Coeur Mining, Inc. 10-Q

Item 2. 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. First Quarter Highlights For the quarter, Coeur reported revenue of $202.1 million and cash flow from operating activities of $(4.4) million. We reported GAAP net income of $2.1 million, or $0.01 per diluted share. On an adjusted basis 1 , the Company reported EBITDA of $65.9 million and net income of $13.9 million, or $0.06 per diluted share. • Higher margins helped drive a stronger start to the year – Coeur’s first quarter results reflect a strong start to the year led by solid production and higher prices. Notably, quarterly revenue, operating cash flow before changes in working capital 1 and adjusted EBITDA 1 increased 17%, 38% and 42% year-over-year, respectively • Solid gold production and unit costs – The Company’s gold production of 85,225 ounces exceeded expectations for the quarter, tracking well towards its full-year guidance range. Additionally, all of the Company’s site-level gold unit costs were either below or within their full-year guidance ranges • Further enhanced liquidity and balance sheet – Coeur successfully refinanced its 5.875% senior notes due 2024 (“2024 Senior Notes”) with 5.125% senior notes due 2029 (“2029 Senior Notes”), capturing a lower interest rate, extending the maturity and opportunistically upsizing the offering. The Company also extended the maturity of its senior secured revolving credit facility (“RCF”) from October 2022 to March 2025. Together, these efforts improved Coeur’s liquidity profile and bolstered its balance sheet, helping to enhance financial flexibility ahead of a period of planned capital intensity • Commenced major construction on Rochester expansion – The Company began major construction on the Plan of Operations Amendment 11 (“POA 11”) expansion at its Rochester mine. Overall project progress was approximately 20% complete at the end of the first quarter. Key elements of the project timeline remain on schedule and are expected to be largely completed by late next year • Encouraging results from aggressive investment in exploration – Following its successful program in 2020, Coeur began the year with the largest exploration campaign in Company history. The Company invested approximately $14.9 million ($9.7 million expensed and $5.2 million capitalized) in exploration during the quarter, drilling roughly 250,500 feet (76,375 meters) across all sites. Drilling activities at Silvertip and Crown ramped up significantly during the quarter, while Coeur’s other sites continued to advance their resource expansion and infill programs 28 Selected Financial and Operating Results Three Months Ended March 31, In thousands 2021 2020 Financial Results: Gold sales $ 138,322 $ 127,605 Silver sales $ 63,795 $ 44,909 Zinc sales $ — $ (662) Lead sales $ — $ 1,315 Consolidated Revenue $ 202,117 $ 173,167 Net income (loss) $ 2,060 $ (11,900) Net income (loss) per share, diluted $ 0.01 $ (0.05) Adjusted net income (loss) (1) $ 13,940 $ (919) Adjusted net income (loss) per share, diluted (1) $ 0.06 $ 0.00 EBITDA (1) $ 49,693 $ 25,451 Adjusted EBITDA (1) $ 65,866 $ 46,451 Total debt (2) $ 412,125 $ 343,109 Operating Results: Gold ounces produced 85,225 85,077 Silver ounces produced 2,403,143 2,676,418 Zinc pounds produced — 2,459,756 Lead pounds produced — 2,176,847 Gold ounces sold 83,112 85,635 Silver ounces sold 2,435,504 2,700,778 Zinc pounds sold — 3,203,446 Lead pounds sold — 2,453,485 Average realized price per gold ounce $ 1,664 $ 1,490 Average realized price per silver ounce $ 26.19 $ 16.63 Average realized price per zinc pound, gross (3) $ — NM Average realized price per lead pound, gross (3) $ — NM (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 these amounts are not meaningful. Consolidated Financial Results Three Months Ended March 31, 2021 compared to Three Months Ended March 31, 2020 Revenue Revenue increased by $29.0 million, or 17%, as a result of a 12% and 57% increase in average realized gold and silver prices, respectively, partially offset by lower gold and silver ounces sold (3% and 10%, respectively). We sold 83,112 gold ounces and 2.4 million silver ounces, compared to 85,635 gold ounces, 2.7 million silver ounces, 3.2 million zinc pounds and 2.5 million lead pounds in the prior year. Gold and silver accounted for 68% and 32% of 2021 sales revenue, respectively. This compares to gold and silver accounting for 74% and 25% of first quarter 2020 sales revenue, respectively, with zinc and lead accounting for the remaining 2020 sales revenue. 