La Preciosa economics must improve - Coeur

Thursday, August 8, 2013

US-based Coeur Mining (NYSE: CDE, TSX: CDM) will not go ahead with construction of its La Preciosa silver-gold project in Mexico's Durango state without a substantial improvement in its economics, CEO Mitchell Krebs said in a call to discuss Q2 financial results.

The company is focusing efforts on optimizing the project to "maximize returns assuming current lower prices," with a feasibility study expected to be completed by mid-2014, Krebs said.

"We won't proceed with construction at La Preciosa unless we feel we have a project that can generate an all-in rate of return that significantly exceeds our cost of capital."

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A preliminary economic assessment (PEA) completed in July "demonstrates the viability of the project at higher silver and gold prices," and provides a "solid foundation from which we believe we can enhance the project's economics over time," Joe Phillips, chief development officer, told the call.

Basic engineering and a drill program will begin in H2, he added, along with work on infrastructure and community relations.

Exploration work aims to identify opportunities to reduce the strip ratio and improve grades, he added, with the ultimate goal to develop opportunities that "make La Preciosa a compelling project at current spot prices."

Given "favorable results" in the feasibility study, construction of the project could begin in 2015 with production starting from 2H16, Phillips said.

Last month's PEA indicated an initial estimated mine life of 17 years recovering 9.1Moz/y silver over the first 14 years at an average annual operating cost of US$13.86/oz.

Initial capex is estimated at US$348mn.

However, concerns have been raised over the costs of the project, with Scotiabank director of gold and precious metals Trevor Turnbull telling BNamericas the project could be "shelved" if the silver price remains significantly below US$25/oz.

Coeur acquired La Preciosa in its takeover of Mexico-focused Orko Silver in April.

Silver rallied to US$19.73/oz on the London Bullion Market on Thursday (Aug 8) from US$19.27/oz the previous day, but down from a 2012 average of US$31.15/oz.

Coeur also has the Palmarejo mine in Mexico and San Bartolomé in Bolivia, as well as properties in the US and Australia.