Expanded Resource Improves Palmarejo Economics

Development economics for the Palmarejo silver-gold project in southwestern Chihuahua state, Mexico, point to combined open-pit and underground operations producing about 10 million oz. silver annually, while additional drilling by owner Palmarejo Silver and Gold (PJO-V) has moved more of the resource into the indicated category.

Coeur d’Alene Mines (CDE-N, CDM-T) performed an in-house scoping study on development of the project, which is near Temoris, about 280 km southwest of Chihuahua city. The study is part of an integrated development plan between Coeur, Palmarejo, and their merger partner Bolnisi Gold (bsg-a).

Coeur’s study looked at an open pit producing about 800,000 tonnes per year along with an underground mine hoisting 540,000 to 720,000 tonnes annually, and concluded the operation would provide US$432 million in net cash flow over an 8-year mine life.

Coeur estimated capital costs at US$253.7 million over the life of the mine (including US$6 million in pre-stripping), with another US$13 million in closure costs offset by US$2 million in salvage. About a quarter of the capital costs would go into the processing plant, a conventional flotation mill feeding a carbon-in-leach circuit, and another quarter into underground mine development. The tailings dam and water diversion would soak up US$40 million of the costs. Operating costs, assuming prices of US$550 per oz. for gold and US$10 per oz. for silver, were a negative US37 per oz. for silver production, crediting gold revenues as a credit. Average cash cost per tonne over the life of the mine was US$37. Estimated underground mining costs were US$17 per tonne, against US$1.65 per tonne for ore and waste in the pit. Processing costs contributed US$17.60 per tonne.

Metallurgical testing showed average recoveries around 90% for silver and around 94% for gold.

The proposed open pit took in measured and indicated resources of 4.5 million tonnes grading 213 grams silver and 1.63 grams gold per tonne, plus 238,000 tonnes of inferred resources averaging 254 grams silver and 1.95 grams gold.

Underground mining in this scenario would exploit 5.4 million tonnes, measured and indicated, averaging 239 grams silver and 3.06 grams gold per tonne, plus 151,000 tonnes in the inferred category, at 283 grams silver and 3.03 grams gold per tonne. At this stage Coeur has not calculated a reserve figure.

The measured and indicated resource at the Palmarejo deposit, one of three on the property — Guadalupe and La Patria are the others — is 14.5 million tonnes, about 4.6 million tonnes more than the resource in the pit and underground plan. Average grades are 191 grams silver and 2.08 grams gold per tonne. Another 4 million tonnes fall into inferred resources, at grades of 138 grams silver and 1.31 grams gold per tonne.

The resource at the Palmarejo deposit proper was the only one considered in the feasibility study.

In a discounted cash flow model, the project has a net present value, before taxes, of US$290 million at a 5% discount rate. The internal rate of return is 32%. The strongest sensitivity is to gold and silver prices, with the net present value falling to US$130 million and the internal rate of return to 15% at prices at 80% of the study’s assumed prices. With prices 20% higher than the base case, the net present value rises to US$460 million, with an internal rate of return around 48%.

By comparison, it was relatively insensitive to changes in cost, with a 20% upward or downward variation in operating or capital costs taking the project through a range of US$250 million to US$340 million in net present value.

While Coeur was busy with the mining plan, Palmarejo has roughly doubled the size of the mineral resource at the Guadalupe deposit.

The new estimate, by consulting firm Mine Development Associates, calculated an indicated resource of 710,000 tonnes grading 2.15 grams gold and 166 grams silver per tonne, and an inferred resource of 8 million tonnes grading 1.34 grams gold and 136 grams silver per tonne. Both resources were calculated at a cutoff grade of 0.8 gram per tonne gold-equivalent at less than 150 metres depth and 2.5 grams per tonne from 150 metres down.

The previous resource estimate, all inferred, was 5.7 million tonnes at grades of 0.83 gram gold and 106 grams silver per tonne, based on a shallow cutoff of 0.8 gram and a deep cutoff of 3 grams per tonne, with the transition at the 1,300-metre elevation, about the same as the 150-metre depth cutoff.

Gold equivalent grades in silver were set at 1/55 of measured silver grades, in common with the Coeur feasibility study.

The mineralization at Guadalupe is in a 2-km-long system of quartz veins, which dip to the northeast. Along the vein system are four prospects, Guadalupe Norte, Guadalupe, El Salto, and Las Animas. The mineralization in the veins is zoned, with silver near the surface and gold grades rising at depth.

The calculation did not take in recent drilling at Guadalupe, mainly at depth on Norte, Guadalupe, and Animas. A 34-hole program — 7,000 metres of diamond drilling and 2,500 metres of reverse-circulation drilling — intersected multiple mineralized zones of quartz or carbonate breccia in most holes.

True widths of the mineralization mainly varied from 2 to 12 metres, occasionally widening (the longest interval was 34.5 metres, or about 26 metres true width, grading 47 grams silver and 1.04 grams gold per tonne).

Among the better intersections were one of 22.5 metres grading 193 grams silver and 3.29 grams gold per tonne, about 17.2 metres in true width, and one of 17.5 metres grading 152 grams silver and 1.22 grams gold per tonne, about 11.3 metres true width. Both were at depth on Guadalupe Norte.

The resource at La Patria is 3.6 million tonnes grading 35 grams silver and 1.49 grams gold per tonne, all inferred.

Actual development work continues, with about US$55 million of the budget expended at the end of the second quarter. Site preparation was slightly behind schedule at that stage, but structural steel erection for the mill and leach plant was under way. A mill was ready to be shipped from South Africa. The national power utility is building a power line at a cost to the project of US$8.5 million, and an on-site diesel generation station is also under construction.

Palmarejo has a lease in place for a mining fleet, covering 95% of the cost of equipment, and tenders were in for contract mining.

Meanwhile, Coeur has filed the preliminary proxies to issue shares in its proposed takeover of Palmarejo and Bolnisi. Coeur is offering to take over Bolnisi and Palmarejo in an all-paper transaction that values the two companies at US$1.1 billion. Bolnisi shareholders would get 0.682 of a Coeur share for one Bolnisi, and Palmarejo shareholders 2.715 shares of Coeur for one Palmarejo.

The merger agreements have been amended to stretch the timeline for the merger, which was originally planned to close in the third quarter of the year. Now the parties expect to have the merger complete by year-end.