29 The following table summarizes consolidated metal sales: Three months ended March 31, Increase (Decrease) Percentage Change In thousands 2021 2020 Gold sales $ 138,322 $ 127,605 $ 10,717 8 % Silver sales 63,795 44,909 18,886 42 % Zinc sales — (662) 662 (100) % Lead sales — 1,315 (1,315) (100) % Metal sales $ 202,117 $ 173,167 $ 28,950 17 % Costs Applicable to Sales Costs applicable to sales decreased $10.8 million, or 9%, primarily due to the temporary suspension at Silvertip, lower ounces sold at Palmarejo and the favorable impact from foreign currency hedges. For a complete discussion of costs applicable to sales, see Results of Operations below. Amortization Amortization decreased $6.2 million, or 17%, primarily due to the temporary suspension at Silvertip, longer assumed mine life based on year-end 2020 mineral reserve growth at Palmarejo and lower ounces sold at Palmarejo. Expenses General and administrative expenses increased $2.6 million, or 30%, primarily due to higher employee incentive compensation costs. Exploration expense increased $3.3 million, or 51%, as the Company maintained its commitment to a higher-level of exploration investment following the completion of the largest and most successful drilling campaign in Coeur’s history during 2020. The Company completed 122,300 feet (37,275 meters) of expansion drilling and 128,200 feet (39,100 meters) of infill drilling in the first quarter of 2021 compared 119,471 feet (36,415 meters) of expansion drilling and 50,209 feet (15,304 meters) of infill drilling in the first quarter of 2020. Pre-development, reclamation, and other expenses increased $7.2 million, or 109%, stemming from full-quarter ongoing carrying and temporary suspension costs at Silvertip and incremental costs incurred in connection with the Company’s COVID-19 health and safety protocols, and a gain resulting from the modification of a right of use lease at Silvertip in 2020. The following table summarizes pre-development, reclamation, and other expenses: Three months ended March 31, Increase (Decrease) Percentage Change In thousands 2021 2020 COVID-19 $ 3,005 $ 272 $ 2,733 1,005 % Silvertip ongoing carrying costs 6,921 2,608 4,313 165 % Silvertip temporary suspension costs — 3,509 (3,509) (100) % Gain on modification of right of use lease — (4,051) 4,051 (100) % Asset retirement accretion 2,905 2,847 58 2 % Other 881 1,370 (489) (36) % Pre-development, reclamation and other expense $ 13,712 $ 6,555 $ 7,157 109 % Other Income and Expenses During the first quarter of 2021, the Company incurred a $9.2 million loss in connection with the tender and redemption of the 2024 Senior Notes concurrent with the completed offering of the 2029 Senior Notes. Fair value adjustments, net, decreased to a loss of $3.8 million compared to loss of $8.8 million in the prior year quarter, a result of unfavorable changes in value related to the Company’s prior equity investment in Metalla Royalty & Streaming Ltd. in 2020. Interest expense (net of capitalized interest of $0.8 million) decreased to $4.9 million from $5.1 million due to higher capitalized interest associated with the POA 11 project at Rochester, partially offset by higher interest paid under the 2029 Senior Notes compared to the 2024 Senior Notes. Other, net increased to a gain of $3.6 million compared to $1.9 million due to an increase in gains on the sale of assets. 30 Income and Mining Taxes During the first quarter of 2021, income and mining tax expense of approximately $12.8 million resulted in an effective tax rate of 86.1% for 2021. This compares to income tax benefit of $3.9 million or effective tax rate of 24.9% for 2020. 