Coeur Mining, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis (“MD&A”) provides information that management believes is relevant to an assessment and understanding of the consolidated financial condition and results of operations of Coeur Mining, Inc. and its subsidiaries (collectively the “Company”, “our”, or “we”). We use certain non-GAAP financial performance measures in our MD&A. For a detailed description of these measures, please see “Non-GAAP Financial Performance Measures” at the end of this Item. We provide Costs applicable to sales (“CAS”) split, referred to as the co-product method, based on revenue contribution for Palmarejo, Rochester and Silvertip and based on the primary metal, referred to as the by-product method, for Wharf. Revenue from secondary metal, such as silver at Wharf, is treated as a cost credit. Overview We are primarily a gold and silver producer with five mines located in the United States, Mexico and Canada and several exploration projects in North America. 2020 Highlights For the full year, Coeur reported revenue of $785.5 million and cash flow from operating activities of $148.7 million. We reported GAAP net income from continuing operations of $25.6 million, or $0.11 per diluted share. On an adjusted basis 1 , the Company reported EBITDA of $263.4 million and net income from continuing operations of $59.0 million, or $0.24 per diluted share. • Strong second half drove solid full-year 2020 financial results - Revenue, operating cash flow and adjusted EBITDA 1 increased 10%, 62% and 51%, respectively, in 2020. Additionally, we generated $49.4 million of free cash flow 1 during the year. These notable year-over-year improvements reflect strong operational performance and the benefit of higher precious metals prices during the second half of 2020 • Solid production in-line with full-year guidance ranges - Coeur successfully achieved its consolidated and site-level production guidance for both gold and silver. Gold production in the fourth quarter remained strong at 96,377 ounces, bringing the full-year total to 355,678 ounces. Silver production increased 11% quarter-over-quarter to approximately 2.8 million ounces, largely due to a 38% improvement at Rochester, which helped to drive full-year production to roughly 9.7 million ounces • Maintained cost and capital discipline - Substantially all of our site-level unit costs were below or within full-year guidance ranges, reflecting prudent cost management during 2020. Additionally, consolidated figures for capital expenditures, exploration, and general and administrative expenses were also below or within full-year guidance ranges • Rochester expansion project expected to reposition operation as cornerstone asset - Late in the fourth quarter, Coeur published an updated technical report for its Rochester mine in Nevada which reflects significant reserve growth and the benefits of a larger-scale expansion project. The 18-year, reserve-based mine plan has an expected after-tax net asset value of $634 million with an anticipated internal rate of return of 31% • Largest exploration program in Company history led to strong reserve growth - We completed the largest exploration program in its history during 2020, increasing its investment by 68% to $50.6 million and drilling approximately 783,200 feet (238,700 meters). Proven and probable gold and silver reserves increased 22% and 42%, respectively, while measured and indicated mineralized material were higher across all metals for the second consecutive year. Additionally, strong drilling results at Silvertip helped to significantly expand zinc and lead mineralized material, marking the largest and most successful exploration program in the history of the project • C ontinued enhancing balance sheet and increasing financial flexibility - Coeur ended the year with $92.8 million of cash and cash equivalents, 20% and 67% higher quarter-over-quarter and year-over-year, respectively. The Company also increased the aggregate capacity of the RCF from $250.0 million to $300.0 million and repaid the remaining outstanding borrowings under the facility. Total debt 3 at the end of the year was $275.5 million, compared to $295.5 million at the end of 2019 37 Selected Financial and Operating Results Year Ended December 31, In thousands 2020 2019 2018 Financial Results from Continuing Operations: Gold sales $ 584,633 $ 493,347 $ 427,008 Silver sales $ 200,175 $ 191,478 $ 193,153 Zinc sales $ (662) $ 12,806 $ 3,612 Lead sales $ 1,315 $ 13,871 $ 2,131 Consolidated Revenue $ 785,461 $ 711,502 $ 625,904 Net income (loss) $ 25,627 $ (346,896) $ (48,955) Net income (loss) per share, diluted $ 0.11 $ (1.59) $ (0.26) Adjusted net income (loss) (1) $ 59,013 $ (54,583) $ (2,165) Adjusted net income (loss) per share, diluted (1) $ 0.24 $ (0.25) $ (0.01) EBITDA (1) $ 214,767 $ (154,378) $ 87,102 Adjusted EBITDA (1) $ 263,365 $ 173,854 $ 157,309 Total debt (2) $ 275,501 $ 295,497 $ 458,826 Operating Results from Continuing Operations: Gold ounces produced 355,678 359,418 359,520 Silver ounces produced 9,698,236 11,748,734 12,787,203 Zinc pounds produced 2,459,756 17,103,427 4,181,033 Lead pounds produced 2,176,847 16,555,622 2,072,013 Gold ounces sold 356,251 367,650 350,508 Silver ounces sold 9,628,429 11,914,567 12,354,817 Zinc pounds sold 3,203,446 18,154,521 4,375,995 Lead pounds sold 2,453,485 16,487,847 2,648,920 Average realized price per gold ounce $ 1,641 $ 1,342 $ 1,218 Average realized price per silver ounce $ 20.79 $ 16.07 $ 15.63 Average realized price per zinc pound, gross NM (3) $ 0.71 $ 0.83 Average realized price per lead pound, gross NM (3) $ 0.84 $ 0.80 Financial and Operating Results from Discontinued Operations: Income (loss) from discontinued operations $ — $ 5,693 $ 550 Silver ounces produced — — 643,078 Gold ounces produced — — 78 Silver ounces sold — — 704,479 Gold ounces sold — — 292 (1) See “Non-GAAP Financial Performance Measures.” (2) Includes finance leases. Net of debt issuance costs and premium received. (3) Due to the temporary suspension of mining and processing activities at Silvertip these amounts are not meaningful. 38 Consolidated Financial Results Year Ended December 31, 2020 compared to Year Ended December 31, 2019 Revenue Revenue increased by $74.0 million or 10%, as a result of a 22% and 29% increase in average realized gold and silver prices, respectively, partially offset by lower gold and silver ounces sold (3% and 19%, respectively), recovery delays at Rochester and the temporary suspension of mining and processing activities at Silvertip in February. We sold 356,251 gold ounces, 9.6 million silver ounces, 3.2 million zinc pounds and 2.5 million lead pounds compared to 367,650 gold ounces, 11.9 million silver ounces, 18.2 million zinc pounds and 16.5 million lead pounds in the prior year. Gold and silver accounted for 74% and 25% of 2020 sales revenue, respectively, with zinc and lead accounting for the remaining sales revenue. This compares to gold and silver accounting for 69% and 27% of 2019 sales revenue. The following table summarizes consolidated metal sales: Year ended December 31, Increase (Decrease) Percentage Change In thousands 2020 2019 Gold sales $ 584,633 $ 493,347 $ 91,286 19 % Silver sales 200,175 191,478 8,697 5 % Zinc sales (662) 12,806 (13,468) (105) % Lead sales 1,315 13,871 (12,556) (91) % Metal sales $ 785,461 $ 711,502 $ 73,959 10 % Costs Applicable to Sales Costs applicable to sales decreased primarily due to the temporary suspension at Silvertip and lower ounces sold at Palmarejo and Rochester. For a complete discussion of costs applicable to sales, see Results of Operations below. Amortization Amortization decreased $47.5 million, or 27%, primarily due to the temporary suspension at Silvertip, and longer assumed mine life based on year-end 2019 reserve growth at Palmarejo and lower ounces sold at Palmarejo and Rochester. Expenses General and administrative expenses decreased $0.8 million, or 2%, primarily due to lower travel costs. Exploration expense increased $20.1 million, or 89%, as a result of the decision to implement the largest drilling program in Company history. The Company completed 617,500 feet (188,225 meters) of expansion drilling and 165,700 feet (50,475 meters) of infill drilling in 2020 compared to 342,500 (104,425 meters) of expansion drilling and 181,600 feet (55,350 meters) of infill drilling in 2019. Pre-development, reclamation, and other expenses increased $37.2 million, or 202%, stemming from ongoing carrying and temporary suspension costs at Silvertip and incremental costs incurred to comply with the Company’s COVID-19 health and safety protocols, partially offset by a gain resulting from the modification of a right of use lease at Silvertip. The following table summarizes pre-development, reclamation, and other expenses: Year ended December 31, Increase (Decrease) Percentage Change In thousands 2020 2019 COVID-19 $ 15,555 $ — $ 15,555 100 % Silvertip ongoing carrying costs 16,384 — 16,384 100 % Silvertip temporary suspension costs 11,199 — 11,199 100 % Gain on modification of right of use lease (4,051) — (4,051) 100 % Asset retirement accretion 11,754 12,154 (400) (3) % Other 4,813 6,267 (1,454) (23) % Pre-development, reclamation and other expense $ 55,654 $ 18,421 $ 37,233 202 % 39 Other Income and Expenses Fair value adjustments, net, decreased to a gain of $7.6 million compared to $16.0 million as a result of