Coeur Mining, Inc. ("Coeur" or the "Company") (NYSE:CDE) announced
its intention to complete development of the Guadalupe underground
mine at its Palmarejo operation in Mexico and expects initial
production to begin during the first quarter of 2015. The new
development and production plan supports the Company's strategy to
transition the mine to a higher-margin, longer-life,
underground-only operation.
In addition, Coeur announced it has entered into a letter of
intent ("LOI") to terminate the existing royalty stream agreement
with Franco-Nevada Corporation (TSX:FNV) (NYSE:FNV)
("Franco-Nevada") on 50% of gold production from the Palmarejo
operation following the completion of the 400,000 ounce minimum
obligation that will be met by September 2016. Both parties have
also entered into an LOI for a new gold stream agreement which will
take effect following the termination of the existing agreement.
The second LOI provides that Franco-Nevada will contribute $22
million toward the capital required to develop Guadalupe and the
cost contribution by Franco-Nevada for 50% of the gold production
from the Palmarejo operation will be $800 per ounce, compared to
$408 per ounce in the existing agreement. The new gold stream
agreement is expected to result in improved mine economics and,
when combined with the decision to place Guadalupe into production,
is anticipated to facilitate a significant extension of mine life
at the Palmarejo operation.
"In late 2013, we made the disciplined decision to suspend
development activities at Guadalupe as we recognized that the
original plan would not have generated an adequate return in the
current metal price environment. Our revised mine plan is the
result of a focused strategy to optimize Guadalupe to extract more
value from this considerable deposit, maximize cash flow at the
Palmarejo operation, and create further prospects for high-return
growth through exploration," said Mitchell J. Krebs, Coeur's
President and Chief Executive Officer. "We believe the new gold
stream agreement will increase cash flow from the Palmarejo
operation and extend its mine life, benefitting both Coeur and
Franco-Nevada. We expect to provide additional details on Guadalupe
as part of an updated mine plan for the Palmarejo operation within
the next month, further demonstrating the improved production and
cash flow profile of this flagship mine."
"Palmarejo has proven to be a good mine and we continue to see
more exploration upside from this large property," said David
Harquail, Chief Executive Officer of Franco-Nevada. "We are happy
to support Coeur, our partner, in this project and consider the new
arrangements to be a win-win for both companies."
Anticipated Benefits of the New Gold Stream Agreement to
Coeur and Franco-Nevada
- Bolsters the long-term profile of Palmarejo and increases the
mine's free cash flow
- Funding from Franco-Nevada improves the economics to develop
Guadalupe
- Facilitates the potential for further reserve and resource
additions by increasing the mine life and cash flow to support
further exploration activity
Guadalupe Development
Coeur's revised plan minimizes underground development and
focuses early mining activities on higher-grade ore at Guadalupe.
Preliminary highlights of the expected mining profile at Guadalupe
are as follows:
|
2H
2014-2019 |
Underground short tons mined |
2.5 million |
Average daily mining rate |
1,500 tons/day |
Average mining cost |
$55/ton |
Average processing cost |
$25/ton |
Grade (oz/t) |
4.7 silver; 0.08 gold |
Recovery rate |
83% silver; 87% gold |
Pre-production capital expenditures |
$19 million |
Total capital expenditures |
$85 million |
Average annual operating cash flow |
$22 million |
Average annual net cash flow |
$8 million |
NPV (10% discount rate) |
$25 million |
Assumes metal prices of $20/ounce
for silver and $1,300/ounce for gold. Includes impacts of
Franco-Nevada agreement; Pre-tax effects. |
The preliminary Guadalupe development plan assumes the initial
mining of 2.5 million tons at average grades that are 20% and 38%
higher than the average Guadalupe underground silver and gold
reserve grade, respectively. This plan selectively includes mining
higher grade sections of the Guadalupe ore body, earlier in the
mine life, that require approximately 40% less development compared
to the original mine plan for Guadalupe.
Initial production at Guadalupe is expected by the end of the
first quarter of 2015. The mining rate at Guadalupe is expected to
average 1,300 tons/day in 2015 and 1,500 tons/day in 2016 -
2018.
Approximately $7 million of 2014 tailings-related capital
expenditures at the Palmarejo mine have been deferred until 2015 as
the current plan enables extension of the life of the current
tailings facility. This capital is expected to be redeployed to
develop Guadalupe during the second half of this year.
2013 Palmarejo Mineral Reserves
|
Short Tons |
Grade
(oz/t) |
Ounces
(000s) |
|
(000s) |
Silver |
Gold |
Silver |
Gold |
Underground Reserves: |
|
|
|
|
|
Guadalupe |
5,410 |
4.32 |
0.062 |
23,368 |
336 |
Palmarejo |
2,136 |
4.39 |
0.081 |
9,368 |
173 |
Open-Pit Reserves: |
|
|
|
|
|
Guadalupe |
381 |
5.74 |
0.016 |
2,188 |
6 |
Palmarejo |
2,265 |
2.97 |
0.024 |
6,729 |
54 |
Total Proven and Probable
Reserves |
10,192 |
|
|
41,653 |
569 |
Mineral reserves effective
December 31, 2013 using metal prices of $25 per silver ounce and
$1,450 per gold ounce. |
At December 31, 2013, Guadalupe contained 72% of the Palmarejo
operation's underground reserve tons and 37% of its underground
measured and indicated resource tons. The Company believes the most
significant upside opportunity for Guadalupe to be in the
underground inferred resources. Guadalupe contains 99% of the 3.6
million tons of underground inferred resources at the Palmarejo
operation with average grades of 5.26 oz/t silver and 0.12 oz/t
gold at year-end 2013. These underground inferred resource grades
are significantly higher than Guadalupe's average reserve grades.