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. The following table summarizes the components of the Company’s income (loss) before tax and income and mining tax (expense) benefit: Three months ended March 31, 2021 2020 In thousands Income (loss) before tax Tax (expense) benefit Income (loss) before tax Tax (expense) benefit United States $ (8,531) $ (1,625) $ (11,005) $ (736) Canada (12,785) — (26,029) 15 Mexico 32,914 (11,161) 21,359 4,631 Other jurisdictions 3,248 — (164) 29 $ 14,846 $ (12,786) $ (15,839) $ 3,939 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” in the 2020 10-K. Net Income (Loss) Net income was $2.1 million, or $0.01 per diluted share, compared to net loss of $11.9 million, or $0.05 per share. The increase in net income was driven by strong operating results at Wharf, a 12% and 57% increase in average realized gold and silver prices, respectively, and lower operating costs at Silvertip. This was partially offset by lower sales of gold and silver (3% and 10%, respectively), higher exploration expense, a $9.2 million loss on debt extinguishment, a full-quarter of 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 $13.9 million, or $0.06 per diluted share, compared to adjusted net loss of $0.9 million, or $0.00 per share (see “Non-GAAP Financial Performance Measures”). 31 Results of Operations Palmarejo Three Months Ended March 31, 2021 2020 Tons milled 484,390 479,562 Average gold grade (oz/t) 0.06 0.07 Average silver grade (oz/t) 4.07 4.69 Average recovery rate – Au 95.7 % 91.6 % Average recovery rate – Ag 81.3 % 81.5 % Gold ounces produced 28,605 31,578 Silver ounces produced 1,603,274 1,834,891 Gold ounces sold 25,687 31,287 Silver ounces sold 1,637,695 1,894,789 Costs applicable to sales per gold ounce (1) $ 622 $ 644 Costs applicable to sales per silver ounce (1) $ 11.00 $ 8.35 (1) See Non-GAAP Financial Performance Measures. Three Months Ended March 31, 2021 compared to Three Months Ended March 31, 2020 Gold and silver production decreased 9% and 13%, respectively, as a result of lower gold and silver grades, as expected, partially offset by higher mill throughput and higher gold recovery. Metal sales were $80.3 million, or 40% of Coeur’s metal sales, compared with $74.3 million, or 43% of Coeur’s metal sales. Revenue for the three months ended March 31, 2021 increased by $6.0 million or 8%, of which $21.0 million was the result of higher average realized gold and silver prices, partially offset by a decrease of $15.0 million due to lower volume of gold and silver sales. Costs applicable to sales per gold ounce decreased 3% while costs applicable to sales per silver ounce increased 32% due to the mix of gold and silver sales, lower production and higher maintenance costs partially offset by the favorable impact from foreign currency hedges. Amortization decreased to $9.1 million due to a longer mine life based on year-end 2020 reserve growth and lower ounces sold. Capital expenditures increased to $10.0 million from $7.1 million attributable to higher underground development at the La Nacion deposit. Rochester Three Months Ended March 31, 2021 2020 Tons placed 3,240,917 3,428,578 Average gold grade (oz/t) 0.003 0.002 Average silver grade (oz/t) 0.45 0.57 Gold ounces produced 6,904 5,936 Silver ounces produced 773,678 687,379 Gold ounces sold 6,934 5,473 Silver ounces sold 771,354 632,237 Costs applicable to sales per gold ounce (1) $ 1,317 $ 1,394 Costs applicable to sales per silver ounce (1) $ 19.32 $ 14.75 (1) See Non-GAAP Financial Performance Measures. Three Months Ended March 31, 2021 compared to Three Months Ended March 31, 2020 Gold and silver production increased 16% and 13%, respectively, due to the timing of recoveries, higher gold grade and the restocking of leach pad inventory after the commissioning of the high pressure grinding roll in 2019, which adversely impacted 2020 gold and silver production. Metal sales were $32.8 million, or 16% of Coeur’s metal sales, compared with $19.4 million, or 11% of Coeur’s metal sales. Revenue for the three months ended March 31, 2021 increased by $13.4 million or 69%, of which $7.1 million was the result of higher average realized gold and silver prices, and $6.3 million due to higher volume of gold and silver sales. Costs applicable to sales per gold ounce decreased 6% while