La Preciosa PEA provides no relief for Coeur’s share price

VANCOUVER — Coeur Mining (TSX: CDM; NYSE: CDE) has completed a preliminary economic assessment (PEA) of its La Preciosa silver mine project in Mexico. However, any future  development  likely hinges on whether Coeur can improve the project’s economics ahead of a full feasibility study — and whether the company can halt its share price slide.

Located in Durango state, La Preciosa is home to 51.9 million measured and indicated tonnes grading 87.4 grams silver per tonne and 0.17 gram gold per tonne, plus 17.7 million inferred tonnes of 66.1 grams silver and 0.10 gram gold. 

Coeur’s PEA considers an open-pit operation exploiting 53.6 million tonnes grading 82.2 grams silver and 0.14 gram gold over a 14-year mine life. The currently proposed pit would have a relatively high strip ratio of 10.6 to 1.

The mill would churn through 10,000 tonnes of material daily. Silver and gold would be recovered using agitated cyanide leaching, and at good rates: the process is expected to extract 86% of the silver and 82% of the gold contained in the rocks. With later clarification and Merrill-Crowe treatment, Coeur could produce silver-gold doré on-site. 

For the 14 years of open-pit operations, the mine would produce 9.1 million oz. silver annually, at an average operating cost of US$13.86 per oz. The processing facility would operate for another three years to work through stockpiled, lower-grade material.

According to the PEA, it would cost US$348 million to develop a mine at La Preciosa. Using a US$25 per oz. silver price, a US$1,500 per oz. gold price and a 5% discount rate, the operation carries an after-tax net present value of US$314 million and generates a 17% after-tax internal rate of return. With this return, capital expenditures could be paid back in 5.3 years.

“The results of this initial PEA demonstrate the viability of the La Preciosa open-pit project at higher silver and gold prices, and provide a solid foundation that we believe will enhance the project’s economics over time,” says Mitchell Krebs, Coeur’s president and CEO. 

Krebs acknowledges the base case silver and gold prices used in the PEA are higher than current spot prices. On the day the study was released silver was trading at US$19.10 per oz. and gold at US$1,238 per oz.

And yet, these are still early days for La Preciosa. Coeur has outlined opportunities to optimize the project, ranging from infill and exploration drilling to improving recoveries and refining pit designs. Krebs says that in the near-term Coeur will focus on drilling to upgrade inferred resources and potentially add to the resources ahead of a feasibility study.

In addition to optimizing pit and plant designs, the feasibility study will compare the tailings options at La Preciosa — dry stacking versus conventional storage — and assess cyanide destruction methods. All told, Coeur expects to spend $12 million at the project this year. Half of this has gone into preparing the PEA, while the other half is for exploration and feasibility work. The company has budgeted $18 million for La Preciosa next year.

Coeur expects to complete the feasibility study in the second half of 2014, after which the company will make a construction decision. Construction would take two years. 

La Preciosa sits within a block of concessions totalling 320 sq. km. The La Preciosa deposit and most of the prior exploration work are contained within an 11 sq. km portion of the overall property, which means more than 95% of the land package remains unexplored.  Coeur intends to explore the area systematically with infill drilling, expansion drilling and regional exploration. 

The La Preciosa PEA did nothing for Coeur’s share price, which fell 45¢ on the day to close at $12.44. The loss continued a trend for the company, which has not fared well in the markets of late. 

In early November Coeur’s share price lost 20% in a day after the company missed third-quarter earnings expectations and announced a third-quarter net loss of $15.8 million. Operational issues at Coeur’s Palmarejo mine in Chihuahua state and higher costs at its Kensington mine in Alaska added to investors’ concerns, as did news that Coeur’s first-quarter earnings per share were just 7¢, which is notably below Thomson Reuters’ consensus estimate of 27¢. 

As a result Coeur’s share price is down more than 60%, compared to its $31.81 high on Nov. 1.

In June and July several analysts downgraded their Coeur ratings. For example, BMO Capital Markets downgraded Coeur to “underperform” from “market perform” and reduced their target price to $10 from $16.50. Shares traded at C$13.92 and US$13.50 at press time.

