Unlocking Mexico’s Potential to Create Long Term ValueMon, 10/21/2013 - 12:08
Q: What potential do the properties in Coeur Mining’s portfolio represent, and how will your acquisition of the La Preciosa property generate future value for the company?
A: Palmarejo is the world’s fifth largest primary silver mine and one of the largest operating mines in Mexico, which means that the resources and our employees at Palmarejo are critical to Coeur Mining’s growth. This flagship operation holds significant potential for Coeur Mining because of its large land position – more than 12,140 hectares – and significant exploration opportunities. Our operation at Palmarejo generated metal sales of US$86 million in the second quarter of 2013. Ongoing cost reduction initiatives at the operation have lowered cash operating costs, and we expect to make further progress in the second half of the year.
The April 2013 acquisition of Orko Silver and its key asset La Preciosa, in the state of Durango, further diversifies our global portfolio and provides the opportunity to create long term value for our shareholders. La Preciosa is the best of the undeveloped projects in Mexico, and it offers Coeur Mining other benefits such as improving our geographical diversification. The Preliminary Economic Assessment (PEA) that we recently completed on La Preciosa demonstrated the viability of the project and provides a solid foundation from which we can enhance the project’s economics over time, indicating an initial mine life of 17 years, producing an average of 9.1 million silver ounces and 15,100oz of gold per year over the first 14 years, at an average cash operating cost of US$13.86 per silver ounce.
Coeur Mining has the development and exploration expertise, financial ability, and operational foundation to fully optimize La Preciosa and realize its potential. We are currently putting together the feasibility study, which we expect to complete in mid-2014, to help us to maximize returns at the current lower metal prices. We will not proceed with construction at La Preciosa unless we feel we have a project that can generate an all-in rate of return that exceeds our capital costs, but we believe that La Preciosa will become another long-life, cornerstone asset for Coeur Mining and will generate a return in excess of our capital costs.
Q: What is the philosophy behind the environmental and social responsibility achievements of Coeur Mining in Mexico?
A: Environmental monitoring, employee, and public safety measures and community involvement are integral in every stage of the mining life cycle, at all of our operations. Protecting the natural and economic environments where our activities have an impact and developing and maintaining constructive relationships with the communities affected by our ongoing activities are our core missions.
We have been honored to receive a number of environmental and social responsibility awards in recognition of the successful community initiatives Coeur Mexicana has undertaken. In April 2013 Coeur Mexicana was recognized with the Socially Responsible Business Distinction Award for 2012 for Palmarejo. This is the fifth consecutive year we have received this national award in recognition of Coeur Mexicana’s demonstrated leadership in corporate social responsibility, environmental stewardship, and sustainability.
Coeur Mexicana contributes to local communities in many ways. One such way is in funding the construction of infrastructure projects, such as a classroom and lavatories in the Agua Salada community and an agreement with the Central Board of Water and Sanitation of the state for a sewage project for the Palmarejo community. We are also proud to support education through several different programs, such as the Quality Schools Program, which provided US$1,600 each to 12 institutions to purchase furniture and computer equipment and to fund scholarship programs. As a company we have also led several medical health campaigns such as “Chihuahua Vive,” taking care of the logistics for the provision of medical services, a gynecologist, dentist services, free medication, an optometrist and civil registry, in partnership with the Chihuahua State Government. These are just a few examples of the many different types of projects Coeur Mining has carried out in the local communities. Q: What are the company’s ambitions and goals within the Mexican mining industry in the coming 10 years, and what will be your strategy to achieving such targets?
A: The pillars of sustainability – safety, environmental stewardship, community partnerships, and profitability – are fundamental to our company’s ultimate success. We recognize that our Mexican operations are critical to Coeur Mining’s long term global growth, and a valuable complement to production expansions at our US operations. The opportunities at La Preciosa and elsewhere in Mexico will continue to shape how we grow and change as a company, and we will maintain our commitment to operational consistency across our entire business, and to building long term value for our shareholders.
Coeur Mining’s ongoing mission is to produce and protect value for employees and shareholders by executing and maintaining operational consistency, delivering highreturn growth through internal operations and external opportunities, and increasing reserves and resources through an aggressive exploration program. We are able to deliver consistent results by doing what we say we will do and demonstrating discipline. This alone gives Coeur Mining a competitive advantage, as it creates new opportunities and value.
Our goal is to be recognized as a leader in the precious metals industry. However, being a global leader does not always mean you are the biggest company. In this industry many companies have grown in size, but not improved when it comes to performance. In Coeur Mining’s view being a leader means we make more money for our shareholders than other mining companies do, and we do it in a way that is safe, environmentally sound, and with the support of the local communities where we operate. We are reinvesting and growing in mindful ways because as an industry we are exhausting our reserves every day and we need to be smart about creating long term value.
In April 2013 Coeur Mining completed the acquisition of Orko Silver Corp, for a total of CA$100 million in cash plus 11.6 million new shares, to take control of one of the world’s largest undeveloped silver deposits. Coeur Mining is now moving forward to develop La Preciosa into a world-class silver mine that could produce about 7 to 9 million ounces of silver annually.
The asset, located just 47km northeast of the city of Durango, covers 32,400 hectares and contains measured and indicated resources of 146.2 million ounces of silver and 277,700oz of gold according to the preliminary economic assessment (PEA) report, as well as inferred resources of 37.7 million ounces of silver and 60,300 ounces of gold. The PEA for La Preciosa indicates an initial estimated mine life of 17 years, with a recovery of an estimated 134.5 million ounces of silver, with the last three years of mill feed being sourced from stock piles. The proposed project includes the construction of 9.7km of new unpaved haul road, a 41km power line, and water sourced from a well field 15km to the south of the mine.
The company’s appraised internal rate of return is of 17%, assuming price levels of US$25 per silver ounce and US$1,500 per gold ounce. These prices are 26.3% higher than current levels for the former and 12.8% higher for the latter.