changes in value related to the Company’s equity investments, primarily Integra Resources Corp. ("Integra Resources") and Metalla Royalty & Streaming Ltd. ("Metalla"), which had estimated fair values of $11.9 million and $1.0 million, respectively, at December 31, 2020. Interest expense (net of capitalized interest of $1.5 million) decreased to $20.7 million from $24.8 million due to a lower interest rate paid under the RCF and lower average balances of both the RCF and 2024 Senior Notes. Other, net increased to a loss of $5.9 million compared to a loss of $3.2 million due to an increase in losses on the sale of assets and a one-time fee of $3.8 million related to the novation of certain of the Company’s gold zero cost collars, partially offset by a reduction in foreign exchange losses. Income and Mining Taxes The Company’s Income and mining tax (expense) benefit consisted of: Year ended December 31, In thousands 2020 2019 Income and mining tax (expense) benefit at statutory rate $ (13,161) $ 75,185 State tax provision from continuing operations (152) 1,243 Change in valuation allowance (17,522) (77,220) Percentage depletion 5,056 820 Uncertain tax positions 2,321 2,358 U.S. and foreign permanent differences 3,844 2,272 Foreign exchange rates 1,390 (7,066) Foreign inflation and indexing 684 (2,933) Foreign tax rate differences (3,971) 19,729 Mining, foreign withholding, and other taxes (17,457) (2,746) Other, net 1,923 (513) Income and mining tax (expense) benefit $ (37,045) $ 11,129 Income and mining tax expense of approximately $37.0 million resulted in an effective tax rate of 59.1% for 2020. This compares to income tax benefit of $11.1 million or effective tax rate of 3.1% for 2019. The comparability of the Company’s income and mining tax (expense) benefit and effective tax rate for the reported periods was impacted by multiple factors, primarily: (i) mining taxes; (ii) variations in our income before income taxes; (iii) geographic distribution of that income; (iv) foreign exchange rates; (v) percentage depletion; (vi) the non-recognition of tax assets; and (vii) the impact of uncertain tax positions. Therefore, the effective tax rate will fluctuate, sometimes significantly, period to period. 40 The following table summarizes the components of the Company’s income (loss) before tax and income and mining tax (expense) benefit: Year ended December 31, 2020 2019 In thousands Income (loss) before tax Tax (expense) benefit Income (loss) before tax Tax (expense) benefit United States $ 40,891 $ (9,361) $ (16,702) $ (5,446) Canada (68,730) 232 (365,781) 32,203 Mexico 90,116 (27,949) 25,002 (15,625) Other jurisdictions 395 33 (544) (3) $ 62,672 $ (37,045) $ (358,025) $ 11,129 A valuation allowance is provided for deferred tax assets for which it is more likely than not that the related tax benefits will not be realized. The Company analyzes its deferred tax assets and, if it is determined that the Company will not realize all or a portion of its deferred tax assets, it will record or increase a valuation allowance. Conversely, if it is determined that the Company will ultimately be more likely than not able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced. There are a number of factors that impact the Company’s ability to realize its deferred tax assets. For additional information, please see the section titled “Risk Factors” included in Item 1A. Net Income (Loss) from Continuing Operations Net income from continuing operations was $25.6 million, or $0.11 per diluted share, compared to net loss of $346.9 million, or $1.59 per share. The increase in net income from continuing operations was driven by strong operating results at Wharf and Palmarejo, a 22% and 29% increase in average realized gold and silver prices, respectively, lower operating costs at Rochester and Silvertip, and an impairment of long-lived assets at Silvertip of $250.8 million in 2019. This was partially offset by lower sales of gold and silver (3% and 19%, respectively), higher exploration expense, ongoing carrying and severance costs at Silvertip and incremental costs associated with the Company’s COVID-19 health and safety protocols. Adjusted net income was $59.0 million, or $0.24 per diluted share, compared to adjusted net loss of $54.6 million, or $0.25 per share (see “Non-GAAP Financial Performance Measures”). Year Ended December 31, 2019 compared to Year Ended December 31, 2018 Revenue Revenue increased by $85.6 million as a result of a 5% increase in gold ounces sold, combined with a 10% increase in average realized gold prices and the inclusion of full-year sales from the Jualin deposit at Kensington and Silvertip, partially offset by 4% fewer silver ounces sold. The Company sold 367,650 gold ounces, 11.9 million silver ounces, 18.2 million zinc pounds and 16.5 million lead pounds compared to 350,508 gold ounces, 12.4 million silver ounces, 4.4 million zinc lead pounds and 2.6 million lead pounds in the prior year. Gold contributed 69% of sales, silver contributed 27%, zinc contributed 2% and lead contributed 2%, compared to 68% of sales from gold, 31% from silver, 1% from zinc and less than 1% from lead. The following table summarizes consolidated metal sales: Year ended December 31, Increase (Decrease) Percentage Change In thousands 2019 2018 Gold sales $ 493,347 $ 427,008 $ 66,339 16 % Silver sales 191,478 193,153 (1,675) (1) % Zinc sales 12,806 3,612 9,194 255 % Lead sales 13,871 2,131 11,740 551 % Metal sales $ 711,502 $ 625,904 $ 85,598 14 % Costs Applicable to Sales Costs applicable to sales increased primarily due to higher sales volume at Kensington, the inclusion of full-year sales from the Jualin deposit at Kensington and Silvertip, a $64.6 million write-down of inventory at Silvertip and higher unit costs at Palmarejo, Rochester and Wharf, primarily due to lower production. For a complete discussion of costs applicable to sales, see Results of Operations below. 41 Amortization Amortization increased $50.4 million, or 39%, resulting from the inclusion of full-year sales at Silvertip and higher sales at Kensington. Expenses General and administrative expenses increased $3.1 million, or 10%, primarily due to higher employee related expenses and legal fees. Exploration expense decreased $2.9 million, or 11%, as a result of lower near-mine exploration costs at Palmarejo, Kensington and Silvertip as well as lower greenfields explorations expense in the United States and Mexico, partially offset by exploration expense at the Sterling/Crown project located in southern Nevada. The Company completed 342,500 (104,425 meters) of expansion drilling and 181,600 feet (55,350 meters) of infill drilling in 2019 compared to 342,100 feet (104,275 meters) of expansion drilling and 349,675 feet (106,575 meters) of infill drilling in 2018. Pre-development, reclamation, and other expenses decreased $1.6 million, or 8%, stemming from a $3.4 million write-down of property, plant and equipment at Rochester in 2018. Impairment of long-lived assets totaled $250.8 million in 2019. During the fourth quarter of 2019, the Company performed a comprehensive analysis of its Silvertip property and determined that indicators of impairment existed, primarily as a result of continued deterioration in zinc and lead market conditions as well as ongoing operating challenges primarily related to the processing facility. As a result of the impairment indicators, a recoverability test was performed and the Company concluded that the carrying value of the long-lived assets for the Silvertip property was impaired. The following table summarizes pre-development, reclamation, and other expenses: Year ended December 31, Increase (Decrease) Percentage Change In thousands 2019 2018 Asset retirement accretion $ 12,154 $ 11,116 $ 1,038 9 % Other 6,267 8,927 (2,660) (30) % Pre-development, reclamation and other expense 18,421 20,043 $ (1,622) (8) % Other Income and Expenses The Company incurred a $1.3 million loss in connection with the exchange of $20.0 million in aggregate principal amount of its 2024 Senior Notes (as defined in Note 12 -- Debt) for approximately 4.5 million shares of common stock. Fair value adjustments, net, increased to a gain of $16.0 million from a gain of $3.6 million as a result of favorable fair value adjustments and realized gains related to the Company’s equity investment in Metalla, which has an estimated fair value of $28.2 million at December 31, 2019. Interest expense (net of capitalized interest of $1.8 million) remained comparable at $24.8 million. 