costs applicable to sales per silver 32 ounce increased 31% due to the mix of gold and silver sales as well as higher equipment maintenance costs. Amortization increased to $3.6 million due to higher ounces sold. Capital expenditures increased to $30.2 million from $5.1 million due to the commencement of construction activities related to POA 11 in August 2020. Kensington Three Months Ended March 31, 2021 2020 Tons milled 170,358 162,341 Average gold grade (oz/t) 0.19 0.21 Average recovery rate 93.2 % 93.5 % Gold ounces produced 30,681 32,022 Gold ounces sold 31,595 32,781 Costs applicable to sales per gold ounce (1) $ 994 $ 931 (1) See Non-GAAP Financial Performance Measures. Three Months Ended March 31, 2021 compared to Three Months Ended March 31, 2020 Gold production decreased 4% as a result of lower grade, partially offset by higher mill throughput. Metal sales were $54.5 million, or 27% of Coeur’s metal sales, compared to $51.7 million, or 30% of Coeur’s metal sales. Revenue for the three months ended March 31, 2021 increased by $2.8 million or 5%, of which $4.9 million resulted from higher average realized gold prices, partially offset by a decrease of $2.1 million due to lower volume of gold sales. Costs applicable to sales per gold ounce increased 7% due to lower production and higher equipment rental, outside service and maintenance costs. Amortization increased to $13.4 million primarily due to higher Jualin production. Capital expenditures increased to $7.2 million from $4.8 million due to higher infill drilling. Wharf Three Months Ended March 31, 2021 2020 Tons placed 1,114,043 946,449 Average gold grade (oz/t) 0.030 0.025 Gold ounces produced 19,035 15,541 Silver ounces produced 26,191 14,861 Gold ounces sold 18,896 16,094 Silver ounces sold 26,455 14,768 Costs applicable to sales per gold ounce (1) $ 954 $ 1,092 (1) See Non-GAAP Financial Performance Measures. 33 Three Months Ended March 31, 2021 compared to Three Months Ended March 31, 2020 Gold production increased 22% driven by higher grade, higher placed tons and favorable weather conditions. Metal sales were $34.5 million, or 17% of Coeur’s metal sales, compared to $25.9 million, or 15% of Coeur’s metal sales. Revenue for the three months ended March 31, 2021 increased by $8.7 million or 34%, of which $5.3 million resulted from a higher volume of gold and silver sales and $3.4 million due to higher average realized gold and silver prices. Costs applicable to sales per gold ounce decreased 13% due to higher production and lower diesel and cyanide costs. Amortization remained comparable at $2.5 million due to a lower units-of-production depletion rate. Capital expenditures were $1.5 million. Silvertip Three Months Ended March 31, 2021 2020 Silver ounces produced — 139,287 Zinc pounds produced — 2,459,756 Lead pounds produced — 2,176,847 Silver ounces sold — 158,984 Zinc pounds sold — 3,203,446 Lead pounds sold — 2,453,485 Costs applicable to sales per silver ounce (2) $ — NM (1) Costs applicable to sales per zinc pound (2) $ — NM (1) Costs applicable to sales per lead ounce (2) $ — NM (1) (1) Due to the temporary suspension of mining and processing activities these amounts are not meaningful. (2) See Non-GAAP Financial Performance Measures. Three Months Ended March 31, 2021 compared to Three Months Ended March 31, 2020 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. Coeur continued advancing Silvertip’s revised 1,750 tonnes per day flowsheet through a more comprehensive engineering and design phase, with detailed design approaching 30% completion and exploration results demonstrating the potential for mine life extensions with continued drilling. Liquidity and Capital Resources At March 31, 2021, the Company had $155.4 million of cash, cash equivalents and restricted cash and $265.0 million available under its RCF. Cash and cash equivalents increased $61.3 million in the three months ended March 31, 2021, due to a 12% and 57% increase in average realized gold and silver prices, respectively, strong operational results from Wharf, net proceeds of $367.5 million from the issuance of the 2029 Senior Notes, partially offset by the tender and redemption