Coeur revamps Palmarejo mine plan

VANCOUVER — It’s been almost six years since U.S. producer Coeur Mining (TSX: CDM; NSYE: CDE) last released a mine plan for its wholly owned Palmarejo gold–silver operation, 420 km southwest of Chihuahua, Mexico, and a lot has changed in that time.

Palmarejo was an open-pit mine when it was commissioned in 2009, but Coeur is now aiming for what it describes as a “lower-tonnage, higher-grade, higher-margin underground operation” that prioritizes “cash flow over production ounces.”

Dwindling open-pit reserves — which the company now expects to provide mill feed through mid-2015 — and volatile precious-metal prices drove the decision to focus on underground ounces at the nearby Guadalupe deposit, which could become Palmarejo’s main ore source by 2016.

The end result is a mine schedule that has a shorter life at lower throughput levels. As such Coeur is focusing on a “subset of reserves based on economic prices” of US$20 per oz. silver and US$1,300 per oz. gold.

The higher-grade material will originate from 42% of Guadalupe’s underground proven and probable reserves, 42% of Guadalupe’s inferred underground resources, 57% from Palmarajo’s proven and probable underground reserves, and 65% from Palmarejo’s proven and probable open-pit reserves.

The updated plan schedules Palmarejo’s production through 2021, and would churn out 28.2 million oz. silver and 553,000 oz. gold over that period, with recoveries pegged at 83% silver and 87% gold. Coeur estimates the plan would cost US$157 million and generate operating cash flows of US$587 million over the mine’s life. Net cash flows are estimated at US$239 million, while the net present value at a 10% discount rate totals US$134 million.

Expected capital expenditures over the mine’s life include US$4 million each year for capitalized drilling, with US$24 million of the total to be spent on upgrading the inferred mineral resources at Guadalupe. Spending for underground mine development is expected to ramp up to US$10 million per year in 2016 and 2017, when the inferred material is expected to come into production.

Earlier this year Coeur commissioned a Merrill–Crowe facility to improve recovery rates. Blending of a range of ore types has reportedly boosted both silver and gold. Recovery rates tend to be higher for Palmarejo’s underground ore due to the lower oxide content underground compared to near-surface material. As Coeur feeds more underground sulphide ore to the mill, recovery rates are expected to further improve.

In a release president and CEO Mitchell Krebs says that the plan “demonstrates the significance of Guadalupe to Palmarejo’s future, which is why our recent decision to place Guadalupe into production next year was so important . . . in addition, the modified economics of the recently announced new gold-stream agreement with Franco-Nevada will help boost Palmarejo’s future cash-flow profile.”

Not surprisingly, the updated mine plan estimates total production of 6.83 million oz. silver this year, but a drop in production to 4.5 million oz. for 2015. Palmarejo’s gold output for this year is pegged at 86,000 oz., and will drop to 72,000 oz. gold in 2015.

Coeur has traded within a 52-week range of $6.62 and $16.95, and closed down 4.2% at press time at $8.22 per share. The company has 103.5 million shares outstanding for an $851-million market capitalization.