42 Income and Mining Taxes The Company’s Income and mining tax (expense) benefit consisted of: Year ended December 31, In thousands 2019 2018 Income and mining tax (expense) benefit at statutory rate $ 75,185 $ 14,052 State tax provision from continuing operations 1,243 2,284 Change in valuation allowance (77,220) 2,471 Percentage depletion 820 89 Uncertain tax positions 2,358 1,830 U.S. and foreign permanent differences 2,272 3,314 Foreign exchange rates (7,066) (3,973) Foreign inflation and indexing (2,933) (2,374) Foreign tax rate differences 19,729 (24) Mining, foreign withholding, and other taxes (2,746) (3,857) Other, net (513) 2,968 Income and mining tax (expense) benefit $ 11,129 $ 16,780 Income and mining tax benefit of approximately $11.1 million results in an effective tax rate of 3.1% for 2019. This compares to income tax benefit of $16.8 million or effective tax rate of 25.5% for 2018. The Company’s effective tax rate is impacted by multiple factors as illustrated above. The comparability of the Company’s income and mining tax (expense) benefit and effective tax rate for the reported periods was impacted by multiple factors, primarily: (i) the non-recognition of tax assets; (ii) mining taxes; (iii) variations in our income before income taxes; (iv) geographic distribution of that income and (v) foreign exchange rates. Therefore, the effective tax rate will fluctuate, sometimes significantly, period to period. The following table summarizes the components of the Company’s income (loss) before tax and income and mining tax (expense) benefit: Year ended December 31, 2019 2018 In thousands Income (loss) before tax Tax (expense) benefit Income (loss) before tax Tax (expense) benefit United States $ (16,702) $ (5,446) $ (50,522) $ 16,819 Canada (365,781) 32,203 (43,793) 16,436 Mexico 25,002 (15,625) 32,073 (16,092) Other jurisdictions (544) (3) (3,493) (383) $ (358,025) $ 11,129 $ (65,735) $ 16,780 The comparability of the Company’s income and mining tax (expense) benefit and effective tax rate for the reported periods was impacted by multiple factors, primarily: (i) the non-recognition of tax assets; (ii) mining taxes; (iii) variations in our income before income taxes; (iv) geographic distribution of that income and (v) foreign exchange rates. Therefore, the effective tax rate will fluctuate, sometimes significantly, period to period. A valuation allowance is provided for deferred tax assets for which it is more likely than not that the related tax benefits will not be realized. The Company analyzes its deferred tax assets and, if it is determined that the Company will not realize all or a portion of its deferred tax assets, it will record or increase a valuation allowance. Conversely, if it is determined that the Company will ultimately be more likely than not able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced. There are a number of factors that impact the Company’s ability to realize its deferred tax assets. For additional information, please see “Item 1A - Risk Factors”. 43 Net Income (Loss) from Continuing Operations Net loss from continuing operations was $346.9 million, or $1.59 per share, compared to net loss of $49.0 million, or $0.26 per share. The decrease in net income from continuing operations was driven by an impairment of long-lived assets at Silvertip of $250.8 million, higher operating costs at Silvertip, which included a write-down of $64.6 million at Silvertip of metal inventory as a result of lower than expected production levels, and lower production at Rochester due to reduced placement rates caused by the planned commissioning of the new crusher configuration in the second half of 2019. This was partially offset by favorable fair value adjustments and realized gains related to the Company’s equity investment in Metalla and strong operating results at Kensington. Adjusted net loss was $54.6 million, or $0.25 per share, compared to $2.2 million, or $0.01 per share (see “Non-GAAP Financial Performance Measures”). Net Income (loss) from Discontinued Operations In respect of the San Bartolomé mine and processing facility’s (which was divested by the Company in February 2018, the “Manquiri Divestiture”) operating results, income increased $5.1 million. In February 2019, the Company recorded an adjustment to the gain from the Manquiri Divestiture following the release of a liability associated with the Company’s post-closing indemnification obligations which were extinguished at that time. 2021 Guidance Framework 2021 Production Guidance Gold Silver (oz) (K oz) Palmarejo 100,000 - 110,000 6,500 - 7,750 Rochester 22,500 - 32,500 3,200 - 4,400 Kensington 115,000 - 130,000 — Wharf 85,000 - 95,000 — Total 322,500 - 367,500 9,700 - 12,150 2021 Costs Applicable to Sales Guidance Gold Silver ($/oz) ($/oz) Palmarejo (co-product) $710 - $810 $11.00 - $12.00 Rochester (co-product) $1,180 - $1,330 $15.00 - $17.00 Kensington $1,010 - $1,110 — Wharf (by-product) $960 - $1,060 — 2021 Capital, Exploration and G&A Guidance ($M) Capital Expenditures, Sustaining $80 - $100 Capital Expenditures, Development $180 - $225 Exploration, Expensed $46 - $51 Exploration, Capitalized $17 - $21 General & Administrative Expenses $37 - $41 Note: The Company’s guidance figures assume $1,850/oz gold and $24.00/oz silver as well as CAD of 1.27 and MXN of 19.50. Guidance figures exclude the impact of any metal sales or foreign exchange hedges. 44 Results of Continuing Operations Palmarejo Year Ended December 31, 2020 2019 2018 Tons milled 1,751,525 1,755,957 1,382,471 Average gold grade (oz/t) 0.07 0.08 0.10 Average silver grade (oz/t) 4.45 4.85 6.49 Average recovery rate – Au 89.9 % 84.3 % 88.9 % Average recovery rate – Ag 80.4 % 79.3 % 83.8 % Gold ounces produced 110,608 111,932 122,722 Silver ounces produced 6,269,206 6,762,265 7,516,390 Gold ounces sold 110,822 116,104 115,592 Silver ounces sold 6,301,516 6,841,380 7,229,179 Costs applicable to sales per gold ounce (1) $ 610 $ 685 $ 561 Costs applicable to sales per silver ounce (1) $ 9.14 $ 9.13 $ 7.64 (1) See Non-GAAP Financial Performance Measures. Year Ended December 31, 2020 compared to Year Ended December 31, 2019 Gold and silver production decreased 1% and 7%, respectively, as a result of lower gold and silver grades, partially offset by higher gold and silver recovery. In the second quarter, Palmarejo temporarily suspended active mining and processing activities in accordance with a COVID-related government decree. After receiving guidance from the Mexican government in May that the suspension decree did not apply to precious metals mining, production began ramping back up in June, increasing steadily during the month as staffing levels returned to a pre-shutdown level. Despite the temporary suspension, Palmarejo’s milled tons were in-line with the prior year. Metal sales were $286.6 million, or 36% of Coeur’s metal sales, compared with $252.7 million, or 36% of Coeur’s metal sales. Costs applicable to sales per gold ounce decreased 11% while costs applicable to sales per silver ounce remained comparable due to higher revenue contribution from silver sales compared to gold. Additionally, favorable foreign exchange rates and lower compensation and consumable costs contributed to an overall favorable movement in costs applicable to sales. Amortization decreased to $44.9 million due to longer assumed mine life based on year-end 2019 reserve growth and lower gold and silver ounces sold. Capital expenditures decreased to $25.5 million from $32.7 million due to lower underground development and lower mining equipment expenditures. Precious metals mining is considered an essential business activity in Mexico. The Company is maintaining its rigorous health and safety protocols at Palmarejo aimed at limiting the exposure and transmission of COVID-19. Year Ended December 31, 2019 compared to Year Ended December 31, 2018 Gold and silver production decreased 9% and 10% in line with Company guidance, respectively, resulting from lower gold and silver grades and lower gold and silver recoveries, partially offset by higher mined tons from Guadalupe, Independencia and the new La Nación underground mine, which began production in the third quarter of 2019. Metal sales were $252.7 million, or 36% of Coeur’s metal sales, compared with $245.8 million, or 40% of Coeur’s metal sales. Lower production and higher consumable costs resulted in a 22% and 20% increase in costs applicable to sales per gold and silver ounce, respectively. Amortization decreased to $59.4 million due to lower ounces sold. Capital expenditures increased to $32.7 million from $29.4 million due to higher infrastructure expenditures at La Nación. 45 Rochester Year ended December 31, 2020 2019 2018 Tons placed 15,696,565 10,582,518 16,169,807 Average gold grade (oz/t) 0.002 0.003 0.004 Average silver grade (oz/t) 0.52 0.46 0.52 Gold ounces produced 27,147 35,400 54,388 Silver ounces produced 3,174,529 3,761,060 5,037,983 Gold ounces sold 26,257 36,052 52,789 Silver ounces sold 3,054,139 3,844,556 4,854,579 Costs applicable to sales per gold ounce (1) $ 1,377 $ 1,251 $ 941 Costs applicable to sales per silver ounce (1) $ 16.35 $ 14.34 $ 11.54 (1) See Non-GAAP Financial Performance Measures. Year Ended December 31, 2020 compared to Year Ended December 31, 2019 Gold and silver production decreased 23% and 16%, respectively, due to the impact of dilution from stacking high-pressure grinding roll (“HPGR”) crushed material on top of historic ore on the Stage IV leach pad and upset conditions in the Merrill-Crowe process plant due to higher-than-expected fine particulates in pregnant solution from ore placed on newly constructed inter-lift liners in the first nine months of 2020. Metal sales were $110.3 million, or 14% of Coeur’s metal sales, compared with $112.0 million, or 16% of Coeur’s metal sales. Costs applicable to sales per gold and silver ounce increased 10% and 14%, respectively, driven by higher cyanide and outside service costs and a change in the Company’s recovery rate assumptions, in line with the updated technical report for Rochester filed in December 2020. Amortization decreased to $14.3 million due to lower ounces sold. Capital expenditures increased to $37.5 million from $22.6 million due to the commencement of construction activities related to POA 11. Mining remains an essential business in Nevada. The Company implemented and continues to maintain strong health and safety protocols, aimed at limiting the exposure to, and transmission of, COVID-19. Year Ended December 31, 2019 compared to Year Ended December 31, 2018 Gold and silver production decreased 35% and 25%, respectively, due to lower placement rates caused by the planned commissioning of the new crushing circuit in the second half of 2019, unplanned downtime, and lower gold and silver grades. Metal sales were $112.0 million, or 16% of Coeur’s metal sales, compared with $141.8 million, or 23% of Coeur’s metal sales. Costs applicable to sales per gold and silver ounce increased 33% and 24%, respectively, due to a one-time charge associated with the operation’s power costs, lower production and planned mining equipment maintenance, partially offset by lower crushing costs. Amortization decreased to $18.0 million due to lower ounces sold. Capital expenditures increased to $22.6 million from $9.9 million due to the commissioning of the new crushing circuit, including the HPGR unit, and POA 11 expansion related capital expenditures. 