of the 2024 Senior Notes for $238.3 million, including premiums, and $4.0 million of accrued and unpaid interest, lower ounces sold at Palmarejo and Kensington and ongoing carrying costs at Silvertip. Since the start of the COVID-19 pandemic, the Company has 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 subsequent to the start of the COVID-19 pandemic. At March 31, 2021, the Company had no borrowings and $35.0 million in outstanding letters of credit under the RCF, which was amended in March 2021 to allow the Company to obtain one or more increases of the RCF in an aggregate amount of up to $100.0 million and extend the maturity to March 2025. Additionally, Coeur established a $100.0 million ATM Program in April 2020 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 and intends to maintain the program during the POA 11 construction. Cash Used in Operating Activities Net cash used in operating activities for the three months ended March 31, 2021 was $4.4 million, compared to $8.0 million for the three months ended March 31, 2020. Adjusted EBITDA for the three months ended March 31, 2021 was $65.9 34 million, compared to $46.5 million for the three months ended March 31, 2020 (see “Non-GAAP Financial Performance Measures”). Net cash provided by operating activities was impacted by the following key factors for the applicable periods: Three Months Ended March 31, In thousands 2021 2020 Cash flow before changes in operating assets and liabilities $ 41,580 $ 30,144 Changes in operating assets and liabilities: Receivables 999 (813) Prepaid expenses and other (655) (346) Inventories (17,486) (21,925) Accounts payable and accrued liabilities (28,797) (15,051) Cash provided by (used in) operating activities $ (4,359) $ (7,991) Net cash used in operating activities decreased $3.6 million for the three months ended March 31, 2021, primarily due to a 12% and 57% increase in average realized gold and silver prices, respectively, partially offset by lower ounces sold of gold and silver (3% and 10%, respectively), higher income and mining tax payments at Palmarejo and payment of $4.0 million of interest related to the tender and redemption of the 2024 Senior Notes. Revenue for the three months ended March 31, 2021 increased by $29.0 million, of which $40.1 million was the result of higher average realized gold and silver prices, partially offset by a decrease of $11.1 million due to lower volume of gold and silver sales. Cash Used in Investing Activities Net cash used in investing activities in the three months ended March 31, 2021 was $53.9 million compared to $17.7 million in the three months ended March 31, 2020. Cash used in investing activities increased primarily due to the commencement of construction activities related to POA 11 in August 2020 at Rochester. The Company incurred capital expenditures of $59.4 million in the three months ended March 31, 2021 compared with $22.2 million in the three months ended March 31, 2020. Capital expenditures in the three months ended March 31, 2021 were primarily related to POA 11 construction activities at Rochester, potential expansion expenditures at Silvertip and underground development at Palmarejo and Kensington. Capital expenditures in the three months ended March 31, 2020 were primarily related to underground development at Silvertip, Palmarejo, and Kensington and POA 11 capital expenditures at Rochester. Cash Provided by Financing Activities Net cash provided by financing activities in the three months ended March 31, 2021 was $119.6 million compared to $23.4 million in the three months ended March 31, 2020. During the three months ended March 31, 2021, the Company received net proceeds of $367.5 million from the issuance of the 2029 Senior Notes, partially offset by the tender and redemption of the 2024 Senior Notes for $238.3 million, including premiums. During the three months ended March 31, 2020, the Company drew $50.0 million from the RCF, partially offset by the payment of contingent consideration of $18.8 million associated with the Silvertip acquisition. Critical Accounting Policies and Accounting Developments Please see Note 2 -- Summary of Significant Accounting Policies contained in the 2020 10-K and in Note 2 - Summary of Significant Accounting Policies contained in this Report for the Company’s critical accounting policies and estimates. 