Targeted drilling at Guadalupe focused on higher-grade, underground
mineralization is a top priority in Coeur's 2014 exploration
program.
Gold Stream Agreement with Franco-Nevada
Under the terms of the letters of intent, Coeur will pay $2
million to terminate the existing royalty stream agreement
effective upon completion of the minimum obligation of 400,000
ounces of gold, which will be reached by September 2016. A new gold
stream agreement with Franco-Nevada will then take effect for the
Palmarejo operation. The key terms are summarized as follows:
|
Current
Agreement |
New
Agreement |
Gold Payable |
50% of gold produced over LOM |
50% of gold produced over LOM |
Franco-Nevada Cost Contribution |
$408/oz |
$800/oz |
Minimum Obligation |
400,000 gold ounces |
None |
The current royalty stream agreement would have added
approximately $40.11 million to Palmarejo's annual costs applicable
to sales, or $3.241 per silver equivalent ounce, upon completion of
the minimum obligation. Under the new gold stream agreement, the
annual expected value of gold payable to Franco-Nevada amounts to
$22.51 million and would be recorded as a reduction in revenue
rather than in costs applicable to sales.
To further support the development of Guadalupe, the new gold
stream agreement letter of intent provides that Franco-Nevada will
contribute $22 million toward the capital investment at Guadalupe,
which will be funded in five quarterly installments beginning in
the first quarter of 2015, subject to continued progress on the
Guadalupe development plan.
Closing is currently expected to occur early in the third
quarter of 2014, subject to completion of definitive
agreements.
1. Based on gold price of $1,300, annual gold production of
90,000 ounces, annual silver production of 7.0 million ounces, and
a silver to gold ratio of 60:1. Assumed annual gold and silver
production are for illustrative purposes only and do not constitute
guidance.
About Coeur
Coeur Mining is the largest U.S.-based primary silver producer
and a significant gold producer with four precious metals mines in
the Americas employing nearly 2,000 people. Coeur produces from its
wholly owned operations: the Palmarejo silver-gold mine in Mexico,
the San Bartolomé silver mine in Bolivia, the Rochester silver-gold
mine in Nevada and the Kensington gold mine in Alaska. The Company
also has a non-operating interest in the Endeavor mine in Australia
in addition to net smelter royalties on the Cerro Bayo mine in
Chile, the El Gallo complex in Mexico, and the Zaruma mine in
Ecuador. In addition, the Company has two silver-gold feasibility
stage projects - the La Preciosa project in Mexico and the Joaquin
project in Argentina. The Company also conducts ongoing exploration
activities in Alaska, Argentina, Bolivia, Mexico, and Nevada. The
Company owns strategic investment positions in several silver and
gold development companies with projects in North and South
America.
Cautionary Statements
This news release contains forward-looking statements within the
meaning of securities legislation in the United States and Canada,
including statements regarding the mining profile at Palmarejo and
Guadalupe (including preliminary economic highlights), the
Guadalupe development and production plan, anticipated terms and
benefits of the new gold stream agreement, expected mining rates,
royalty payments, expected value of gold payable, mine life, cash
flow, margins, grades, capital expenditures, exploration results,
capital deployment, and the ability to extend mine life. Such
forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause Coeur's actual
results, performance or achievements to be materially different
from any future results, performance or achievements expressed or
implied by the forward-looking statements. Such factors include,
among others, the risks and hazards inherent in the mining business
(including risks inherent in developing large-scale mining
projects, environmental hazards, industrial accidents, weather or
geologically related conditions), changes in the market prices of
gold and silver and a sustained lower price environment, the
uncertainties inherent in Coeur's production, exploratory and
developmental activities, including risks relating to permitting
and regulatory delays, ground conditions, grade variability, any
future labor disputes or work stoppages, the uncertainties inherent
in the estimation of gold and silver ore reserves, changes that
could result from Coeur's future acquisition of new mining
properties or businesses, reliance on third parties to operate
certain mines where Coeur owns silver production and reserves and
the absence of control over mining operations in which Coeur or its
subsidiaries hold royalty or streaming interests and risks related
to these mining operations including results of mining and
exploration activities, environmental, economic and political risks
of the jurisdiction in which the mining operations are located, the
loss of any third-party smelter to which Coeur markets silver and
gold, the effects of environmental and other governmental
regulations, the risks inherent in the ownership or operation of or
investment in mining properties or businesses in foreign countries,
Coeur's ability to raise additional financing necessary to conduct
its business, make payments or refinance its debt, as well as other
uncertainties and risk factors set out in filings made from time to
time with the United States Securities and Exchange Commission, and
the Canadian securities regulators, including, without limitation,
Coeur's most recent reports on Form 10-K and Form 10-Q. Actual
results, developments and timetables could vary significantly from
the estimates presented. Readers are cautioned not to put undue
reliance on forward-looking statements. Coeur disclaims any intent
or obligation to update publicly such forward-looking statements,
whether as a result of new information, future events or otherwise.
