we processed some additional development ore from Jualin and changed out the liners in the gold mill. Unit costs for the quarter remained within guidance and totaled roughly $1,090 per ounce. The modest uptick in costs was driven by higher diesel prices and additional contractor support for drilling and maintenance, as well as fewer ounces sold. Looking ahead to the second half, Kensington is on track to generate its third consecutive year of solid free cash flow. Wrapping up with Wharf. We continue to mine higher-grade material which led to a 27% increase in gold production. The stronger performance was coupled with great financial discipline. The team did an excellent job managing costs, while advanced stripping and unloading one of the leach pads, leading to free cash flow more than doubling quarter-over-quarter. All of this important work sets Wharf to finish the second half of the year on a high note. With that, I’ll pass the call over to Tom.

Thanks, Mick. I’ll quickly run through our consolidated financial results that are highlighted on slide five. A 6% increase in quarterly revenue coupled with favorable changes in working capital helped us to generate $58 million of operating cash flow during the quarter. LTM EBITDA approached $300 million, despite the non-cash inventory charge at Rochester this quarter, a 41% increase year-over-year and once again demonstrating the power of our portfolio, especially at these gold and silver prices. With production guidance reaffirmed, we expect to see increased cash flow generation during the second half of the year to help fund our key internal growth priorities. Next, turning to slide 15 and looking at the balance sheet. We ended the quarter with a strong cash position and no borrowings under the revolver, leading to nearly $390 million of liquidity and a net leverage ratio of one times, which leaves us well positioned to fund our 2021 CapEx and exploration programs. It’s worth pointing out that these numbers do not include the nearly $175 million of equity investments that we have on the balance sheet. As previously discussed, our financing strategy for the Rochester expansion included an element of capital leases. We were very pleased to have secured a capital lease package of nearly $60 million during the quarter. The cash will be used to help fund a portion of the planned equipment purchases for POA 11 and is above our original target of $50 million. The package has a five-year tenure and carries a fixed interest rate of 5.2%, which is in line with the senior notes that we issued earlier this year. Lastly, I wanted to quickly note that we opportunistically added to our hedge position during the quarter when spot gold prices approached $1,900. We now have 132,000 ounces of gold hedge next year with an average floor of $1,630 per ounce and an average ceiling of $2,038 per ounce. We will continue to proactively monitor the market to potentially layer in additional hedges on up to 50% of expected gold production in 2022 to underpin our cash flow during this period of elevated capital investment. I will now pass the call back to Mitch.

Thanks, Tom. Before moving to the Q&A, I want to quickly highlight slide 16 that summarizes our top priorities for the second half of the year. By accomplishing this set of priorities we expect to enter 2022 with a clear and compelling path to delivering industry-leading organic growth from our balanced portfolio of North American precious metals assets. With that, let’s go ahead and open it up for questions.

Our first question comes from Mark Reichman with Noble Capital Markets. Please go ahead.

Good morning. So my first question relates to Rochester. The technical report had forecast pre-production expenditures of about $397 million. So when you look at your release and you’ve committed $334 million of capital, plus that additional $20 million, bringing the total to $354 million. So what are your expectations now with respect to pre-production expenditures for the Rochester expansion?

Yeah. Hi, Mark. It’s Mitch. We’re still anticipating kind of that even split between 2021 and 2022, roughly around that $200 million level in each of those two years. So maybe a little bit more now in 2022, with that additional $20 million that we referenced in the release that you mentioned, but otherwise, still that kind of even split between this year and next.

Yeah. You don’t really break out development sustaining capital by mine. I know Rochester development capital has been higher than the average for the overall development budget. What would you say your development capital will be in 2021 and 2022?

Developments, we break that out in the release. In my mind, there’s a CapEx section that has sustaining versus development. I don’t know, Tom, do you happen to have that in front of you? I don’t have that in front of me. I think the Rochester sustaining this year is only, yeah, $10 million to $15 million and then the rest is all developments related to POA 11.

Okay. So $10 million to $15 million in each year, so to speak, and then the remaining, so if you kind of keep it at $200 million a year and then the $15 million would be sustaining and the remainder would be. So do you think you’ll get pretty close to that $397 million or do you think you’ll run under or do you think with inflation? I guess I’m just trying to gauge kind of whether that’s still a pretty good number?