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. 35 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 in the tables below. 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: Three Months Ended March 31, In thousands except per share amounts 2021 2020 Net income (loss) $ 2,060 $ (11,900) Fair value adjustments, net 3,799 8,819 Foreign exchange loss (gain) (43) (6,620) (Gain) loss on sale of assets and securities (4,053) (374) Loss on debt extinguishment 9,172 — Silvertip inventory write-down — 10,381 Silvertip temporary suspension costs — 3,509 Silvertip lease modification — (4,051) Silvertip gain on contingent consideration — (955) COVID-19 costs 3,005 272 Adjusted net income (loss) $ 13,940 $ (919) Adjusted net income (loss) per share - Basic $ 0.06 $ 0.00 Adjusted net income (loss) per share - Diluted $ 0.06 $ 0.00 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 2029 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: 36 Three Months Ended March 31, In thousands except per share amounts 2021 2020 Net income (loss) $ 2,060 $ (11,900) Interest expense, net of capitalized interest 4,910 5,128 Income tax provision (benefit) 12,786 (3,939) Amortization 29,937 36,162 EBITDA 49,693 25,451 Fair value adjustments, net 3,799 8,819 Foreign exchange (gain) loss 773 76 Asset retirement obligation accretion 2,905 2,847 Inventory adjustments and write-downs 572 476 (Gain) loss on sale of assets and securities (4,053) (374) Loss on debt extinguishment 9,172 — Silvertip inventory write-down — 10,381 Silvertip temporary suspension costs — 3,509 Silvertip lease modification — (4,051) Silvertip gain on contingent consideration — (955) COVID-19 costs 3,005 272 Adjusted EBITDA $ 65,866 $ 46,451 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 less Capital expenditures 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 , which the Company believes to be the GAAP financial measure most directly comparable to Free Cash Flow. Three Months Ended March 31, (Dollars in thousands) 2021 2020 Cash flow from operations $ (4,359) $ (7,991) Capital expenditures 59,424 22,208 Free cash flow $ (63,783) (30,199) Operating Cash Flow Before Changes in Working Capital Management uses Operating Cash Flow Before Changes in Working Capital as a non-GAAP measure to analyze cash flows generated from operations. Operating Cash Flow Before Changes in Working Capital is Cash Provided By (used in) Operating Activities excluding the change in Receivables , Prepaid expenses and other , Inventories and Accounts payable and accrued liabilities as presented on the Consolidated Statements of Cash Flows. The Company believes Operating Cash Flow Before Changes in Working Capital is also useful as one of the bases for comparing the Company’s performance with its competitors. Although Operating Cash Flow Before Changes in Working Capital and similar measures are frequently used as measures of cash flows generated from operations by other companies, the Company’s calculation of Operating Cash Flow Before Changes in Working Capital is not necessarily comparable to such other similarly titled captions of other companies. The following table sets forth a reconciliation of Operating Cash Flow Before Changes in Working Capital, a non-GAAP financial measure, to Cash Provided By (used in) Operating Activities , which the Company believes to be the GAAP financial measure most directly comparable to Operating Cash Flow Before Changes in Working Capital. 