Coeur d’Alene invests in low-cost growth

Vancouver — A reserve expansion program and development of a new gold mine kept Coeur d’Alene Mines (CDM-T) in the red during the second quarter and first half of this year.

The world’s largest primary silver producer posted a net loss of US$1.5 million, or US1 per share, in the second quarter ended June 30, compared with a net loss of US$5.4 million, or US3 a share, in the same quarter a year earlier. The results include US$3.3 million for a reserve-expansion program and US$3.7 million for pre-development of the Kensington gold mine being erected in the Alaskan Panhandle.

The company’s net loss for the 2005 first half of 2005 was US$3.3 million, down from US$7.1 million a year earlier. Revenue increased to US$76.4 million from US$56.1 million in the first half of 2004.

Coeur d’Alene operates mines and advanced projects in Idaho, Nevada, Alaska, Argentina, Chile, Bolivia, and Australia. The company produced 3.1 million oz. silver and 30,300 oz. gold in the latest quarter, compared with 3.3 million oz. silver and 28,037 oz. gold a year earlier.

Cash costs in the latest quarter averaged US$5.44 per oz. silver, while total costs averaged US$6.94 per oz. silver, up from US$4.41 and US$5.79 per oz., respectively, a year earlier.

During a recent conference call with analysts and shareholders, President Dennis Wheeler said Coeur is continuing to transform itself into a global silver producer with low-cost, long-life mines. At present, the bulk of the company’s production still comes from aging, high-cost mines, notably in Idaho and Nevada.

More than one-third of production comes from the Rochester mine in Nevada. The open-pit operation produced 1.2 million oz. silver in the latest quarter at cash costs of US$7.58 per oz. and total costs of US$9.93 per oz. This compares with 1.3 million oz. silver produced at cash costs of US$4.54 and total costs of US$6.36 per oz. in the second quarter of 2004.

Rochester also produced 14,412 oz. gold in the latest quarter, down from 16,005 oz. a year earlier.

Production costs climbed at the company’s Galena mine in Idaho, mostly because of low grades and production shortfalls. The underground operation produced 559,700 oz. silver at cash costs of US$8.05 and total costs of US$8.95 per oz. This compares with 954,964 oz. silver produced at cash costs of US$4.95 and total costs of US$5.47 per oz. a year earlier. The latest results are viewed as “unacceptable” and steps are being taken to reduce production costs in future quarters.

The Cerro Bayo mine in southern Chile cemented its reputation as a low-cost producer, with total costs of US$2.28 per oz., down from US$6.42 per oz. a year earlier. The mine produced 691,846 oz. silver in the latest quarter, along with 15,100 oz. gold.

The Martha mine in Argentina produced 606,121 oz. silver at total costs of US$4.78 per oz. in the latest quarter, along with 735 oz. gold. In the comparable quarter a year earlier, the mine produced 477,126 oz. silver and 662 oz. gold.

Wheeler noted that Coeur’s latest US$3.3-million investment in exploration resulted in a 38% increase in resources (3.9 million oz.) at Cerro Bayo and Martha.

Coeur d’Alene acquired the Endeavor silver mine in Australia earlier this year for US$38.5 million. The company’s share of production from May 23 through June was 58,464 oz. at a cash cost of US$1.89 per oz. The Endeavor acquisition is targeted to contribute about 700,000 oz. of low-cost silver this year.

Total production from all mines in 2005 is expected to total 13.5 million oz. at cash costs of between US$4.30 and US$4.40 per oz. Gold production is projected at 130,000 oz. for the full year.

Coeur d’Alene is looking for growth at the Kensington gold mine now that all permits for construction are finally in hand. The company has spent more than 15 years exploring and developing the underground project.

Mine construction is under way, and by early 2007, Kensington is expected to produce at an annual rate of 100,000 oz. gold at cash costs of about US$250 per oz. Capital costs are estimated at about US$105 million. A U$3-million exploration program is under way to boost reserves beyond the present 10-year mine-life.

Wheeler says Coeur is taking a “prudent” approach to developing the San Bartolome silver project in Bolivia, given recent political uncertainty in the South American nation.

The company still hopes to begin production in 2007, and is continuing engineering and procurement activities with that start date in mind. The project has a large reserve base of about 152 million oz. silver that could be mined at costs of about US$3.50 per oz.

Coeur recently signed a preliminary agreement to form a “strategic alliance” with a Chinese metals company for silver mining opportunities in China. If any projects of commercial interest are identified, the companies would form a partnership to develop and operate the projects.