Yeah. Great question. It’s a dynamic, fluid time, like we mentioned in this release and in our comments. We’re fortunate to have the vast majority of the capital already committed. We have just over $60 million still uncommitted. So that’s where we’ll receive some bids here in the next few months. We’ll pick those apart. But those have a lot of steel, piping, cement and contract labor rates in there. Our eyes are wide open on those remaining elements and that’s where some of this escalation pressure is starting to be seen a little bit. We’ll have more to say at the end of the third quarter, once we get all that in and sort through it and see where we are. But at least at Rochester, that’s only on a relatively small piece of that remaining uncommitted capital.

Okay. And just to clarify one thing on our discussion on the development capital. So if you’re saying $200 million, it sounds to me, like, you kind of expect to be at the upper end of the range for Rochester in terms of where the guidance is?

Yeah. I think that’s probably fair…

Yeah.

…a fair assumption for now until we would come back and give you more clarity later this year.

Okay. No. That’s really helpful. I really appreciate it. Thanks very much.

Yeah. Sure, Mark. Thanks.

The next question is from Joseph Reagor with ROTH Capital Partners. Please go ahead.

Good morning, guys, and congrats on a solid quarter.

Hey, Joe. Thanks.

So, a little bit more on Rochester. In the release, you mentioned that $20 million, the previous caller mentioned as well. Can you give us a little bit more color on where that’s going and how accretive you think that extra investment is?

Yeah. Sure. Good question. It’s a lot of little things. But, Terry Smith, is sitting here and can fill. Terry, can you cover that quickly?

Yeah. Sure. Good question, Joe. The funding really underpins that we want to build Rochester for long-term success. And there’s a lot of incremental pieces to this, but it really comes down to improving the safety, availability and operability of the infrastructure that we’re putting in place. And just to give you some color on that, we upgraded the geotechnical design in the crusher pocket, making that a safer excavation for the long-term. We put some redundant pumps into the Merrill-Crowe plant that will increase availability of that plant in the long-term. We put a more sophisticated control system in the leach pad and the Merrill-Crowe plant, which will make that a more efficient set of leach operations going forward. So, overall, we’re pretty happy with all of these little upgrades. Unfortunately, they cost money, but we feel these are good returns for the long-term.

Does that help, Joe?

Yeah. Yeah. That’s helpful.

Okay.

And then, on the inflation that you guys mentioned, can you give us kind of an order of magnitude on that? Are we talking a couple percent? Are we talking 10 to 15? Are we talking some larger magnitude level of pressure?

On the OpEx side Joe?

No, sir. Specifically with the contracts at Rochester?

Yeah. I would say that it’s the labor rates that are the biggest component of the pressure being seen. And then probably followed by the dollars associated with cement, steel, a lot of copper conduit that goes into the Merrill-Crowe and into the crusher corridor. Those are four of the main drivers. Tom, Terry, am I leaving any big ones out, Mick?

No. And Joe, just to add a little color, those two SMPI contracts are in the budget; we’re roughly about $60 million, just to give you a sense of what that order of magnitude is. So again, as Mitch said earlier, we’re obviously pretty happy that we’ve committed a lot of the capital earlier and so we’ll be evaluating those bids here over the third quarter. We’ll be back to everyone during the next call with where those ultimately landed.

Okay. Fair enough. And then one final thing. There’s been a number of companies that are traditionally Mexican-focused silver miners or miners in general who tend to be diversifying out of Mexico. They’ve had some unfavorable tax decisions in recent years. What do you guys think about long-term with Palmarejo? Do you see there something where when it’s mined out, you’re done in Mexico or do you see other opportunities there, maybe just big picture five-year plan there?

Yeah. Great question. Mexico has become a more challenging jurisdiction relative to our other jurisdictions here in the U.S. and up north in Canada. From a growth standpoint, you can see the majority of our growth really organic growth is coming over the next few years from the U.S. and Canada. That all said, though, if you look at what we can do at Palmarejo over the next five years, operationally what we’re seeing with our exploration, especially at these elevated levels, there’s a whole new world off to the east there at Palmarejo that sits outside of the gold stream area of interest that we are very focused on — extending our exploration reach east of Palmarejo. There’s a lot of targets, a lot of potential, a lot of historic resources that we inherited when we bought Paramount, you’ll recall from several years ago. So there’s a lot more to do there, especially with a higher exploration budget. For the last four or five years, frankly, we’ve been pretty focused on that corridor, between and including Independencia and Guadalupe, and sort of extending those both to the northwest and to the southeast and then drilling in between them. But we’re starting to now develop enough of a runway down there that we’re able to kind of pick our heads up a little bit and look around in a more expansive way and there’s still a lot to do down there. So totally committed on Palmarejo and excited about the prospects there for what should be hopefully a long time still.

