The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
Improved efficiencies at refitted SE Alaska mine is a microcosm of the transformations under way at the rebranded Coeur Mining
Churning out 25,506 ounces of gold during the first three months of 2013, Coeur d'Alene Mines Corp.'s retooled Kensington Mine in Southeast Alaska is on pace to surpass 100,000 ounces of production in 2013.
Late in 2011, Coeur cut processing rates in half to undertake several key initiatives aimed at improving the mine's safety and production profile.
"We went through a pretty massive retooling of Kensington over the past year-and-a-half, and I am pleased to see the results from that," Coeur President and CEO Mitchell Krebs said during an April 15 presentation at the European Gold Forum in Zurich, Switzerland.
This refitting of Kensington is a microcosm of the companywide transformations set in motion at Coeur d'Alene Mines since Krebs' ascent from chief financial officer to president and CEO in 2011.
"We have really taken a major overhaul of the business; this work is ongoing and will continue. The status quo, in our view, is just not acceptable and so we have worked at retooling our business over the past couple of years," Krebs told the European Gold audience.
Retooled Kensington
In the three years prior to Krebs taking the helm, Coeur brought three new mines into production. Getting these fledgling operations running safely and efficiently has been a top priority of the new CEO.
"Job No. 1 for us is to strive for improved safety, environmental and community relations initiatives; those are the key building blocks to any sustainable mining company," Krebs explained. "Above and beyond that, where we need to improve is in our operational consistency in this set of operations that we have; all of which are new in the last five years."
While the San Bartolomé silver mine in Bolivia, the Palmarejo silver-gold mine in Mexico had already worked through much of their growing pains by the time Krebs took over, the kinks still needed to be worked out of Kensington, the youngest of the operations.
Situated some 45 miles (72 kilometers) north of Juneau, the Kensington gold mine began commercial production in July 2010. During 2011, the underground operation produced 88,420 ounces of gold at cash operating costs of US$1,088 per ounce.
Unsatisfied with this performance, Coeur made the decision to invest the time and money needed to improve the production profile and to position the operation to deliver sustainable and consistent performance over the longer term.
To carry out much of the work, the rate of production at the underground operation had to be reduced 50 percent at the beginning of 2012 and gradually scaled up to full capacity as the year progressed.
One of the key initiatives during this scaled back production was the acceleration of underground development aimed at creating more working faces and greater operational flexibility. The company also implemented an underground paste backfill plant and related distribution system, providing access to stopes located in previously mined areas; upgraded the electrical infrastructure; and completed construction of several new surface facilities - including a new administrative building, warehouse, worker dormitory, and expanded kitchen and dining facilities.
The slump in production resulted in skyrocketing operating costs.
During the first three months of 2012, Coeur recovered 7,444 oz of gold at Kensington at cash operating costs of US$2,709/oz. Returning to full-scale production of about 1,500 metric tons per day in April, the Southeast Alaska operation improved to 21,572 oz of gold at cash costs of US$1,348/oz during the second quarter.
For the remainder of 2012, the production profile continued to improve. During the third quarter, Kensington churned out 24,391 oz of gold at operating costs averaging US$1,298/oz and during the final three months of the year, the mine's output hit 28,717 oz with costs averaging US$1,065/oz.
All told, Kensington produced 82,125 oz gold in 2012.
Coeur anticipates the Southeast Alaska mine will continue the production pace set in the fourth quarter and produce 108,000-114,000 oz gold at US$900-US$950/oz in 2013. Though the company has not disclosed the cost of the 25,206 oz of gold produced at Kensington in the first quarter of 2013, indications are they are within this guidance.
Coeur is anticipating further increases in gold production at Kensington in the second half of 2013 due to projected improved grades and higher throughput rates.
Squeezing value
Kensington is not the only operation in Coeur's portfolio getting upgrades. Krebs, who was an investment banker in New York before joining Coeur in 1995, also has identified opportunities to get a better return from the company's operations in Nevada and Bolivia.
"We love to try to squeeze more value out of existing operations; those are very high return opportunities for the company," he told the crowd gathered in Zurich.
Coeur sees this type of high-return opportunity at its Rochester silver-gold mine. The Nevada operation produced 2.8 million oz silver in 2012 at US$9.62/oz after a by-product credit for the 38,066 oz gold recovered.
With the objective of driving per-ounce recovery costs down and cash-flow up, Coeur is investing roughly US$35 million to increase crusher capacity and expand the heap leach facility at Rochester. These upgrades are expected to increase the mine's annual output to around 4.7 million oz silver and 45,000 oz gold.
"Production at Rochester is expected to increase 35-50 percent this year versus 2012 levels, which we anticipate will drive cash operating costs down and significantly increase the mine's cash flow," Krebs said upon release of Coeur's 2012 financial results. "We are enthusiastic about future opportunities to expand production at Rochester even further that could make this asset the second largest producer in our portfolio."
