Independencia, Guadalupe Ramping Up Production at Palmarejo

Q: How will the company expand its portfolio through its planned exploration program in 2018?
A: We have ramped up our exploration considerably over the last 18 months or so. A certain proportion of our exploration budget (US$22 million) is expensed through our balance sheet but we will also do further capitalized exploration work. Between expensed and capitalized drilling, we invested about US$42 million on exploration last year, which was up from US$25 million in 2016. The total for 2018 should be around US$45 million, so we will sustain these higher exploration budgets, especially around our existing operations. In the last 18 months, that higher rate of investment has led to some significant discoveries, especially at Palmarejo, where we made at least six new discoveries that were previously unknown to us. We can create real value and return to shareholders through drilling, so that is what we will continue to do.
Q: How do you ensure that increasing these expenses does not create undue risk for investors?
A: Firstly, we balance our portfolio between the asset, the jurisdiction and the stage of the project. By having a good balance, we can protect the company and its stockholders. Another way we manage that risk is through the management of our balance sheet. We have put in a great deal of effort over the last two years to reduce our debt and ensure we have a strong and flexible balance sheet. We have dramatically reduced our interest expenses on our debt; around three years ago, our interest expense was around US$50 million. In 2017, we pared this to approximately US$15 million. Those savings are being used to fund drilling programs where we are having great success.
Q: Given that Palmarejo reached record levels of production in 2017, how does the company hope to sustain this success in the years to come?
A: Palmarejo has been a tremendous success story for the company. In 2013, we embarked on a strategy to reposition the mine for the long term because at that time it was a mainly open-pit, low-grade, high-strip ratio, limited mine life, and it had a very punitive gold royalty attached to it that was causing us to pay out most of the cash flow we were generating. We managed to renegotiate that royalty to dramatically reduce that outflow, while simultaneously transitioning to an underground mine at the Guadalupe deposit. We then acquired Paramount, which allowed us to consolidate many additional high-grade underground deposits that were originally split down the middle between the property boundary. That led to the establishment of a second underground mine called Independencia and just last year, we started mining there and increasing production levels. As a result of those two underground deposits, Palmarejo saw a 60-percent increase in production and its cash flow went from negative US$30 million in 2016 to positive US$110 million in 2017. We can sustain this by continuing to mine additional high-grade, underground reserves in the coming years. La Preciosa will become an interesting project and part of the company’s future growth in Mexico. When and if we see silver rise above the US$20/oz range, it will be a viable project for us.
Q: What were some of the biggest challenges you faced when you became CEO of Coeur?
A: There was a lack of operating discipline and understanding of the assets themselves. The company was not good at developing high-quality mine plans based on quality resource models, so there was a big technical push that had to be initiated back then to really get a handle on existing operations. A big catalyst for that was bringing in fresh eyes and new perspectives from outside the company and this really accelerated the process because this made us take a critical and candid look at our portfolio. We were also proactive in adding new assets to the company and supplementing our portfolio. We have sold some of our assets just to promote an overall improvement in the quality of the company. Our most recent acquisitions like Wharf and Silvertip are designed to add new, high-quality assets to supplement those that we started with when I took this position in 2011.