Okay. Thanks for the color. Sure.

Thanks, Joe.

The next question is from Brian MacArthur with Raymond James. Please go ahead.

Hi. Good morning and thanks for taking my question.

Hey. Hi, Brian.

My questions relate to Silvertip. A couple of things. You talk about making a bigger mill. There are some pictures in there showing you’re cleaning up the site, but we’re spending $50 million to $65 million now. I’m just trying to think through the timing of this and I realize you may not be able to give us everything until the study comes out early next year. But you talk about starting in 2023 and winter up there is not the easiest time. If you go forward with this, is the concept that you get to study early next year, you’d be able to order what you need for the bigger mill and then you get it up and running sort of late 2023? Is that kind of the way we’re tentatively thinking about it? I’m just trying to get a little bit more color on the spending and you’re obviously trying to get ahead a little bit with that capital. Any more color on how that actually could unfold would be helpful.

Yeah. Sure. Fair question. And I think you have it about right. If all sort of signs point to yes later this year, that sort of early 2023 commissioning, ramping up throughout the middle of the year, and hopefully, hitting a commercial production level later in 2023 would be the way we’d envision it playing out. And you’re dead on in terms of northern B.C., taking advantage of this season now, the way we are with some of this early works capital that we’re investing helps kind of de-risk that potential timetable. I guess, just — the other piece I’d throw out there is, when you think about capital, schedule and capital are the two things we’re working very hard to pin down here in the second half of the year. But we anticipate that the majority of capital that would be invested in Silvertip would be funded from an off-take financing. So hopefully that helps you think through, to the extent you’re thinking about balance sheet or any liquidity questions, that’s sort of going to be a large part of the solution there.

No. That’s very helpful as well. But are you planning not to put a new mill in there? I’m just trying to think of when you’d be shifting that in with the weather and all that up there or is that being envisioned? Is getting that in next summer the goal?

You’re thinking about it right. Bigger mill building. There’s some pieces of infrastructure that will be carryover or remaining. But that’s one of the big elements of this early works going on right now is decommissioning and cutting out a lot of that legacy infrastructure. So it’s going to be a little bit of a mix, but that would all hit the site next construction season would be the plan under that 2023 scenario.

Great. Thanks very much for that color, Mitch. That’s very helpful.

Yeah. Sure. Thanks, Brian. Take care.

The next question is from Karl Blunden with Goldman Sachs. Please go ahead.

Hi. Good morning. Thanks so much for the time.

Hi, Karl.

Maybe just a follow up on Silvertip. You anticipated a question I had there around funding of it, right, because you’re obviously funding Rochester right now as well. And good to hear that you’ve got other ways to finance it relative to the balance sheet. When you think about that project, is it fair to say, at this point, that you’re committed to it? Are there some risk factors you’re still exploring before you go ahead or have you learned enough at this point in time?

Still, there’s always an off-ramp. We don’t want to do anything there that’s not right. Expanding and restarting that, we’re not going to get a second chance at that. And this approval or this kind of inflection point late this year, let the drills keep turning, get all this technical work done, get the mine plan updated with all the drilling. There will be very much of an off-ramp available to us later this year. I’d like to think that that off-ramp is more around the question of timing and not a question of if regarding a Silvertip restart — more of a when not an if. But let’s get the answers and then we can lay out and see how it looks.

Okay. And then is the kind of decisions around what an off-take agreement might look like something that is a later 2021 event or is the timing of that decision also subject to some kind of wider timeframes?

Tom, why don’t you just give a little bit of color on off-take?

Yeah. Thanks, Mitch. So, obviously, we had preliminary conversations with potential partners. And I think it’s fair to say the market has turned around a lot faster and is much better than we anticipated, and we’re looking forward to sharing some of the work that we’ve been busy executing here over the last 12 months and marrying that up with the schedule and mine plan. Those conversations will accelerate here in the second half of the year. So any restart would be tied to an off-take agreement, and again, just reiterating Mitch’s point that the majority of the funding of any additional capital would be supported from this off-take financing.

Karl, it’s hard to imagine a better environment for Tom to have this objective in 2021. It’s a great time to have a good high-quality concentrate product to offer.

And again, while we were operating Silvertip, one of the things that we always worked well was the logistics, so the trucking and the shipping piece of it was always great. And I think it’s fair to say, if people are looking for high-quality counterparties like Coeur — New York Stock Exchange listed, top ESG — this will be an attractive concentrate and we look forward to advancing those conversations.

Great. That’s fantastic. I could just squeeze in one more. So you have these different growth options, you also then would look to potentially extend mine life. I guess some questions about Kensington, for example. Is that something that you could look to extend and would there be significant capital investment required as you look over the next two years or three years?

Yeah. You point out that’s our shortest mine life there at Kensington and we have accelerated our level of exploration investment there last year in particular. Now this year, I think it’s our third biggest allocation at about almost $40 million. That’s one of the reasons we bumped up our full-year exploration investment guidance ranges — because of the elevated levels of investment there at Kensington. All of which should help move that needle in terms of overall mine life. It’s not quick. It’s not the easiest place to drill and extend, just given the nature of the deposit and the infrastructure and where it is. But we’re optimistic that we will have some success come year end. You may recall a lot of the conversion drilling, the infill drilling last year didn’t take place till late in the year and so it didn’t make its way into the year-end reserve. So we’ve got a lot of that from last year carrying over into 2021, plus an elevated level of investment there this year. They’re having some really good results, and so we’re encouraged. I know Mick and Hans are excited; they are heading up there next week to get a deeper dive into the exploration program there. Hopefully, that gives you some additional color, Karl.

Yeah. That’s really helpful. Thanks, Mitch. Thanks, Tom. Appreciate it.

Yeah.

Okay.

The next question is from Michael Dudas with Vertical Research. Please go ahead.

Hi. Good morning, gentlemen.

Hi, Mike.

First question, Mitch. Maybe update us on — I know you’ve been great on protocols relative to COVID — but at your operations, U.S., Canada, Mexico, like percentage of employees vaccinated, has there been any issues or any incoming concerns or recent evidence with the variants starting to show up a little more aggressively especially in the South?

Yeah. Great question. After the last 15 months or so, one of the biggest risks is just people letting their guard down. I think the controls we put in place have been serving us well. At this point, we feel good with where we are in terms of vaccination rates. Interestingly at our underground mines, so Kensington and Palmarejo and Silvertip, vaccination rates hover right around the 80% level. I think a lot of that has to do with vaccinated employees having less of a quarantine requirement or fewer logistical issues going to and from site. And so that’s been a big incentive and I think that’s driven vaccination rates up like that. Out west here in the U.S., vaccination rates are a little bit more typical of what you’ve seen on a national basis, a little shy of half of our folks vaccinated. But that doesn’t mean that we’re not still doing testing, distancing and masking for unvaccinated folks. The technology that we implemented has continued to really help in terms of distancing and contact tracing, those things that were buzzwords a year ago. We’re still doing them and I’m really proud of what we put in place, how we’ve stuck to it and how it’s allowed us to continue to largely operate — except for the hiccup in Mexico, the government suspension temporarily in Q2 last year down there — otherwise we’ve been continuing to operate, which has been great. Mick, did I miss anything?

No. It’s really good robust controls at all of the sites and we continue to apply them. We’re not relaxing on the quarantine front because we have really good vaccination rates and continue with those controls, but overall a high level of confidence that we have control of that issue.

Does that help, Mike?

Absolutely. No. Very good. That’s very helpful. And my second question is maybe Mitch can share some observations on some of the corporate activity going on in southern Nevada and how that highlights your block down there? Just kind of long-term prospects of how things could work out from a value-creating standpoint for all the parties involved?

Yeah. Exactly. That’s well asked, Mike. It is an exciting area. Lots of activity obviously going on. We really like the strategic land position that we have there in southern Nevada. Even though some activity is happening with our neighbors, it doesn’t really change what we need to do, which is continue to drill, hopefully continue to have success expanding the resource at Crown in those deposits — Daisy, SNA, Secret Pass and Seahorse. We’re continuing to focus on pulling the drilling together there into an assessment or technical report in the middle part of next year so we can take a look at that as a future potential operation in southern Nevada to go along with everything we have up in northern Nevada. As far as the activity, we’re always open to talking to our neighbors and evaluating opportunities or ideas for how we could rationalize capital, share risk and expand this collective pie. We’ve got good relationships in the neighborhood down there and hope to continue to build on them as we keep the drills turning. I think we’re spending about $14 million in drilling at Crown, a little bit of that is also at Sterling just to the south. But that’s a reflection of how enthusiastic we are about it and how quickly you can grow an oxide near-surface gold resource in southern Nevada if you keep the drills turning and we’re seeing some good results. Hopefully that gives you a little bit of flavor for how we’re thinking about things.