37 Three Months Ended March 31, (Dollars in thousands) 2021 2020 Cash provided by (used in) operating activities $ (4,359) $ (7,991) Changes in operating assets and liabilities: Receivables (999) 813 Prepaid expenses and other 655 346 Inventories 17,486 21,925 Accounts payable and accrued liabilities 28,797 15,051 Operating cash flow before changes in working capital $ 41,580 $ 30,144 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. Three Months Ended March 31, 2021 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) $ 43,047 $ 27,610 $ 44,839 $ 21,207 $ 1,086 $ 137,789 Amortization (9,059) (3,577) (13,445) (2,475) (1,086) (29,642) Costs applicable to sales $ 33,988 $ 24,033 $ 31,394 $ 18,732 $ — $ 108,147 Metal Sales Gold ounces 25,687 6,934 31,595 18,896 83,112 Silver ounces 1,637,695 771,354 26,455 — 2,435,504 Zinc pounds — — Lead pounds — — Costs applicable to sales Gold ($/oz) $ 622 $ 1,317 $ 994 $ 954 Silver ($/oz) $ 11.00 $ 19.32 $ — Zinc ($/lb) $ — Lead ($/lb) $ — 38 Three Months Ended March 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) $ 49,149 $ 19,860 $ 42,429 $ 20,267 $ 23,002 $ 154,707 Amortization (13,175) (2,904) (11,922) (2,444) (5,345) (35,790) Costs applicable to sales $ 35,974 $ 16,956 $ 30,507 $ 17,823 $ 17,657 $ 118,917 Metal Sales Gold ounces 31,287 5,473 32,781 16,094 85,635 Silver ounces 1,894,789 632,237 14,768 158,984 2,700,778 Zinc pounds 3,203,446 3,203,446 Lead pounds 2,453,485 2,453,485 Costs applicable to sales Gold ($/oz) $ 644 $ 1,394 $ 931 $ 1,092 Silver ($/oz) $ 8.35 $ 14.75 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. 39 Cautionary Statement Concerning Forward-Looking Statements This report contains numerous forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) relating to the Company’s gold, silver, zinc and lead mining business, including statements regarding operations at the Company’s mines, exploration and development efforts, expectations regarding the Rochester POA 11 expansion project, COVID-19 planning, response and mitigation efforts, hedging strategies, realization of deferred tax assets, expectations about the recovery of VAT in Mexico, timing of completion of obligations under the Amended Sales Contract at Kensington, liquidity management, financing plans, and risk management strategies. Such forward-looking statements are identified by the use of words such as “believes,” “intends,” “expects,” “hopes,” “may,” “should,” “plan,” “projected,” “contemplates,” “anticipates” or similar words. Actual results could differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ materially from those projected in the forward-looking statements include (i) the risk factors set forth in Part II, Item 1A of this report and in “Risk Factors” section of the 2020 10-K, and the risks set forth in this MD&A and Item 3 of this report, (ii) the risks and hazards inherent in the mining business (including risks inherent in developing large-scale mining projects, environmental hazards, industrial accidents, weather or geologically related conditions), (iii) changes in the market prices of gold, silver, zinc and lead and a sustained lower price or higher treatment and refining charge environment, (iv) the uncertainties inherent in the Company’s production, exploratory and developmental activities, including risks relating to permitting and regulatory delays (including the impact of government shutdowns), ground conditions and grade variability, (v) any future labor disputes or work stoppages (involving the Company and its subsidiaries or third parties), (vi) the uncertainties inherent in the estimation of mineral reserves and mineralized material, (vii) changes that could result from the Company’s future acquisition of new mining properties or businesses, (viii) the loss of access to any third-party smelter to whom the Company markets its production, (ix) the potential effects of the COVID-19 pandemic, including impacts to the availability of our workforce, continued access to financing sources, government orders that may require temporary suspension of operations at one or more of our sites and effects on our suppliers or the refiners and smelters to whom the Company markets its production, (x) the effects of environmental and other governmental regulations, (xi) the risks inherent in the ownership or operation of or investment in mining properties or businesses in foreign countries, and (xii) the Company’s ability to raise additional financing necessary to conduct its business, make payments or refinance its debt. Readers are cautioned not to put undue reliance on forward-looking statements. The Company disclaims any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise.