Coeur Mining Ready to Roar

A big increase in proven and probable reserves with a robust price positions silver miner for growth.

Feb 24, 2014 at 2:00PM

Well, someone's feeling a bit bullish these days. Largest U.S.-based silver producer Coeur Mining (NYSE:CDE) reported yesterday a significant increase in its silver and gold reserves and set the base price for the precious metal calculations at a level well above what we've seen others in the industry use.

Screen Shot

Rochester mine. Source: Coeur Mining.

Couer said its proven and probable silver reserves would total approximately 255.4 million ounces, a 16% increase over the year-ago level, with Bolivia and Nevada both sporting 40% of the total. Gold reserves would come in around 2.2 million ounces, up 12%, according to the company. Reserve calculations are based on silver going for $25 per ounce and gold at $1,450 per ounce. Some 44% of Couer's gold is in Alaska.

Other miners, however, have used more conservative estimates on pricing, particularly in gold where Barrick Gold (NYSE:ABX) set a price of $1,100 per ounce. Even Newmont Mining's (NYSE:NEM)$1,300 per ounce price level is below that of Coeur. 

Miners usually recalculate their reserves once a year in the first quarter and release updates with their year-end results. Lower pricing can harm projects where costs of production are excessive. Barrick, for example, has indefinitely delayed advancing its Pascua-Lama project in Chile and expects to incur roughly $300 million in additional costs in 2014 as it ramps down, with the action completed by midyear.

Coeur also announced a 27% increase in measured and indicated silver resources and a 1.4% uptick for gold. Last month, the miner reported jt missed its silver production guidance for 2013 by 5%, though that was not completely unexpected; gold exceeded expectations, resulting in a record year for the precious metal. The miner also said it would take a $770 million noncash impairment charge to reduce the carrying cost of its Palmarejo mine in Mexico and its Kensington project in Alaska, primarily as a result of falling gold and silver prices.

Screen Shot

Kensington mine. Source: Couer Mining.

Starting next quarter, however, Coeur will begin reporting all-in sustaining costs, or ASIC, a relatively new metric for precious metals miners. It was developed by the industry to better reflect the varying costs of production over a mine's life by incorporating costs related to sustaining production. Coeur said its ASIC is roughly $20 per ounce for silver and the spot price today is around $21.75 per ounce.

Hecla Mining (NYSE:HL) was also out with new numbers, reporting similar record levels of proven and probable reserves.  It put silver at 170 million ounces, a 13% increase over the year-ago period, while gold's proven and probable reserves soared 190% to 2.1 million ounces, largely as a result of its acquisition of Aurizon Mines. However, it reduced its metals prices to $20 per ounce of silver and $1,300 per ounce of gold.

With Coeur successfully increasing its capital expenditures budget over the past two years to focus primarily on its Rochester and Kensington mines, the company looks to continue investing in exploration that can pay dividends to its portfolio. It plans to spend as much as $28 million this year and could bump it higher depending on its success. The company sees the Palmarejo mine in Mexico as the best new source of production.

Investors just might not be able to tame Coeur Mining if silver and gold roar like a lion this year, as is expected.

A silver lining
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