The company is also expanding the mill capacity at its San Bartolomé operation in Bolivia by about 15 percent. The mine produced 5.9 million oz silver in 2012 at about US$11.76/oz. The mill expansion is expected to maintain a production rate of around 6 million oz per year for another seven years while reducing per-ounce operating costs.
"We expect 2013 to be a strong year for Coeur, supported by significant expected growth at Rochester, a full year of steady state operations at Kensington, and stable production at Palmarejo and San Bartolomé," Krebs added.
High-return exploration
When it comes to squeezing value out of its assets, exploration is one area Krebs sees the company getting the best bang for its buck.
"We have been investing heavily in exploration, mostly around our existing mine sites," the CEO explained. "Last year was our company's largest year from an exploration standpoint - around US$40 million and this year it will be about the same. On that US$40 million last year we generated about 110 million new silver-equivalent ounces, so that is less than 40 cents an ounce."
Roughly 88 percent of the 190,500 meters of drilling in 2012 was devoted to the operations.
"We find it very hard to beat the returns that we can generate from exploration dollars being put back into the ground near our processing facilities where we have invested so heavily over the years," Krebs explained.
Coeur's US$40 million exploration program for 2013 is focused on expanding the existing silver-gold reserves and resources at Palmarejo, including the nearby Guadalupe and La Patria deposits (US$15 million); adding high-grade gold resources at Kensington (US$8.6 million); drilling historic stockpiles at the Rochester mine in Nevada to add low-cost silver-gold reserves and resources (US$3.5 million); expanding the size of the silver-gold resources at the Joaquin project in Argentina (US$3.3 million); continued silver resource expansion at San Bartolomé (US$700,000); and exploring for new silver and gold deposits across all of its properties (approximately US$9 million).
Preciosa opportunity
With Kensington and the rest of its operations set to deliver consistent operational results over the longer term, Coeur now has grabbed a new asset to squeeze value from. On April 16, the miner announced it has completed the acquisition of Orko Silver Corp.
Orko's primary asset, the La Preciosa project in Mexico, has an indicated resource of 29.6 million metric tons averaging 104 g/t (99 million ounces) silver and 0.2 g/t (190,000 ounces) gold, and an inferred resource of 47.7 million metric tons averaging 86 g/t (132 million ounces) silver and 0.16 (245,000 ounces) gold. This resource is based upon a 25 g/t silver cut-off grade and contained within two pit shells.
"It is one of the world's largest undeveloped silver deposits," Krebs explained. "It is in a great location in Mexico - in the state of Durango about 75 miles out of the city of Durango - near infrastructure and should be a very attractive project from a construction and logistical standpoint."
"It should produce 7-10 million ounces of silver a year over a very long mine life of at least 15 to 20 years, initially," he added.
The Coeur CEO said this silver stream would help balance the company's portfolio, which is weighted towards Palmarejo. During 2012, Palmarejo accounted for some 45 percent of the company's 2012 silver and gold production and 69 percent of its operating cash flow.
A second Mexico operation will also offset some of the geopolitical risks posed by the San Bartolomé mine in Bolivia.
"With La Presiosa, this will push up our Mexico contribution to our overall company," said Krebs.
Coeur paid C$100 million in cash and issued 11,572,918 Coeur shares in exchange for Orko and its La Preciosa project. A total of 1,588,768 warrants to buy Coeur shares was also part of the deal.
Coeur anticipates it will cost roughly US$500 million to get La Preciosa into production.
A preliminary economic assessment for La Preciosa is expected later this year and the company hopes to begin production at the Durango-area mine in 2016.
"This is a good size acquisition for us - it's not too big and it's not too small. It moves the needle but it is something we can fund from our existing cash and cash-flow that we are generating," Krebs said.
The retooling of Coeur goes beyond squeezing higher returns from its silver and gold assets.
"We have been spending a lot of time on the organization," Krebs told the crowd in Zurich. "With the amount of growth that we have experienced over the past five years there is a lot of catch up work just within the organization itself, to make sure we have a solid foundation to not only manage the business we are today but to be scalable enough to handle the additional growth in the company."
This transformation is accentuated by a move of the company's headquarters from its namesake town of Coeur d'Alene, Idaho, to Chicago, Illinois.
"Relocating our headquarters to Illinois will improve our access to key stakeholders and to our operations," said Krebs. "Chicago is a global, pro-business city, an international transportation hub and provides access to a broad and deep talent pool. We look forward to our active involvement in our new community and are proud to call Chicago our new home."
A new name, Coeur Mining, will emblazon its downtown Chicago headquarters.
Shareholders will be asked to affirm the new moniker during Coeur's annual meeting, to be held in the company's new home town on May 14.
Coeur anticipates being settled into its downtown Chicago office by the third quarter.
"So, that is a lot of change and we think a lot of improvement in the company," the CEO of the new Coeur told his colleagues in Zurich.
Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.
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