PRECIOUS METALS — Coeur consolidates ownership in Silver Valley

Coeur d’Alene Mines (CDE-N) will acquire the silver assets of Asarco (AR-N) in return for a portion of its outstanding shares.

At present, Coeur d’Alene and Asarco share ownership in Silver Valley Resources, which operates the Coeur and Galena mines in northern Idaho.

In a transaction valued at US$33 million, Asarco will sell its half-interest in Silver Valley, and several other assets, in return for 7.1 million, or 19.3%, of Coeur d’Alene’s shares.

Asarco developed the Galena mine, near Wallace, under a lease that was executed in 1947 with Coeur d’Alene and its predecessor companies. Originally a lead mine, Galena switched to mining high-grade silver in the mid-1950s.

Asarco later developed the Coeur mine, two miles west of Galena, under a joint venture with Coeur d’Alene in 1964. Falling silver prices forced both mines to close in the 1980s.

In October 1994, the two companies formed a joint company, Silver Valley, to operate the mines. Production resumed at Coeur in May 1996 and Galena reopened in the following year.

Silver Valley produced 3.6 million oz. silver in 1997, and 3.4 million oz. in 1998. In the first quarter of 1999, it produced 918,930 oz. from Galena, while the Coeur remained on standby. Cash costs for the quarter were US$4.52 per oz. silver.

Reserves for Silver Valley at the end of 1998 stood at 1.8 million tons grading 18.5 oz. silver per ton, equivalent to 32.5 million oz. silver. Mineralized material not in reserves amounts to another 11.9 million oz. within 1.2 million tons grading 10.2 oz. per ton.

Once it assumes total ownership of Silver Valley, Coeur d’Alene will see its annual silver production increase by 1.8 million oz., to a projected 12.3 million oz. in 1999. The company is also considering expanding, by 5 million oz. per year, the capacity of its mill.

The deal would also see Couer d’Alene acquire Asarco’s Bolivian subsidiary, Empresa Minera Manquiri, which owns the San Bartolome silver project on the flanks of historic Cerro Rico near Potosi. Situated in southern Bolivia, Potosi is the most prolific silver region in the world, having, over the past 450 years, churned out more than 1 billion oz.

In its due diligence for the transaction, Coeur commissioned a resource estimate at San Bartolome. The property was found to have 110 million oz. silver (35 million tons averaging 3.1 oz. per ton) within gravel-like deposits.

Once the Asarco transaction is complete, Coeur d’Alene will launch a feasibility study on the project and begin infill drilling in an attempt to convert the resource to the reserve category. In all, the company expects to spend US$2 million on exploration at San Bartolome in 1999.

Metallurgical work by Asarco suggests mineralization could be amenable to heap leaching, and, provided exploration results are satisfactory, startup could come as early as 2001.

Asarco will also give up a 5% interest in Pan American Silver (PAA-T), representing 1.5 million shares and 500,000 warrants, plus a 20% net profits interest in Quiruvilca, a Peruvian mine operated by Pan American Silver.

Coeur d’Alene’s chairman, Dennis Wheeler, sees the deal as attractive.

“It will increase our near-term production profile, add substantial reserves and resources, and provide future growth prospects, while solidifying our position in two of the world’s most productive silver regions,” he says. “After adjusting for the value of the Pan American shares, we will acquire 132 million oz. of silver resources at less than US20 cents per oz.”

As the largest shareholder in Coeur, Asarco would be entitled to nominate two directors to the company’s board. Most likely, these will be Asarco’s chairman, Frank McAllister, and president, Kevin Morano.

The transaction, which is expected to close in September, has yet to be approved by Coeur d’Alene’s shareholders.

During the recent first quarter, Coeur incurred a loss of US$9.9 million (45 cents per share), compared with a loss of US$60.6 million ($2.77 per share) a year ago.