Additionally, Coeur undertakes no obligation to comment on
analyses, expectations or statements made by third parties in
respect of Coeur, its financial or operating results or its
securities.
W. David Tyler, Coeur's Vice President, Technical Services and a
qualified person under Canadian National Instrument 43-101,
supervised the preparation of the scientific and technical
information concerning Coeur's mineral projects in this news
release. Mineral resources are in addition to mineral reserves and
have not demonstrated economic viability. Inferred mineral
resources are considered too speculative geologically to have the
economic considerations applied to them that would enable them to
be considered for estimation of mineral reserves. For a description
of the key assumptions, parameters and methods used to estimate
mineral reserves and resources, as well as data verification
procedures and a general discussion of the extent to which the
estimates may be affected by any known environmental, permitting,
legal, title, taxation, socio-political, marketing or other
relevant factors, please see the Technical Report for Coeur's
Palmarejo Project dated January 1, 2013 and filed February 28, 2013
as filed on SEDAR at sedar.com.
Cautionary Note to U.S. Investors - The United States Securities
and Exchange Commission permits U.S. mining companies, in their
filings with the SEC, to disclose only those mineral deposits that
a company can economically and legally extract or produce. We may
use certain terms in public disclosures, such as "measured,"
"indicated," "inferred" and "resources," that are recognized by
Canadian regulations, but that SEC guidelines generally prohibit
U.S. registered companies from including in their filings with the
SEC. U.S. investors are urged to consider closely the disclosure in
our Form 10-K which may be secured from us, or from the SEC's
website at sec.gov.
All tons are reported in U.S. standard short ton units. Grades
reported are troy ounces per short ton.
2013 Palmarejo Mineral Reserves and
Resources
|
Short Tons |
Grade
(oz/t) |
Ounces
(000s) |
|
(000s) |
Silver |
Gold |
Silver |
Gold |
Underground Reserves: |
|
|
|
|
|
Guadalupe |
5,410 |
4.32 |
0.062 |
23,368 |
336 |
Palmarejo |
2,136 |
4.39 |
0.081 |
9,368 |
173 |
Open-Pit Reserves: |
|
|
|
|
|
Guadalupe |
381 |
5.74 |
0.016 |
2,188 |
6 |
Palmarejo |
2,265 |
2.97 |
0.024 |
6,729 |
54 |
Total Proven and Probable
Reserves |
10,192 |
|
|
41,653 |
569 |
Underground M&I Resources |
|
|
|
|
|
Guadalupe |
2,229 |
6.41 |
0.069 |
14,287 |
154 |
Palmarejo |
3,774 |
7.01 |
0.114 |
26,467 |
432 |
Open-Pit M&I Resources |
|
|
|
|
|
Guadalupe |
1,495 |
3.94 |
0.039 |
5,887 |
58 |
Palmarejo |
460 |
1.56 |
0.012 |
719 |
6 |
La Patria |
15,902 |
0.62 |
0.031 |
9,828 |
491 |
Total Measured and Indicated
Resources |
23,860 |
|
|
57,188 |
1,140 |
Underground Inferred Resources |
|
|
|
|
|
Guadalupe |
3,584 |
5.27 |
0.121 |
18,895 |
433 |
Palmarejo |
29 |
4.04 |
0.062 |
117 |
2 |
Open-Pit Inferred Resources |
|
|
|
|
|
Guadalupe |
196 |
3.61 |
0.043 |
709 |
8 |
Palmarejo |
3 |
2.28 |
0.020 |
7 |
-- |
La Patria |
6,720 |
0.37 |
0.027 |
2,461 |
178 |
Total Inferred
Resources |
10,533 |
|
|
22,188 |
621 |
Notes to the above mineral reserves and resources:
- Effective December 31, 2013.
- Metal prices used for mineral reserves were $25.00 per ounce of
silver and $1,450 per ounce of gold. Metal prices used for mineral
resources were $29.00 per ounce of silver and $1,600 per ounce of
gold.
- Mineral resources are in addition to mineral reserves and have
not demonstrated economic viability. Inferred mineral resources are
considered too speculative geologically to have the economic
considerations applied to them that would enable them to be
considered for estimation of mineral reserves.
- Rounding of tons and ounces, as required by reporting
guidelines, may result in apparent differences between tons, grade,
and contained metal content.
- For details on the estimation of mineral resources and
reserves, please refer to the NI 43-101-compliant Technical Report
for Coeur's Palmarejo Project dated January 1, 2013 and filed
February 28, 2013 at sedar.com.
CONTACT: For Additional Information:
Bridget Freas, Director, Investor Relations
(312) 489-5819
Donna Mirandola, Director, Corporate Communications
(312) 489-5842
coeur.com
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