Coeur d’Alene hits sweet spot (March 11, 2011)

Despite a slight decline in annual production, Idaho-based Coeur d’Alene Mines (CDM-T, CDE-N) cashed in on climbing silver prices in 2010, recording record sales of US$515 million, a 72% increase over 2009 revenue. If precious metal prices remain high, 2011 promises to be an even better year as the producer ramps up production at three new mines.

Silver gave a stellar performance in 2010, with prices soaring by 83% to close the year above US$30 per oz., a 30-year record. The metal’s sudden potency is attributed to a combination of stronger industrial demand as the world economy recovers from recession and investors seeking a relatively cheap safe-haven alternative to gold. In comparison, the gold price rose 29% to US$1,405 per oz. last year.

As one of the world’s largest silver producers with three new precious metals operations, Coeur d’Alene has hit a sweet spot amid this exceptional price environment. In the fourth quarter alone, the company recorded metal sales of US$208 million – 40% of the total sales for the year – and operating cash flow of almost US$100 million.

And although Coeur is facing rising costs and actually had a net loss of US$9.9 million in the fourth quarter due to non-cash adjustments and deferred taxes, adjusted earnings rose to US$49.9 million from a loss of US$6.4 million in the third quarter. 

Investors applauded the strong metrics, sending the stock up 12% to US$30.98 on the New York Stock Exchange on Feb. 28, the day the year-end results were announced. Until mid-August last year, the stock had been plodding along at about US$15 per share.

“The fourth quarter provides shareholders with a benchmark for the operating and financial results Coeur expects to generate throughout 2011, assuming continued strong metals prices,” said chairman, president and CEO Dennis Wheeler in a statement.

Coeur’s timing couldn’t be better. Precious metals prices continued to climb in early 2011, the first full year that all three of the company’s new mines – Kensington in Alaska, Palmarejo in Mexico and San Bartolomé in Bolivia – will be in operation. As a result of the new output, annual silver production is expected to jump 20% to 20 million oz. and gold production by 59% to 250,000 oz.

But the company is not immune to the escalating costs affecting the sector. Coeur’s year-over-year production costs jumped 35% to US$257.6 million in 2010. 

The increases were mainly attributable to the Martha mine, Coeur’s underground gold-silver operation in Argentina, where annual production costs soared from US$8.62 to US$20.02 per oz. silver in 2010 as the mine continued to operate at a reduced rate of just 1.58 million oz. Costs were also considerably higher at the flagship Rochester mine in Nevada and the Endeavour mine in Australia, offset by declining costs at the company’s three new mines.

Coeur commenced commercial production at its Kensington gold mine last July, producing a total of 43,143 oz. gold in 2010. As production rates grow, the high cash costs are declining, dipping to US$875 per oz. in the fourth quarter of 2010. At year-end,  reserves totaled 1.4 million gold oz.

The new gold mine joined Palmarejo in Mexico, which opened in 2009. Palmarejo produced 5.9 million oz. silver and 102,440 oz. gold last year compared to 3 million oz. silver and 54,740 oz. gold during the mine’s partial year of operations in 2009. The new economies of scale slashed cash operating costs by 58% to US$4.10 per silver oz. from US$9.80 per oz. in 2009. Year-end reserves totaled 71.8 million oz. silver and 870, 200 oz. gold.

Meanwhile, the San Bartolomé in Bolivia continues to be a strong performer, churning out 6.7 million oz. silver in 2010 at an average cash operating cost of US$7.87 per oz. Already one of the world’s largest pure silver mines, the operation contains remaining reserves of 107 million oz.

Wheeler is looking forward to a fourth quarter “rebirth” at the company’s flagship Rochester mine, where backfilling, pre-stripping, and construction of a new leach pad are underway. The new operation is expected to increase annual production to more than 2.4 million oz. silver and 35,000 oz. gold for the next eight years compared to 2.0 million oz. silver and 9,641 oz. gold in 2010. At year-end, reserves totaled 27.6 million oz. silver and 247,400 oz. gold.

Exploration continues to uncover new resources near the company’s operations. Last year, Coeur spent US$17.9 million on exploration and reserve development, mostly at Palmarejo. Drilling at the nearby Guadalupe deposit expanded the length of the deposit to more than 2.7 km.

At Kensington, the company completed more than 6,000 metres of drilling on the Raven Vein, a new target that returned locally high gold grades. Follow-up drilling is planned for 2011.

Coeur is also testing extensions of the main mineralized trends between the Nevada Packard and Rochester mines. Results indicate strong potential to expand resources at depth and to the north.

And north of Coeur’s Martha mine in Argentina, exploration and definition drilling continued on the advanced Joaquin property, where Coeur has earned a 51% equity position from owner Mirasol Resources (MRX-T). Two new targets, Satelite and Tornado, will be targeted for follow-up exploration this year.