VANCOUVER — Coeur Mining (TSX: CDM; NYSE: CDE) has completed a preliminary economic assessment (PEA) of its La Preciosa silver mine project in Mexico. However, any future  development  likely hinges on whether Coeur can improve the project’s economics ahead of a full feasibility study — and whether the company can halt its share price slide.

Located in Durango state, La Preciosa is home to 51.9 million measured and indicated tonnes grading 87.4 grams silver per tonne and 0.17 gram gold per tonne, plus 17.7 million inferred tonnes of 66.1 grams silver and 0.10 gram gold. 

Coeur’s PEA considers an open-pit operation exploiting 53.6 million tonnes grading 82.2 grams silver and 0.14 gram gold over a 14-year mine life. The currently proposed pit would have a relatively high strip ratio of 10.6 to 1.

The mill would churn through 10,000 tonnes of material daily. Silver and gold would be recovered using agitated cyanide leaching, and at good rates: the process is expected to extract 86% of the silver and 82% of the gold contained in the rocks. With later clarification and Merrill-Crowe treatment, Coeur could produce silver-gold doré on-site. 

For the 14 years of open-pit operations, the mine would produce 9.1 million oz. silver annually, at an average operating cost of US$13.86 per oz. The processing facility would operate for another three years to work through stockpiled, lower-grade material.

According to the PEA, it would cost US$348 million to develop a mine at La Preciosa. Using a US$25 per oz. silver price, a US$1,500 per oz. gold price and a 5% discount rate, the operation carries an after-tax net present value of US$314 million and generates a 17% after-tax internal rate of return. With this return, capital expenditures could be paid back in 5.3 years.

“The results of this initial PEA demonstrate the viability of the La Preciosa open-pit project at higher silver and gold prices, and provide a solid foundation that we believe will enhance the project’s economics over time,” says Mitchell Krebs, Coeur’s president and CEO. 

Krebs acknowledges the base case silver and gold prices used in the PEA are higher than current spot prices. On the day the study was released silver was trading at US$19.10 per oz. and gold at US$1,238 per oz.

And yet, these are still early days for La Preciosa. Coeur has outlined opportunities to optimize the project, ranging from infill and exploration drilling to improving recoveries and refining pit designs. Krebs says that in the near-term Coeur will focus on drilling to upgrade inferred resources and potentially add to the resources ahead of a feasibility study.

In addition to optimizing pit and plant designs, the feasibility study will compare the tailings options at La Preciosa — dry s
tacking versus conventional storage — and assess cyanide destruction methods. All told, Coeur expects to spend $12 million at the project this year. Half of this has gone into preparing the PEA, while the other half is for exploration and feasibility work. The company has budgeted $18 million for La Preciosa next year.

Coeur expects to complete the feasibility study in the second half of 2014, after which the company will make a construction decision. Construction would take two years. 

La Preciosa sits within a block of concessions totalling 320 sq. km. The La Preciosa deposit and most of the prior exploration work are contained within an 11 sq. km portion of the overall property, which means more than 95% of the land package remains unexplored.  Coeur intends to explore the area systematically with infill drilling, expansion drilling and regional exploration. 

The La Preciosa PEA did nothing for Coeur’s share price, which fell 45¢ on the day to close at $12.44. The loss continued a trend for the company, which has not fared well in the markets of late. 

In early November Coeur’s share price lost 20% in a day after the company missed third-quarter earnings expectations and announced a third-quarter net loss of $15.8 million. Operational issues at Coeur’s Palmarejo mine in Chihuahua state and higher costs at its Kensington mine in Alaska added to investors’ concerns, as did news that Coeur’s first-quarter earnings per share were just 7¢, which is notably below Thomson Reuters’ consensus estimate of 27¢. 

As a result Coeur’s share price is down more than 60%, compared to its $31.81 high on Nov. 1.

In June and July several analysts downgraded their Coeur ratings. For example, BMO Capital Markets downgraded Coeur to “underperform” from “market perform” and reduced their target price to $10 from $16.50. Shares traded at C$13.92 and US$13.50 at press time.