Palmarejo continues to deliver

Of Coeur d’Alene Mine’s (CDM-T, CDE-N) three producing mines, Palmarejo in northern Mexico is the largest contributor to company sales and operating cash flow. Metal sales from the mine in Chihuahua State last year reached US$513 million — about half the company’s total metal sales — with operating cash flow topping US$299 million and cash operating costs of negative US$0.97 per oz. silver.  

Operated both as an open-pit and underground mine, Palmarejo completed its second full year of production in 2011, churning out 9 million ounces of silver and 125,071 ounces of gold, up from 2010’s 5.9 million ounces of silver and 102,440 ounces of gold. This year the company is betting that Palmarejo will produce between 8.5 million and 9.0 million ounces of silver and between 98,000 and 108,000 ounces of gold.

Production during the second quarter of this year totaled 2.4 million ounces of silver and 31,258 ounces of gold with cash operating costs of negative US$0.85 per oz. silver, compared with negative US$2.27 per oz. silver in the first quarter of 2012.

The higher costs in the second quarter over the first quarter were primarily due to higher maintenance expenses and downtime related to a temporary work stoppage at the mine in May. Sales and operating cash flow atthe mine during the quarter reached US$136.4 million and US$63.6 million, respectively. Capital expenditures came in at US$11.2 million.

On the exploration front, Coeur drilled 32,321 metres in the Palmarejo district during the second quarter spread across targets around the current mine operation and in the Guadalupe area about 6 km away. The company has defined mineralization at Guadalupe over 2.5 km from southeast to northeast and it appears that it remains open to the northwest and at depth. (Coeur believes the Guadalupe deposit will be in production in 2013.) The company also started surface drilling immediately to the northwest of Palmarejo’s mill in the La Blanca Norte zone — a new target defined in the second quarter. This year, US$16 million of the company’s US$40 million exploration budget is dedicated to Palmarejo. (Last year US$13 million was spent on exploration at Palmarejo.)

At the end of last year Palmarejo had proven and probable reserves of 56.8 million ounces of silver and 688,120 ounces of gold. Measured and indicated resources stand at 17 million ounces of silver and 204,520 ounces of gold. Inferred resources add 27.9 million ounces of silver and 611,650 ounces of gold.

Apart from Palmarejo, the silver producer reported strong second quarter results overall. Production reached 4.9 million ounces of silver (the same as in the first quarter) and 63,047 ounces of gold (up 44% over the first quarter), which resulted in US$254.4 million in sales (up 24% from the first quarter), US$88.4 million in operating cash flow (down 6% from first quarter), and a US$47.1 million increase in cash and equivalents and short-term investments to US$200.3 million.

Including changes in working capital, net cash from operating activities totaled $113.2 million compared to $17.0 million in the first quarter. Consolidated cash operating costs totaled US$6.41 per oz. silver, up slightly from the first quarter. Cash operating costs per oz. gold fell 50% from the first quarter to $1,348 and the company expects they will reach US$900 by year-end.

Adjusted earnings totaled US$28.0 million, or US$0.31 per share, compared to US$41.5 million, or US$0.46 per share in the first quarter. Net income reached US$23.0 million, or US$0.26 per share, compared to US$4.0 million, or US$0.04 per share in the first quarter.

Coeur forecasts that it will achieve the high-end of its 2012 silver and gold production guidance of 18.5-20.0 million silver ounces and 210,000-230,000 gold ounces and expects to achieve the low-end of its 2012 guidance for cash operating costs per silver oz. of US$6.50-US$7.50.

In June Coeur’s board of directors announced that the company would repurchase up to US$100 million of its common stock and also finalized a US$100 million, four-year revolving credit facility.

As of June 30 the company held US$200.3 million in cash and short-term investments.

At presstime in Toronto Coeur was trading at $19.63 per share within a 52-week range of $15.52-30.48 and in New York it was trading at US$19.81 per share within a 52-week range of US$15.15-US$30.99.