Coeur to take 100% of Joaquin

Some mining companies find it tough in Argentina — and particularly in less mining-friendly provinces like Chubut — where the provincial government has proposed higher taxes and royalties. And even in more benign, mining friendly provinces 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 draws companies in, or keeps them there. On Dec. 11, Coeur d’Alene Mines (CDM-T, CDE-N) announced it will buy 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).

Coeur president and CEO 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 has 38.4 million silver oz. and 39,600 oz. gold in the measured and indicated categories, 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 spokesperson Stefany Bales says that 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-ounce-per-share basis.

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

“We are being opportunistic, as in our view, Argentina — and the Santa Cruz province in particular — is an 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 says Coeur is “cautiously optimistic about improvements in Argentina that would facilitate renewed mining investment,” including the country’s long-established precious metal, base metal and iron ore mining activities and its favourable geology, with 75% of the country still unexplored.

Bales points to the company’s decade of operating its Martha mine, about 100 km southeast of Joaquin, and describes Santa Cruz as the most prolific and mining-friendly province in Argentina. She notes 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 Coeur and Mirasol were up on the news. In Toronto, Mirasol closed 2.4% higher at $2.15, while shares of Coeur rose 2% 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 that the acquisition’s impact is potentially positive, and increases Coeur’s total silver resource base by 11% to 345.4 million oz. silver.

He estimates that the company’s payable production in 2012 would 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.