No. I appreciate that. And it sounds as if there will be a difference this time as opposed to historical alliances and situations. It appears that there is too much to be had especially in the world of ESG, carbon and capital discipline. Thanks.

Yes. And I certainly hope so. I can’t speak for everybody that’s out there, but to have a blank slate, essentially a new large discovery, it’s a great place to operate and we can hopefully approach it with the mentality of how do we do this in a way that works best for everybody, works best for the environment and for the community and for all stakeholders. It’s probably the most exciting thing going on in Nevada right now in terms of gold and new discoveries and exploration. So there’s a lot of buzz. Beatty’s hopping — Beatty, Nevada in Nye County is a place to be.

Absolutely. Good luck. Thanks, Mitch. Appreciate the color.

Yeah. Thanks, Mike.

The next question is from Mike Siperco with RBC Capital Markets. Please go ahead.

Thanks. Thanks guys for taking the question. Back to the quarter for a second, could you get into a little bit more detail on the inventory charges at Rochester in the quarter? Maybe what the specific cause was of the lower recovery that you’re seeing and if we should be expecting any further impacts going forward?

Yes. Sure. I’ll just start with one or two quick comments and then pass it over to Tom and Mick. That Stage IV pad, Mike, as you know, is a legacy mature pad, deep, and there’s a lot of variability that exists within that pad. We’re trying to de-risk that. In the interim here, we are mitigating that with some inter-lift liners. All of this will essentially be resolved as we transition over to Stage VI once it’s completed. But there has been, as we’ve mentioned in the past, some ore types in the pit — variable ore types that have led to the creation of fines with some higher sulfide content. That material sits out there on Stage IV as we’ve mined and crushed it and learned about those different ore types. All of those learnings essentially have gone into the need to adjust that estimate in terms of the recovery rate on Stage IV. Mick and Tom, over to you to fill in any blanks I left out.

On the ore type, it was a new ore type, a little bit softer. So the balance between soft and hard ores changed and it’s been a great learning for us. We’re doing some additional core drilling over the next 18 months to make sure that we’ll have a really good characterization of that orebody and the orebody knowledge as we head into Pad 6, so really, really good timing for us to get that knowledge.

And maybe just the last piece of your question Mike was, do you expect anything more? So the answer is no. We’ve gone back, looked at the data, analyzed it, and as Mick said, going forward, we’ve got a 56% recovery rate on Stage IV for the remainder of the life of that pad. So we’re comfortable that we took the accounting charge that was required.

Okay. That’s great color. Thanks very much. And then maybe just back to a higher-level question, you have maybe four or five projects on the go between Rochester, Silvertip, the extended exploration program, and maybe Crown, as well as whatever’s happening in Victoria. So you have off-take financing potentially, you have some downside protection from the hedges, you have available credit. But can you talk a little bit more about your confidence in executing on all of these priorities over the next couple of years in the context of the balance sheet, maybe some of the inflationary pressures you’re seeing? Are there other levers to pull? Are you looking at maybe your equity investments as a source of capital? How are you thinking about all these things, appreciating that it’s an ongoing process?

No. It’s a great question. It’s kind of the key question and one I’ve devoted a lot of time to. Maybe I’ll take the capacity and bandwidth question that you’re asking, and then Tom can cover the levers and the balance sheet aspect of the question. I think with the Board over the last few years around development of our strategy, along with that came a concerted effort to bolster the team to align with our strategy to be able to deliver on the strategy. And then sitting on top of all of that has been a lot of work that has gone into culture. I know people like to talk about culture, but we have one here that is very much of a performance-driven, make-an-impact and achieve-meaningful-things culture, and we have a highly motivated and inspired group — not just people in this room, but deeper into the organization — that have a high level of motivation about achieving great things and getting this company from here to there and that there looks really exciting. Every time I’m talking to a group of people here at the company about where these initiatives can take this company, there is a lot of enthusiasm in the room and a lot of alignment around making it happen and so that’s contagious. I think we’ve got a lot on the move, but I think we’re able to prioritize and stay above a lot of the noise, because we have good teams underneath this that are handling a lot of the blocking and tackling and allowing us to really focus on these high-impact initiatives that you walked through. Three years or four years ago capacity and bandwidth were definite challenges. Now I think we’ve built the organization up to where it’s capable of delivering on the strategy and delivering on those priorities and I wouldn’t be able to say that in years past. Tom, do you want to cover the other aspect of the question?

Sure. Mike, you almost answered it for me but again between our cash on hand, the debt capacity and the cash flow from operations is essentially the key way that we’re going to fund. Again as a reminder, we’ve got a $300 million revolver completely undrawn. There is a $100 million accordion. It’s completely at our discretion that we could draw upon and then, again, Silvertip we talked about earlier in the call — the off-take agreement. Other things that we have at our disposal: we’ve got $175 million of equity investments, which include a big chunk of that, including the Victoria position, and how that plays into future funding. All this is underpinned with robust scenario analysis that we go through with the Board once a quarter in tremendous detail, flexing all of the various assumptions, commodity prices, capital cost, etc. So we feel really confident in our ability, and most importantly, everything still within our control and we look forward to telling you more about the story as we make more decisions throughout the rest of the year.

I’d just add at the end here, Tom, that the pie of funding sources — can’t overstate the importance of the free cash flow coming from Palmarejo, Wharf, Kensington and then Rochester’s own operating cash flow as it continues to improve quarter-over-quarter. That combined with all the other levers and options that Tom mentioned is a big chunk of the funding. So with $1,800 gold and $25 silver, obviously that helps, but put all those pieces together and you look at this year and next year and we feel good about the balance sheet.

So, I guess, if I can maybe back into a CapEx question for Silvertip, what you are saying is, it’s fair to say that you can maintain the level of exploration spending at least into — partially into 2022, fund the restart of Silvertip and Rochester, and you’re comfortable doing all of that within the available capital that you have on the balance sheet today without really doing anything else, that’s a fair statement?

Fair statement — we’ve got to execute on the operations and gold and silver can’t fall through the floor. But with those two caveats, yeah, your statement is a fair one.

Okay. Great. Thanks very much for the time, guys.

Yeah. Sure. Good questions.

The next question is from Dalton Baretto with Canaccord. Please go ahead.

Hey, Dalton.

Thanks. Hey, Mitch. Good morning. A couple of questions from me, just kind of in that same vein. Let’s start with Silvertip and off-take financing. If memory serves, there was an off-take agreement with Ocean Partners. Is that completely falling away?

That agreement is invalid right now because we haven’t been able to produce a concentrate quality that’s within the specification that’s required by that contract. We’re hopeful that with the restart we will be in a position to have a concentrate quality that we can produce consistently and we’ll be in a position to have a further discussion with them and others around financing for the concentrate.

Okay. But it doesn’t prevent you in any way from talking to other off-take partners?

Correct.

Got it. Okay. And then as you were listing off your funding sources, you didn’t mention the ATM. What are your plans around that?

Great question, Dalton. We put that in maybe a little over a year ago, in April when the darkest days of COVID and a lot of uncertainty, a lot of unknowns. One thing at that time we felt like we couldn’t count on was liquidity in our shares and so we thought, look, we should put something in place so that we have a last-resort source of liquidity if things really go sideways. At that time we didn’t know where things were going to go. Fast forward to today, we’ve just left it there and don’t have any plans to use it or tap into it. But it’s not a bad arrow to have in the quiver; it is just almost like a mixed shelf to maintain that. So if things play out in a way that are totally unanticipated, it’s there, but that’s how we think about it. Tom, did I miss anything?

No. That’s right.

Yeah. That makes a lot of sense. And then given what you were saying about inflation around the remaining contracts at Rochester, are you moving to secure anything at Silvertip ahead of time?

Good question. Part of the early works was let’s get some of the stuff done before the planning on some of the stuff goes back a little ways, so that we were able to lock in some pre-escalation levels on some of this work. It’s another moving target as we work here in the second half toward a more definitive capital estimate too. So we rushed to get some of this early work done and remove some of that escalation risk in the very near term. Now as we think about the larger build-out, we’re going to have to really take the full effects of escalation into account and think through how we can potentially mitigate that, how we can approach our contracting strategy in this environment. So it’s a good question and it’s something that will be incorporated into the aspects of what we’ll need to do up at Silvertip.

