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Coeur to go ahead with Guadalupe mine, amends Palmarejo royalty

Bnamericas Published: Tuesday, June 24, 2014

Coeur Mining has announced plans to develop the Guadalupe underground mine at its Palmarejo operation in Mexico's Chihuahua state, with part of the cash from a new royalty agreement with Franco-Nevada.

US-based Coeur last year shelved work at Guadalupe, warning it was not economic at current metals prices.

The change of heart follows a revised mine plan for Guadalupe, which supports Coeur's strategy to transition Palmarejo to a higher margin, longer life underground only mine, the company said in a statement.

"Our revised mine plan is the result of a focused strategy to optimize Guadalupe to extract more value from this considerable deposit, maximize cash flow at the Palmarejo operation and create further prospects for high-return growth through exploration," CEO Mitchell Krebs said.

GUADALUPE DEVELOPMENT

Coeur's revised mine assumes initial mining of 2.5Mt ore at average silver grades of 4.7oz/t (146g/t), 20% higher than the reserve grades, with gold grades 38% higher at 0.08oz/t (2.49g/t).

The plan involves mining higher grade sections of the Guadalupe ore body earlier in the mine life, requiring about 40% less underground development than under the original mine plan.

Initial production is expected in 1Q15, with the mining rate averaging 1,300t/d in 2015 and 1,500t/d during the following three years.

The mine will require total capex of US$85mn and generate average annual net cash flow of US$8mn. The project's net present value is US$25mn, based on a 10% discount rate and assuming metal prices of US$20/oz silver and US$1,300/oz gold.

FRANCO-NEVADA ROYALTY

Under Coeur's current gold streaming agreement with Franco-Nevada, 50% of gold produced over Palmarejo's life of mine is delivered to Franco-Nevada, which contributes US$408/oz towards the costs.

Under a letter of intent signed by the two companies, Coeur will pay US$2mn to terminate the existing agreement upon completion of the minimum obligation of 400,000oz gold, expected to be reached by September 2016.

The proposed new agreement also involves delivering 50% of life of mine gold production to Franco-Nevada, but the latter's cost contribution will be much higher at US$800/oz.

Franco-Nevada will also pay US$22mn towards capital costs at Guadalupe in five quarterly installments beginning in 1Q15. The agreement is expected to close in the third quarter of 2014.

Coeur also has the La Preciosa silver project in Mexico, the San Bartolomé mine in Bolivia and properties in the US and Australia.

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