Balanced Portfolio for Risk Aversion, Shareholder ValueThu, 10/17/2019 - 17:29
Q: How do you approach mining as a business that has a significant amount of geopolitical risk associated with it?
A: We have been very active over the last several years to reposition Coeur’s footprint exclusively in North America. We have exited numerous higher-risk jurisdictions and have placed a big priority on maintaining a well-balanced portfolio of assets in high-quality mining jurisdictions. There are many things about mining that can go wrong and we want to make sure we shield our investors and shareholders as much as possible from volatility as well as provide a good pipeline for future growth. We have three mines in the US, one in Canada and one in Mexico. Palmarejo in Mexico is our largest asset, Silvertip in Canada is our source of short-term growth and our three US operations provide us with a collection of operating assets that have a good mine life ahead. We are essentially working to provide our investors with less-risky access to metals production.
Q: Which innovative models are working best for Coeur Mining and in which projects have these been applied?
A: We completely revamped Palmarejo in 2014 and we are now beginning to see the benefits of the decisions we made back then. This involved transitioning Palmarejo into a 100 percent underground mine that produced higher grade silver and gold. We successfully renegotiated our gold stream agreement with Franco Nevada and acquired the company that owned the land package adjacent to ours, which gave us access to additional high-grade underground deposits. We have seen the silver and gold grades increase significantly, while the costs have decreased dramatically. As a result, we are now generating strong cash flow from Palmarejo. We expect production at Palmarejo to remain steady at these higher levels for silver and gold. This makes Palmarejo one of the largest silver and gold mines in Mexico. While Palmarejo is a major asset, our overall growth as a company in 2019 and 2020 will largely come from our Silvertip operation that we are ramping up in Canada.
Q: What role does Palmarejo play in your operations and how do you see this evolving?
A: Palmarejo continues to be our single largest operation, contributing nearly 40 percent of our overall production. It is a very important part of our business and we expect that theme to continue. A large part of our future depends on the significant exploration investment we are making there. We have a large, unexplored land package at Palmarejo that offers great potential for the operation and the company. We feel that we have a long journey ahead of us at Palmarejo, despite the fact that the operation has been in production for over 10 years. We have a new set of exploration targets and priorities that we feel will continue to allow Palmarejo to be our single largest operation. We are excited about the potential for some new discoveries further away from where our focus has been historically.
We are always looking for opportunities for expansion at Palmarejo. We will be mining from a new deposit this year called La Nación. Palmarejo has a large processing facility that is capable of processing up to 6,500t/d. Our current mining operations are delivering about 4,000-4,500t/d so we have some excess plant capacity and hopefully, as our exploration efforts reap benefits, we can easily increase the ore processed at that plant.
Coeur takes a success-based approach to its exploration programs. By that, I mean that we start the year with a fairly modest amount of money allocated to various targets identified by our teams and, as the results come back from the drilling programs, we further fund the successes and stop funding the failures. This is a much more efficient way of funding exploration; we are not increasing budgets throughout the year but rather moving money to the success cases. At the start of 2019, about one-third of our exploration budget was allocated to Palmarejo, split between drilling that focuses on identifying new resources as well as turning existing resources into new reserves.