Okay. And then on the $300 and change million that’s been committed already for Rochester, those contracts, are they fixed either from a unit pricing or volume perspective or are there escalators in there?

It’s a blend of lump-sum and unit-rate contracts.

Okay. Great. And then just maybe one last one for me, Mitch. I know you said you wouldn’t comment on Victoria, but I’m just wondering, Eagle is reasonably proximal to Silvertip. Are there any form of operating synergies there at all?

Potentially just on a map, but it’s too early to say. It’s a question worth keeping in mind.

Great. Thanks again, guys.

Yeah. Sure, Dalton. Thanks.

The next question is a follow-up from Mark Reichman with Noble Capital Markets. Please go ahead.

Hi. Thank you. Just a quick follow-up on Silvertip. You’re increasing the investment ahead of the economic analysis and really ahead of the signing of any off-take agreements to kind of lock in the economics. Everything seems to be moving in a really good path there. But you mentioned the off-ramp, so if you decided not to move this forward, how much of that $75 million to $90 million would you have spent or how much would you end up writing off? How does that compare versus the alternative of waiting to spend that money or commit that capital after the economic analysis?

No. Fair question. I think the way we think about it, Mark, is almost everything that we need to do up there that we’re doing right now needs to be done no matter what. Whether that is for us or whether that’s for somebody else if we look to monetize it down the road. These are things that are adding value to the project when you have a long-term lens on Silvertip. Pulling the lens a little bit further back, we’re trying to balance a few priorities as a company. Number one, POA 11 we’ve got to deliver a successful project there and we don’t want Silvertip to take our eye off the ball at Rochester, and we’re very mindful of that and we’re not letting that happen. We also want to achieve our 2023 positive free cash flow objective. We’ve staked a lot on that and I think that’s important for our investors as we think about potentially getting into a place where we can think about returning capital rather than investing capital into our assets, and delaying that into the future is not a good thing for the company. We also don’t want to unduly strain the balance sheet, especially in 2022. Those are all the pieces that we’re trying to find the right combination for with some variables still unknown to get the mix right and try and ensure that we’re satisfying all of those priorities. With that 2023 goal in particular, investing this capital now at Silvertip is essential to allowing us to achieve the schedule that we talked about earlier for a 2023 startup. In order to do that, we’ve got to do this work now that we’re doing. So I don’t know if those thoughts help, but that’s how we’re thinking about it.

No. That was really helpful. I really appreciate that. Thanks, Mitch.

You bet. Thanks.

The next question is a follow-up from Brian MacArthur with Raymond James. Please go ahead.

Thank you for taking my follow-up question. Two things just back to Silvertip. First, just to be clear, because Dalton had a question about that historical concentrate contract and you said you never met the qualifications, which makes sense. But just to be clear, do they still have a right because you never met that qualification, is there something enforceable with that contract? Do they have a right-of-first-refusal or anything or do you start with a clean slate if you go down that route, meaning there are no historical concentrate deals that have to be fulfilled first, which would have some impact on potential financing going forward?

So look it’s fair to say the company has a strong relationship with Ocean Partners. They were great partners for us while we were in Silvertip production. When we were not producing concentrate qualities at the specification they required, we sold some concentrate at Kensington with them. So we’ll find a commercial agreement. I think it goes back to what we’ve been saying all along that a majority of the Silvertip funding of the capital will be funded by an off-take and I’ll just leave it at that.

And I guess, to be fair, if you build a bigger operation, you have more concentrate to play around with anyway. That gives you more flexibility, right?

And a consistent attractive product as well.

Okay. And my second question — I realize this is not a big factor making a decision on Silvertip — but are there tax pools that would enhance whatever returns you could get at Silvertip if you go ahead? Because as we talk about allocating capital around the world, tax is an important part of the equation.

Great question and short answer is yes. Tom, do you want to fill in the blank?

Yeah. No. We have nearly $300 million of operating losses that will help to shelter some of the taxable income that we will be generating. So absolutely that is a factor in any capital allocation decision that we make across the company, but it does help with Silvertip that the amount of tax that we will be paying is not as high as you might otherwise think.

Great. Thanks very much. I thought that was right but I just wanted to check. Thank you.

Yeah. No problem.

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

Okay. Great. Well, hey, we appreciate everybody’s time this morning and a lot of great questions and we look forward to speaking with you all again in the fall to discuss our third quarter results. Thanks again.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.