UPDATE: Coeur d'Alene Mines Discovers High-Grade Gold Vein

Idaho-based silver and gold producer Coeur d'Alene Mines Corp. (CDE, CDM.T, CDLA) has discovered a high-grade gold vein system at its Kensington gold mine in Alaska, the company said Wednesday.

While it is too early to tell how much additional gold could be produced from the discovery, the news sent Coeur's shares as much as 4% higher on a day when gold prices faltered and gold and silver equities slumped.

Coeur's New York Stock Exchange-listed shares closed 0.9% higher at $15.24.

The Philadelphia Gold Silver Index (XAU) finished 1.1% lower. April gold futures fell $6 to settle at $1,112 an ounce on the Comex division of the New York Mercantile Exchange.

A drilling program initiated last year intersected "very significant gold mineralization" within an exploration district Coeur controls around the mine, located 45 miles northwest of Juneau. Assays ranged from 0.144 ounces per ton to more than 1.29 ounces per ton.

The discovery, called Kimberly, "may develop into a major, new gold system at Kensington and bodes well for other future discoveries in this gold district," said Donald Birak, Coeur's senior vice president for exploration.

Spokesman Tony Ebersole said it's too early to tell how many extra ounces of gold the mine might be able to produce from the new vein.

"It shows that there is ongoing potential at Kensington," Ebersole said. "We're starting to find some new stuff there."

While it was expected that Coeur would find new ore zones in the area, "this is encouraging because it's putting more of an asset underneath the infrastructure," said JPMorgan metals and mining analyst John Bridges.

"It sounds like it's a strong vein system," Bridges said. But the company will need to do more drilling before that is certain.

UBS analyst Chris Lichtenheldt said in a research note that new ounces could come from the system next year.

"We believe the company will continue to explore the Kimberly system throughout 2010, with the potential to add to resources/reserves in early 2011," Lichtenheldt said.

As of Dec. 31, the Kensington mine held 1.5 million ounces of proven and probable gold reserves, with an initial mine life expected at 12.5 years. The mine is scheduled to start production in the third quarter of 2010 at the rate of approximately 120,000 ounces of gold a year.

While not huge--at the world's largest single gold reserve, Freeport McMoran Copper & Gold Inc. (FCX) expects 2010 sales of 1.7 million ounces from its Grasberg mine in Indonesia--the Kensington property isn't insignificant. As with other metals, large new discoveries of gold are few and far between, which is one reason gold bulls cite for their optimistic price outlook.

Last year, production from U.S. soil totaled 6.95 million ounces, with most of the metal coming from Nevada, said Carlos Sanchez, associate director of research with CPM Group.

In addition to Kensington, Coeur operates the San Bartolome silver mine in Bolivia, the Palmarejo silver and gold mine in Mexico and mines in Chile, Argentina and Nevada.

-By Matt Whittaker, Dow Jones Newswires; 212-416-2139; matt.whittaker@dowjones.com

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