Coeur to acquire JDS’ Silvertip mine

VANCOUVER — Chicago-based Coeur Mining (NYSE: CDE) is coming to British Columbia pending a US$200-million cash-and-share deal for JDS Silver and the fledgling Silvertip silver-zinc-lead mine, 16 km south of the Yukon border.

Coeur plans to close the underground operation for six months and optimize its mine plan, and pursue permit amendments to boost throughput from 500 tonnes to 1,000 tonnes per day.

Coeur will pay US$146.5 million in cash, US$38.5 million in shares and assume S$15 million in outstanding debt. The company has also committed to more payments of US$50 million, depending on achieving permitting and exploration milestones.

JDS Silver’s Silvertip silver-lead-zinc mine in northern British Columbia. Credit: JDS Silver.

JDS Silver is a private mining subsidiary of engineering firm JDS Energy and Mining, which bought the asset from Silvercorp Metals (TSX: SVM) for $15.5 million in late 2013. The company is backed by U.S. private equity firm Denham Capital, which invested US$65 million in Silvertip in October 2016.

“This is certainly a unique situation in terms of buying a private company. I’d say that JDS has done a good job advancing the project, but like most mine commissioning it’s not a linear path,” acknowledged Coeur president and CEO Mitchell Krebs during a conference call. He added that there have been “a couple snags” in the Silvertip mill.

Coeur revealed that JDS was hit with two stop-work orders earlier this year from B.C.’s Ministry of Energy, Mines and Petroleum Resources related to “dust in the mill facility.”

Krebs said one order has already been lifted, while the second is “expected to be lifted soon.”

“Those situations certainly impacted their ramp-up momentum this year,” Krebs said. “JDS’ objective has always been to advance the project and then turn it over to a proven operator, and we see a lot of opportunities to do things a bit differently.”

Coeur reckons it will need to spend between US$25 million and US$35 million in incremental capital before declaring commercial production at Silvertip in early 2018. These primary investments would include mill optimization, as well as underground development and drilling.

Coeur Mining president and CEO Mitchell Krebs. Credit: Coeur Mining.

The project hosts indicated resources of 2.35 million tonnes grading 353 grams silver per tonne, 9.41% zinc and 6.73% lead.

Coeur estimates a 1,000-tonne-per-day operation would produce 10 million equivalent oz. silver annually, which would consist of 3 million oz. silver, 45 million lb. zinc and 42 million lb. lead. The project has an estimated 7.5-year mine life.

Coeur also said it believes in the “discovery upside” across the 370 sq. km Silvertip land package. The company pointed out that only 5% of the property has been explored.

“Current resources represent the edge of a much larger mineral system, so we intend to launch an aggressive drill program,” Krebs said.

Coeur could fund the cash portion of the deal via its treasury, and US$100 million from a new US$200-million revolving credit.

BMO Capital Markets analyst Andrew Kaip has an “outperform” rating on Coeur along with an US$11-per-share price target.

“The acquisition makes sense,” Kaip wrote on Sept. 11. “Silvertip’s high grades [and low costs] will help to improve operating margins and bolster diversification. We also note that [the acquisition] will add lead and zinc to Coeur’s revenue mix.”

Canaccord Genuity analyst Dalton Baretto has a “buy” rating on Coeur, alongside a US$13.50-per-share price target. He noted on Sept. 14 that the “purchase price [for Silvertip] is rich,” and that realizing value from the deal “will depend on exploration success and further optimization of the mine plan as currently presented.”

Coeur shares have traded in a 52-week range of US$7.30 to US$13.65, and closed up US10¢ after the news en route to a U$9.44-per-share close at press time.

The company has 181.5 million shares outstanding for a US$1.7-billion market capitalization, and expects to issue 4.3 million shares in the Silvertip deal.