Coeur to take 100% of Joaquin

Some mining companies find it tough going in Argentina, particularly in less mining-friendly provinces like Chubut where the state government has proposed higher taxes and royalties. And even in more benign, mining friendly states like Santa Cruz, foreign investors still have to navigate the shifting political winds that can often blow hot and cold on foreign investment and ownership, not to mention the variable rules on foreign exchange.

But it is the sheer prospectivity of the country that keeps drawing companies in or keeping them there. Yesterday, Coeur d’Alene Mines (CDM-T, CDE-N) announced it was purchasing the remaining 49% of the Joaquin silver-gold project that it  doesn’t own from Mirasol Resources (MRZ-V) for US$60 million (US$30 million in cash and 1.3 million common shares in its company).

President and chief executive Mitchell Krebs said in a prepared statement that he believes Joaquin has substantial exploration upside and the potential to become a significant silver producer for the company. The project currently has 38.4 million silver ounces and 39,600 oz. gold in the measured and indicated category and  31.3 million oz. silver and 19,400 oz. gold in the inferred category.

Krebs was travelling and unavailable for an interview, but company spokeswoman Stefany Bales says taking 100% of the project meets the company’s criteria of an expected double-digit rate of return based on the work done at Joaquin to date, and that the acquisition is accretive to shareholders on a net asset value per share and resource ounces per share basis.

In an email response to questions about political risk in Argentina, she also noted that mining is an important contributor to the South American nation’s economy and is supported at both the federal and provincial levels.

“We are being opportunistic as, in our view, Argentina, and the Santa Cruz province in particular, is a very attractive country for silver and gold production and exploration,” she writes. “Having said that, any development decision at Joaquin will be based on an assessment of the political climate and business environment in Argentina. We can and will be flexible.”

She added that Coeur is “cautiously optimistic about improvements in Argentina that will facilitate renewed mining investment” including the country’s significant and long-established precious metal, base metal and iron ore mining activities and its favourable geological characteristics with roughly 75% of the country still unexplored.

Bales also pointed to the company’s decade of successfully operating its Martha mine, about 100 km southeast of Joaquin, and described Santa Cruz as the most prolific and generally mining friendly province in Argentina. She also noted that in 2010, mining exports in Argentina generated a $5 billion surplus and constituted the country’s fourth-largest export sector, accounting for 6.4% of total exports.

Shares of both Coeur d’Alene Mines and Mirasol were up on the news. In Toronto Mirasol closed 2.4% higher at $2.15 while shares of Coeur rose 2.11% to $23.36.

Andrew Kaip of BMO Capital Markets resumed his coverage of Coeur after news of the purchase with a target price of US$31 per share. He argues the impact of the acquisition is potentially positive and increases Coeur’s total silver resource base by 11% to 345.4 millon oz.

He estimates the company’s payable production in 2012 should reach 19 million oz. silver and 213,000 oz. gold at co-product cash costs of  US$17.98 per oz. silver. Kaip notes that Coeur trades at 1.3 times the 10% nominal net present value estimate of US$18.26 per share at spot metal prices, below its senior silver producer peers, which trade at 1.5 times.