46 Kensington Year ended December 31, 2020 2019 2018 Tons milled 675,731 658,378 641,058 Average gold grade (oz/t) 0.20 0.21 0.18 Average recovery rate 93.0 % 91.0 % 92.3 % Gold ounces produced 124,867 127,914 105,570 Gold ounces sold 124,793 130,495 106,555 Costs applicable to sales per gold ounce (1) $ 975 $ 917 $ 1,055 (1) See Non-GAAP Financial Performance Measures. Year Ended December 31, 2020 compared to Year Ended December 31, 2019 Gold production decreased 2% as a result of processing lower grade ore and COVID-19 response efforts that temporarily impacted mine production in the first nine months of 2020. Metal sales were $216.5 million, or 28% of Coeur’s metal sales, compared to $181.1 million, or 25% of Coeur’s metal sales. Costs applicable to sales per gold ounce increased 6% due to lower production and higher compensation, outside service and maintenance costs, partially offset by lower diesel costs. Amortization decreased to $49.5 million due to lower ounces sold. Capital expenditures decreased to $19.8 million from $23.5 million due to lower underground development. Mining continues to be considered an essential business in Alaska. Rotational schedules remain extended from 14 days to 28 days in response to concerns related to COVID-19. All employees are required to quarantine and undergo a testing protocol prior to starting their 21-day rotation. Year Ended December 31, 2019 compared to Year Ended December 31, 2018 Gold production increased 21% due to higher ore feed from the high-grade Jualin deposit. The Jualin ore feed, which drove the 17% increase in gold grade, together with lower contractor costs led to a 13% decrease in costs applicable to sales per gold ounce. Metal sales were $181.1 million, or 25% of Coeur’s metal sales, compared to $132.9 million, or 21% of Coeur’s metal sales. Amortization increased to $50.6 million due to a significantly higher number of ounces sold. Capital expenditures decreased to $23.5 million from $44.7 million due to lower underground development at Kensington, Jualin and Raven, infill drilling and mining equipment expenditures. 47 Wharf Year ended December 31, 2020 2019 2018 Tons placed 4,710,875 4,613,359 4,923,774 Average gold grade (oz/t) 0.027 0.023 0.022 Gold ounces produced 93,056 84,172 76,840 Silver ounces produced 115,214 63,483 50,576 Gold ounces sold 94,379 84,999 75,572 Silver ounces sold 113,790 64,161 48,085 Costs applicable to sales per gold ounce (1) $ 923 $ 937 $ 879 (1) See Non-GAAP Financial Performance Measures. Year Ended December 31, 2020 compared to Year Ended December 31, 2019 Gold production increased 11% driven by higher grade. Metal sales were $170.2 million, or 22% of Coeur’s metal sales, compared to $121.4 million, or 17% of Coeur’s metal sales. Costs applicable to sales per gold ounce decreased 2% due to higher production and lower diesel costs. Amortization increased to $12.5 million due to higher ounces sold. Capital expenditures were $2.4 million. South Dakota’s public order mandating the closure of all public-facing businesses does not include Wharf. The Company implemented and continues to maintain strong health and safety protocols aimed at limiting exposure to, and transmission of, COVID-19 at Wharf. Year Ended December 31, 2019 compared to Year Ended December 31, 2018 Gold production increased 10% largely driven by the stacking of higher-grade ore, partially offset by the impact of inclement weather, which diluted leach pad solutions, during the first half of 2019. Metal sales were $121.4 million, or 17% of Coeur’s metal sales, compared to $96.5 million, or 15% of Coeur’s metal sales. Costs applicable to sales per gold ounce increased 7% due to a $3.6 million inventory write-down related to lower expected recoveries from leach pad 1 and higher processing costs during the first half of 2019. Amortization increased to $12.3 million due to higher ounces sold. Capital expenditures were $2.2 million. 48 Silvertip Year Ended December 31, 2020 (1) 2019 2018 Silver ounces produced 139,287 1,161,926 182,254 Zinc pounds produced 2,459,756 17,103,427 4,181,033 Lead pounds produced 2,176,847 16,555,622 2,072,013 Silver ounces sold 158,984 1,164,470 222,974 Zinc pounds sold 3,203,446 18,154,521 4,375,995 Lead pounds sold 2,453,485 16,487,847 2,648,920 Costs applicable to sales per silver ounce (2) NM (3) $ 31.92 $ 55.91 Costs applicable to sales per zinc pound (2) NM (3) $ 2.34 $ 3.34 Costs applicable to sales per lead ounce (2) NM (3) $ 1.76 $ 3.23 (1) Operational results in the table above reflect performance prior to the temporary suspension of mining and processing activities in February 2020. (2) See Non-GAAP Financial Performance Measures. (3) Due to the temporary suspension of mining and processing activities these amounts are not meaningful. Year Ended December 31, 2020 compared to Year Ended December 31, 2019 Silvertip temporarily suspended mining and processing activities, unrelated to COVID-19, in February 2020. Operational results in the table above reflect performance prior to the temporary suspension. Ongoing carrying and temporary suspension costs are included in Pre-development, reclamation, and other. The Company continues to advance its pre-feasibility work for Silvertip. Notably, the Company developed a new flowsheet that would help support a potential expansion to a throughput rate of 1,750 tonnes per day. The Company is now progressing the project through a more comprehensive front-end engineering and design phase, focusing on advancing engineering through detailed design to further de-risk capital estimates and enhance schedule certainty with respect to a potential restart or increase certainty for project delivery. Mining is considered an essential service in the Province of British Columbia. The Company implemented and continues to maintain strong health and safety protocols, aimed at limiting the exposure to, and transmission of, COVID-19 at the site and in the surrounding communities. Year Ended December 31, 2019 compared to Year Ended December 31, 2018 Metal sales were $44.3 million compared to $8.9 million. Costs applicable to sales per ounce were impacted by a $64.6 million write-down of metal inventory as a result of higher than expected maintenance costs and lower than expected production levels, grades and recovery rates. During the fourth quarter of 2019, the Company performed a comprehensive analysis of its Silvertip property and determined that indicators of impairment existed, primarily as a result of continued deterioration in zinc and lead market conditions as well as ongoing operating challenges primarily related to the processing facility. As a result of the impairment indicators, a recoverability test was performed and the Company concluded that the carrying value of the long-lived assets for the Silvertip property was impaired. A non-cash impairment charge of $250.8 million was recorded during the fourth quarter of 2019. Amortization was $36.7 million. Capital expenditures decreased to $17.5 million from $52.9 million due to preproduction capitalization, construction of the 220-person camp in 2018 and lower conversion drilling in 2019. 49 Liquidity and Capital Resources At December 31, 2020, the Company had $94.2 million of cash, cash equivalents and restricted cash and $265.0 million available under its revolving credit facility (“RCF”). Cash and cash equivalents increased $37.1 million in the year ended December 31, 2020, due to a 22% and 29% increase in average realized gold and silver prices, respectively, strong operational results from Wharf, proceeds from the sale of shares of Metalla common stock, partially offset by lower ounces sold at Palmarejo, Rochester and Kensington, ongoing carrying costs at Silvertip and payment of the cash portion of the contingent consideration of $18.8 million associated with the Silvertip acquisition. Early in the second quarter, the Company completed various scenario planning analyses to consider potential impacts of COVID-19 on its business, including volatility in commodity prices, temporary disruptions and/or curtailments of operating activities (voluntary or involuntary). To provide additional flexibility to respond to potential downside scenarios, the Company has been able to periodically draw and make repayments under its RCF throughout 2020. At December 31, 2020, the Company had no borrowings and $35.0 million in outstanding letters of credit under the RCF. Additionally, Coeur established the $100.0 million ATM Program during the second quarter as a means to proactively increase its financial flexibility in response to increased volatility and uncertainty associated with COVID-19. At the date of this filing, the Company has yet to issue any shares of its common stock under the ATM Program. Cash Provided by Operating Activities from Continuing Operations Net cash provided by operating activities for the year ended December 31, 2020 was $148.7 million, compared to $91.9 million for the year ended December 31, 2019. Adjusted EBITDA from continuing operations for the year ended December 31, 2020 was $263.4 million, compared to $173.9 million for the year ended December 31, 2019 (see “Non-GAAP Financial Performance Measures”). Net cash provided by operating activities was impacted by the following key factors for the applicable periods: Year Ended December 31, In thousands 2020 2019 2018 Cash flow before changes in operating assets and liabilities $ 162,434 $ 134,234 $ 112,350 Changes in operating assets and liabilities: Receivables (9,463) (2,739) (9,260) Prepaid expenses and other (2,621) 280 4,876 Inventories (34,538) (62,998) (44,488) Accounts payable and accrued liabilities 32,897 23,103 (43,370) Cash provided by (used in) continuing operating activities $ 148,709 $ 91,880 $ 20,108 Net cash provided by operating activities increased $56.8 million in the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to a 22% and 29% increase in average realized gold and silver prices, respectively, and lower metal inventory write-downs at Silvertip, partially offset by lower ounces sold of gold and silver (3% and 19%, respectively). Revenue for the year ended December 31, 2020 increased by $74.0 million, of which $151.9 million was the result of higher average realized gold and silver prices, partially offset by a decrease of $77.9 million due to lower volume of gold and silver sales. Net cash provided by operating activities increased $71.8 million in the year ended December 31, 2019 compared to the year ended December 31, 2018, primarily due to 5% higher sales of gold at 10% higher average realized prices, the prepayment for deliveries of concentrate from Kensington of $15.0 million, the timing of payments for accounts payables across the company and lower income and mining tax payments at Palmarejo in 2019 as compared to 2018, partially offset by lower than anticipated production at Silvertip that resulted in a $64.6 million write-down of metals inventory. Revenue for the year ended December 31, 2019 increased $85.6 million, of which $48.4 million was due primarily to higher average realized gold and silver prices and $37.2 million was due primarily to higher volume of gold, zinc and lead sales. 50 Cash Used in Investing Activities from Continuing Operations Net cash used in investing activities in the year ended December 31, 2020 was $65.7 million compared to $92.6 million in the year ended December 31, 2019. Cash used in investing activities decreased primarily due to the net proceeds of $30.1 million from the sale of the Company’s equity investments. The Company had capital expenditures of $99.3 million in the year ended December 31, 2020 compared with $99.8 million in the year ended December 31, 2019. Capital expenditures in the year ended December 31, 2020 were primarily related to POA 11 at Rochester, which commenced construction activities during the third quarter, and underground development at Palmarejo and Kensington. Capital expenditures in the year ended December 31, 2019 were primarily related to underground development at Silvertip, Palmarejo, and Kensington, a new thickener at Palmarejo, POA 11 and the new crushing circuit, including the HPGR unit at Rochester. Net cash used in investing activities in the year ended December 31, 2019 was $92.6 million compared to $102.0 million in the year ended December 31, 2018. Cash used in investing activities decreased primarily due lower capital expenditures, partially offset by receipt of $19.0 million of proceeds under the Manquiri Notes Receivable (as defined in Note 22 -- Discontinued Operations) in 2018. The Company had capital expenditures of $99.8 million in the year ended December 31, 2019 compared with $140.8 million in the year ended December 31, 2018. Capital expenditures in the year ended December 31, 2019 are described above. Capital expenditures in the year ended December 31, 2018 were primarily related to pre-production capital spending and the new 220-person camp at Silvertip, mining equipment at Kensington and underground development at Silvertip, Palmarejo and Kensington. Cash Used in Financing Activities from Continuing Operations Net cash used in financing activities in the year ended December 31, 2020 was $46.5 million compared to $60.9 million in the year ended December 31, 2019. During the year ended December 31, 2020, the Company fully repaid the $150.0 million drawn from the RCF during 2020, and paid cash contingent consideration of $18.8 million associated with the Silvertip acquisition. As of December 31, 2020, there were no borrowings outstanding under the RCF. During the year ended December 31, 2019, the Company repaid $135.0 million, net, of outstanding amounts under the RCF and paid cash contingent consideration of $18.7 million associated with the Silvertip acquisition, partially offset by net proceeds of approximately $123.1 million from the sale of 30.9 million shares of its common stock. Net cash used in financing activities in the year ended December 31, 2019 increased to $60.9 million compared to $5.2 million in the year ended December 31, 2018. During the year ended December 31, 2018, the Company drew $35.0 million, net, from the RCF to repay a debt obligation of Silvertip and to finance working capital and general corporate purposes. 51 Contractual Obligations The following table summarizes the Company’s contractual obligations at December 31, 2020 and the effect such obligations are expected to have on its liquidity and cash flow in future periods. Payments Due by Period Contractual Obligations Total Less Than 1 Year 1-3 Years 3-5 Years More Than 5 Years Long-term debt obligations: 2024 Senior Notes $ 230,000 $ — $ 230,000 $ — $ — Revolving Credit Facility (1) — — — — — Interest on debt 47,145 14,490 32,655 — — 277,145 14,490 262,655 — — Finance lease obligations (2) 52,338 23,958 26,580 1,800 — Operating lease obligations: Hyak mining lease (Kensington mine) 600 300 300 — — Operating leases 44,190 12,602 21,396 9,025 1,167 44,790 12,902 21,696 9,025 1,167 Other long-term obligations: Reclamation and mine closure (3) 331,992 2,299 16,588 79,493 233,612 Severance payments (4) 7,871 — — — 7,871 Unrecognized tax benefits (5) 1,365 — — — — Other long-term obligations 23,653 1,965 3,930 2,842 14,916 364,881 4,264 20,518 82,335 256,399 Total $ 739,154 $ 55,614 $ 331,449 $ 93,160 $ 257,566 (1) The Company had $265.0 million available under the RCF, net of $35.0 million in letters of credit outstanding as of December 31, 2020. (2) The Company has entered into various finance lease agreements for commitments primarily over the next five years. (3) Reclamation and mine closure amounts represent the Company’s estimate of the cash flows associated with its legal obligation to reclaim mining properties. This amount will decrease as reclamation work is completed. Amounts shown on the table are undiscounted. (4) Accrued government-mandated severance at the Palmarejo complex. (5) The Company is unable to reasonably estimate the timing of recognition of unrecognized tax benefits beyond 2020 due to uncertainties in the timing of the effective settlement of tax positions. Environmental Compliance Expenditures For the years ended December 31, 2020, 2019, and 2018, the Company spent $8.8 million, $8.2 million, and $7.9 million, respectively, in connection with routine environmental compliance activities at its operating properties. The Company estimates that environmental compliance expenditures during 2021 will be between $8.2 million and $9.2 million. Future environmental compliance expenditures will be determined by governmental regulations and the overall scope of the Company’s operating and development activities. Critical Accounting Policies and Accounting Developments Listed below are the accounting policies that we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates and assumptions involved and the magnitude of the asset, liability, revenue, and expense being reported. For a discussion of recent accounting pronouncements, see Note 2 -- Summary of Significant Accounting Policies in the notes to the consolidated financial statements. Revenue Recognition The Company produces doré and concentrate that is shipped to third-party refiners and smelters, respectively, for processing. The Company enters into contracts to sell its metal to various third-party customers which may include the refiners and smelters that process the doré and concentrate. The Company’s performance obligation in these transactions is generally the transfer of metal to the customer. In the case of doré shipments, the Company generally sells refined metal at market prices agreed upon by both parties. The Company also has the right, but not the obligation, to sell a portion of the anticipated refined metal in advance of being 52 fully refined. When the Company sells refined metal or advanced metal, the performance obligation is satisfied when the metal is delivered to the customer. Revenue and Costs Applicable to Sales are recorded on a gross basis under these contracts at the time the performance obligation is satisfied. Under the Company’s concentrate sales contracts with third-party smelters, metal prices are set on a specified future quotational period, typically one to three months, after the shipment date based on market prices. When the Company sells gold concentrate to the third-party smelters, the performance obligation is satisfied when risk of loss is transferred to the customer. The contracts, in general, provide for provisional payment based upon provisional assays and historical metal prices. Final settlement is based on the applicable price for the specified future quotational period and generally occurs three to six months after shipment. The Company’s provisionally priced sales contain an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of concentrates measured at the forward price at the time of sale. The embedded derivative does not qualify for hedge accounting and is adjusted to fair value through revenue each period until the date of final metal settlement. The Company also sells concentrate under off-take agreements to third-party customers that are responsible for arranging the smelting of the concentrate. Prices can be either be fixed or based on a quotational period. The quotational period varies by contract, but is generally a one-month period following the shipment of the concentrate. The performance obligation is satisfied when risk of loss is transferred to the customer. The Company recognizes revenue from concentrate sales, net of treatment and refining charges, when it satisfies the performance obligation of transferring control of the concentrate to the customer. For doré and off-take sales, the Company may incur a finance charge related to advance sales that is not considered significant and, as such, is not considered a separate performance obligation. In addition, the Company has elected to treat freight costs as a fulfillment cost under ASC 606 and not as a separate performance obligation. The Company’s gold stream agreement with Franco-Nevada provided for a $20.0 million deposit paid by Franco-Nevada in exchange for the right and obligation, commencing in 2016, to purchase 50% of a portion of Palmarejo gold production at the lesser of $800 or market price per ounce. Because there is no minimum obligation associated with the deposit, it is not considered financing, and each shipment is considered to be a separate performance obligation. The stream agreement represents a contract liability under ASC 606, which requires the Company to ratably recognize a portion of the deposit as revenue for each gold ounce delivered to Franco-Nevada. Estimates The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of its financial statements, the reported amounts of revenue and expenses during the reporting period, and mined reserves. There can be no assurance that actual results will not differ from those estimates. There are a number of uncertainties inherent in estimating quantities of reserves, including many factors beyond the Company’s control. Mineral reserve estimates are based upon engineering evaluations of samplings of drill holes and other openings. These estimates involve assumptions regarding future silver and gold prices, mine geology, mining methods and the related costs to develop and mine the reserves. Changes in these assumptions could result in material adjustments to the Company’s reserve estimates. The Company uses reserve estimates in determining the units-of-production amortization and evaluating mine assets for potential impairment. Amortization The Company amortizes its property, plant, and equipment, mining properties, and mine development using the units-of-production method over the estimated life of the ore body generally based on its proven and probable reserves or the straight-line method over the useful life, whichever is shorter. The accounting estimates related to amortization are critical accounting estimates because (1) the determination of reserves involves uncertainties with respect to the ultimate geology of its reserves and the assumptions used in determining the economic feasibility of mining those reserves and (2) changes in estimated proven and probable reserves and asset useful lives can have a material impact on net income. Impairment of Long-lived Assets We review and evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Asset impairment is considered to exist if the total estimated undiscounted pretax future cash flows are less than the carrying amount of the asset. In estimating future cash flows, assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of future cash flows from other asset groups. An impairment loss is measured by discounted estimated future cash flows, and recorded by reducing the asset's carrying amount to fair value. Future cash flows are estimated based on estimated quantities of recoverable minerals, 53 expected gold, silver, lead and zinc prices (considering current and historical prices, trends and related factors), production levels, operating costs, capital requirements and reclamation costs, all based on life-of-mine plans. During 2019, the Company recorded a non-cash impairment charge of $250.8 million. The write-down was allocated between Property, plant and equipment, net , Mining properties, net and Other non-current assets , in the amounts of $43.6 million, $201.5 million and $5.7 million, respectively. Existing proven and probable reserves and value beyond proven and probable reserves, including mineralization other than proven and probable reserves are included when determining the fair value of mine site asset groups at acquisition and, subsequently, in determining whether the assets are impaired. The term “recoverable minerals” refers to the estimated amount of gold, silver, lead and zinc that will be obtained after taking into account losses during ore processing and treatment. Estimates of recoverable minerals from exploration stage mineral interests are risk adjusted based on management’s relative confidence in such materials. The ability to achieve the estimated quantities of recoverable minerals from exploration stage mineral interests involves further risks in addition to those risk factors applicable to mineral interests where proven and probable reserves have been identified, due to the lower level of confidence that the identified mineralized material could ultimately be mined economically. Assets classified as exploration potential have the highest level of risk that the carrying value of the asset can be ultimately realized, due to the still lower level of geological confidence and economic modeling. Gold, silver, zinc and lead prices are volatile and affected by many factors beyond the Company’s control, including prevailing interest rates and returns on other asset classes, expectations regarding inflation, speculation, currency values, governmental decisions regarding precious metals stockpiles, global and regional demand and production, political and economic conditions and other factors may affect the key assumptions used in the Company’s impairment testing. Various factors could impact our ability to achieve forecasted production levels from proven and probable reserves. Additionally, production, capital and reclamation costs could differ from the assumptions used in the cash flow models used to assess impairment. Actual results may vary from the Company’s estimates and result in additional Impairment of Long-lived Assets . Ore on Leach Pads The heap leach process is a process of extracting silver and gold by placing ore on an impermeable pad and applying a diluted cyanide solution that dissolves a portion of the contained silver and gold, which are then recovered in metallurgical processes. The Company uses several integrated steps to scientifically measure the metal content of ore placed on the leach pads. As the ore body is drilled in preparation for the blasting process, samples are taken of the drill residue which are assayed to determine estimated quantities of contained metal. The Company then processes the ore through crushing facilities where the output is again weighed and sampled for assaying. A metallurgical reconciliation with the data collected from the mining operation is completed with appropriate adjustments made to previous estimates. The crushed ore is then transported to the leach pad for application of the leaching solution. As the leach solution is collected from the leach pads, it is continuously sampled for assaying. The quantity of leach solution is measured by flow meters throughout the leaching and precipitation process. After precipitation, the product is converted to doré, which is the final product produced by the mine. The inventory is stated at lower of cost or net realizable value, with cost being determined using a weighted average cost method. The historical cost of the metal that is expected to be extracted within 12 months is classified as current. Ore on leach pad is valued based on actual production costs incurred to produce and place ore on the leach pads, less costs allocated to minerals recovered through the leach process. The estimate of both the ultimate recovery expected over time and the quantity of metal that may be extracted relative to the time the leach process occurs requires the use of estimates and relies upon laboratory testwork. Testwork consists of 60-day leach columns from which the Company projects metal recoveries up to five years in the future. The quantities of metal contained in the ore are estimated based upon actual weights and assay analysis. The rate at which the leach process extracts gold and silver from the crushed ore is based upon laboratory column tests and actual experience occurring over more than 20 years of leach pad operations at the Rochester mine. The assumptions used by the Company to measure metal content during each stage of the inventory conversion process includes estimated recovery rates based on laboratory testing and assaying. The Company periodically reviews its estimates compared to actual experience and revises its estimates when appropriate. The ultimate recovery will not be known until leaching operations cease. Variations between actual and estimated quantities resulting from changes in assumptions and estimates that do not result in write-downs to net realizable value are accounted for on a prospective basis. In 2020, the Company revised its recovery rate assumptions in line with the updated technical report for Rochester filed in December 2020. This change resulted in an adjustment to the ending Ore on leach pads balance with the resulting charges allocated between Costs Applicable to Sales and Amortization in the amounts of $7.2 million and $1.2 million, respectively. 54 Reclamation The Company recognizes obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The fair value of a liability for an asset retirement obligation will be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. An accretion cost, representing the increase over time in the present value of the liability, is recorded each period in Pre-development, Reclamation, and Other . As reclamation work is performed or liabilities are otherwise settled, the recorded amount of the liability is reduced. Future remediation costs for inactive mines are accrued based on management’s best estimate at the end of each period of the discounted costs expected to be incurred at the site. Such cost estimates include, where applicable, ongoing care and maintenance and monitoring costs. Changes in estimates are reflected in earnings in the period an estimate is revised. Derivatives The Company is exposed to various market risks, including the effect of changes in metal prices and interest rates, and uses derivatives to manage financial exposures that occur in the normal course of business. The Company may elect to designate certain derivatives as hedging instruments under U.S. GAAP. The Company, from time to time, uses derivative contracts to protect the Company’s exposure to fluctuations in metal prices. The Company has elected to designate these instruments as cash flow hedges of forecasted transactions at their inception. Assuming normal market conditions, the change in the market value of such derivative contracts has historically been, and is expected to continue to be, highly effective at offsetting changes in price movements of the hedged item. For derivatives not designated as hedging instruments, the Company recognizes derivatives as either assets or liabilities on the balance sheet and measures those instruments at fair value. Changes in the value of derivative instruments not designated as hedging instruments are recorded each period in the Consolidated Statement of Comprehensive Income (Loss) in Fair value adjustments, net or Revenue . Management applies judgment in estimating the fair value of instruments that are highly sensitive to assumptions regarding commodity prices, market volatilities, and foreign currency exchange rates. Income and Mining Taxes The Company accounts for income taxes in accordance with the guidance of ASC 740. The Company’s annual tax rate is based on income, statutory tax rates in effect and tax planning opportunities available to us in the various jurisdictions in which the Company operates. Significant judgment is required in determining the annual tax expense, current tax assets and liabilities, deferred tax assets and liabilities, and our future taxable income, both as a whole and in various tax jurisdictions, for purposes of assessing our ability to realize future benefit from our deferred tax assets. Actual income taxes could vary from these estimates due to future changes in income tax law, significant changes in the jurisdictions in which we operate or unpredicted results from the final determination of each year’s liability by taxing authorities. The Company’s deferred income taxes reflect the impact of temporary differences between the reported amounts of assets and liabilities for financial reporting purposes and such amounts measured by tax laws and regulations. In evaluating the realizability of the deferred tax assets, management considers both positive and negative evidence that may exist, such as earnings history, reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies in each tax jurisdiction. A valuation allowance may be established to reduce our deferred tax assets to the amount that is considered more likely than not to be realized through the generation of future taxable income and other tax planning strategies. The Company has asserted indefinite reinvestment of earnings from its Mexican operations as determined by management’s judgment about and intentions concerning the future operations of the Company. The Company does not record a U.S. deferred tax liability for foreign earnings that meet the indefinite reversal criteria. Refer to Note 14 -- Income and Mining Taxes for further discussion on our assertion. The Company’s operations may involve dealing with uncertainties and judgments in the application of complex tax regulations in multiple jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal, state, and international tax audits. The Company recognizes potential liabilities and records tax liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on its estimate of whether, and the extent to which, additional taxes will be due. The Company adjusts these reserves in light of changing facts and circumstances, such as the progress of a tax audit; however, due to the complexity of some of these uncertainties, the ultimate resolution could result in a payment that is materially different from our current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period which they are determined. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense. 55 Other Liquidity Matters We believe that our liquidity and capital resources in the U.S. are adequate to fund our U.S. operations and corporate activities. The Company has asserted indefinite reinvestment of earnings from its Mexican operations as determined by management’s judgment about and intentions concerning the future operations of the Company. The Company does not believe that the amounts reinvested will have a material impact on liquidity. In order to reduce indebtedness, future cash interest payments and/or amounts due at maturity or upon redemption and for general working capital purposes, from time-to-time we may (1) issue equity securities for cash in public or private offerings or (2) repurchase certain of our debt securities for cash or in exchange for other securities, which may include secured or unsecured notes or equity, in each case in open market or privately negotiated transactions. We evaluate any such transactions in light of prevailing market conditions, liquidity requirements, contractual restrictions, and other factors. The amounts involved may be significant and any debt repurchase transactions may occur at a substantial discount to the debt securities’ face amount. Non-GAAP Financial Performance Measures Non-GAAP financial measures are intended to provide additional information only and do not have any standard meaning prescribed by generally accepted accounting principles (“GAAP”). Unless otherwise noted, we present the Non-GAAP financial measures of our continuing operations in the tables below. For additional information regarding our discontinued operations, see Note 22 -- to the Consolidated Financial Statements. These measures should not be considered in isolation or as a substitute for performance measures prepared in accordance with GAAP. Adjusted Net Income (Loss) Management uses Adjusted net income (loss) to evaluate the Company’s operating performance, and to plan and forecast its operations. The Company believes the use of Adjusted net income (loss) reflects the underlying operating performance of our core mining business and allows investors and analysts to compare results of the Company to similar results of other mining companies. Management’s determination of the components of Adjusted net income (loss ) are evaluated periodically and is based, in part, on a review of non-GAAP financial measures used by mining industry analysts. The tax effect of adjustments are based on statutory tax rates and the Company’s tax attributes, including the impact through the Company’s valuation allowance. The combined effective rate of tax adjustments may not be consistent with the statutory tax rates or the Company’s effective tax rate due to jurisdictional tax attributes and related valuation allowance impacts which may minimize the tax effect of certain adjustments and may not apply to gains and losses equally. Adjusted net income (loss) is reconciled to Net income (loss) in the following table: 56 Year ended December 31, In thousands except per share amounts 2020 2019 2018 Net income (loss) $ 25,627 $ (341,203) $ (48,405) (Income) loss from discontinued operations, net of tax — (5,693) (550) Fair value adjustments, net (7,601) (16,030) (3,638) Foreign exchange loss (gain) (69) 5,900 8,611 (Gain) loss on sale of assets and securities 2,484 714 (19) Impairment of long-lived assets — 250,814 — Silvertip inventory write-down 13,717 64,610 26,720 Wharf inventory write-down 3,323 3,596 — Loss on debt extinguishment — 1,282 — Silvertip temporary suspension costs 7,164 — — Silvertip lease modification (4,051) — — Silvertip gain on contingent consideration (955) — — Novation 3,819 — — COVID-19 costs 15,555 — — Receivable write-down — 1,040 6,536 Interest income on notes receivables — (198) (1,776) Manquiri sale consideration write-down — — 18,599 Rochester in-pit crusher write-down — — 3,441 Mexico inflation adjustment — — (1,939) Transaction costs — — 5 Tax effect of adjustments (1)(2) — (19,415) (9,750) Adjusted net income (loss) $ 59,013 $ (54,583) $ (2,165) Adjusted net income (loss) per share - Basic $ 0.25 $ (0.25) $ (0.01) Adjusted net income (loss) per share - Diluted $ 0.24 $ (0.25) $ (0.01) (1) For the year ended December 31, 2019, tax effect of adjustments of $19.4 million (-6%) is primarily related to the write-down of Silvertip inventory. (2) For the year ended December 31, 2018, tax effect of adjustments of $9.8 million (-20%) is primarily related to the write-down of Silvertip start-up costs. EBITDA and Adjusted EBITDA Management uses EBITDA to evaluate the Company’s operating performance, to plan and forecast its operations, and assess leverage levels and liquidity measures. The Company believes the use of EBITDA reflects the underlying operating performance of our core mining business and allows investors and analysts to compare results of the Company to similar results of other mining companies. Adjusted EBITDA is a measure used in indenture governing the 2024 Senior Notes and the RCF to determine our ability to make certain payments and incur additional indebtedness. EBITDA and Adjusted EBITDA do not represent, and should not be considered an alternative to, Net income (Loss) or Cash Flow from Operations as determined under GAAP. Other companies may calculate Adjusted EBITDA differently and those calculations may not be comparable to our presentation. Adjusted EBITDA is reconciled to Net income (loss) in the following table: 57 Year ended December 31, In thousands except per share amounts 2020 2019 2018 Net income (loss) $ 25,627 $ (341,203) $ (48,405) (Income) loss from discontinued operations, net of tax — (5,693) (550) Interest expense, net of capitalized interest 20,708 24,771 24,364 Income tax provision (benefit) 37,045 (11,129) (16,780) Amortization 131,387 178,876 128,473 EBITDA 214,767 (154,378) 87,102 Fair value adjustments, net (7,601) (16,030) (3,638) Foreign exchange (gain) loss 2,245 4,346 9,069 Asset retirement obligation accretion 11,754 12,154 11,116 Inventory adjustments and write-downs 1,144 5,904 2,093 (Gain) loss on sale of assets and securities 2,484 714 (19) Impairment of long-lived assets — 250,814 — Silvertip inventory write-down 13,717 64,610 26,720 Silvertip temporary suspension costs 7,164 — — Silvertip lease modification (4,051) — — Silvertip gain on contingent consideration (955) — — COVID-19 costs 15,555 — — Novation 3,819 — — Wharf inventory write-down 3,323 3,596 — Loss on debt extinguishment — 1,282 — Receivable write-down — 1,040 6,536 Interest income on notes receivables — (198) (1,776) Manquiri sale consideration write-down — — 18,599 Rochester in-pit crusher write-down — — 3,441 Mexico inflation adjustment — — (1,939) Transaction costs — — 5 Adjusted EBITDA $ 263,365 $ 173,854 $ 157,309 Free Cash Flow Management uses Free Cash Flow as a non-GAAP measure to analyze cash flows generated from operations. Free Cash Flow is Cash Provided By (used in) Operating Activities of Continuing Operations less Capital expenditures from continuing operations as presented on the Consolidated Statements of Cash Flows. The Company believes Free Cash Flow is also useful as one of the bases for comparing the Company’s performance with its competitors. Although Free Cash Flow and similar measures are frequently used as measures of cash flows generated from operations by other companies, the Company’s calculation of Free Cash Flow is not necessarily comparable to such other similarly titled captions of other companies. The following table sets forth a reconciliation of Free Cash Flow, a non-GAAP financial measure, to Cash Provided By (used in) Operating Activities of Continuing Operations , which the Company believes to be the GAAP financial measure most directly comparable to Free Cash Flow. Year ended December 31, (Dollars in thousands) 2020 2019 2018 Cash flow from continuing operations $ 148,709 $ 91,880 $ 20,108 Capital expenditures from continuing operations 99,279 99,772 140,787 Free cash flow $ 49,430 (7,892) (120,679) 58 Costs Applicable to Sales Management uses CAS to evaluate the Company’s current operating performance and life of mine performance from discovery through reclamation. We believe these measures assist analysts, investors and other stakeholders in understanding the costs associated with producing gold, silver, zinc and lead, assessing our operating performance and ability to generate free cash flow from operations and sustaining production. These measures may not be indicative of operating profit or cash flow from operations as determined under GAAP. Management believes that allocating CAS to gold, silver, zinc and lead based on gold, silver, zinc and lead metal sales relative to total metal sales best allows management, analysts, investors and other stakeholders to evaluate the operating performance of the Company. Other companies may calculate CAS differently as a result of reflecting the benefit from selling non-silver metals as a by-product credit, converting to silver equivalent ounces, and differences in underlying accounting principles and accounting frameworks such as in International Financial Reporting Standards. Year Ended December 31, 2020 In thousands (except metal sales, per ounce and per pound amounts) Palmarejo Rochester Kensington Wharf Silvertip Total Costs applicable to sales, including amortization (U.S. GAAP) $ 170,077 $ 100,418 $ 171,204 $ 102,108 $ 26,580 $ 570,387 Amortization (44,873) (14,306) (49,477) (12,473) (8,923) (130,052) Costs applicable to sales $ 125,204 $ 86,112 $ 121,727 $ 89,635 $ 17,657 $ 440,335 Metal Sales Gold ounces 110,822 26,257 124,793 94,379 356,251 Silver ounces 6,301,516 3,054,139 113,790 158,984 9,628,429 Zinc pounds 3,203,446 3,203,446 Lead pounds 2,453,485 2,453,485 Costs applicable to sales Gold ($/oz) $ 610 $ 1,377 $ 975 $ 923 Silver ($/oz) $ 9.14 $ 16.35 NM (1) Zinc ($/lb) NM (1) Lead ($/lb) NM (1) (1) Due to the temporary suspension of mining and processing activities these amounts are not meaningful. Year Ended December 31, 2019 In thousands (except metal sales, per ounce and per pound amounts) Palmarejo Rochester Kensington Wharf Silvertip Total Costs applicable to sales, including amortization (U.S. GAAP) $ 201,306 $ 118,246 $ 170,194 $ 92,969 $ 145,496 $ 728,211 Amortization (59,379) (18,041) (50,592) (12,280) (36,738) (177,030) Costs applicable to sales $ 141,927 $ 100,205 $ 119,602 $ 80,689 $ 108,758 $ 551,181 Metal Sales Gold ounces 116,104 36,052 130,495 84,999 367,650 Silver ounces 6,841,380 3,844,556 64,161 1,164,470 11,914,567 Zinc pounds 18,154,521 18,154,521 Lead pounds 16,487,847 16,487,847 Costs applicable to sales Gold ($/oz) $ 685 $ 1,251 $ 917 $ 937 Silver ($/oz) $ 9.13 $ 14.34 $ 31.92 Zinc ($/lb) $ 2.34 Lead ($/lb) $ 1.76 59 Year Ended December 31, 2018 In thousands (except metal sales, per ounce and per pound amounts) Palmarejo Rochester Kensington Wharf Silvertip Total Costs applicable to sales, including amortization (U.S. GAAP) $ 180,832 $ 126,586 $ 141,872 $ 78,273 $ 40,855 $ 568,418 Amortization (60,744) (20,909) (29,508) (11,072) (5,235) (127,468) Costs applicable to sales $ 120,088 $ 105,677 $ 112,364 $ 67,201 $ 35,620 $ 440,950 Metal Sales Gold ounces 115,592 52,789 106,555 75,572 350,508 Silver ounces 7,229,179 4,854,579 48,085 222,974 12,354,817 Zinc pounds 4,375,995 4,375,995 Lead pounds 2,648,920 2,648,920 Costs applicable to sales Gold ($/oz) $ 561 $ 941 $ 1,055 $ 879 Silver ($/oz) $ 7.64 $ 11.54 $ 55.91 Zinc ($/lb) $ 3.34 Lead ($/lb) $ 3.23 Reconciliation of Costs Applicable to Sales for 2021 Guidance In thousands (except metal sales, per ounce and per pound amounts) Palmarejo Rochester Kensington Wharf Costs applicable to sales, including amortization (U.S. GAAP) $ 196,255 $ 105,557 $ 188,349 $ 99,746 Amortization (39,208) (15,899) (59,756) (11,524) Costs applicable to sales $ 157,047 $ 89,658 $ 128,593 $ 88,222 By-product credit — — — (2,255) Adjusted costs applicable to sales $ 157,047 $ 89,658 $ 128,593 $ 85,967 Metal Sales Gold ounces 107,900 27,200 127,000 89,000 Silver ounces 7,128,000 3,807,000 93,000 Revenue Split Gold 49% 36% 100% 100% Silver 51% 64% — — Costs applicable to sales Gold ($/oz) $710 - $810 $1,180 - $1,330 $1,010 - $1,110 $960 - $1,060 Silver ($/oz) $11.00 - $12.00 $15.00 - $17.00