Coeur Mining Inc., the new brand for Coeur d’Alene Mines Corp., is emblematic of the transformations the silver-gold mining company has made since Mitchell 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 explained during an April 15 presentation at the European Gold Forum.
In addition to changing its name, the company moved its headquarters to Chicago from its namesake town in Idaho and put the finishing touches on upgrades the company had been implementing at its Kensington gold mine in Southeast Alaska.
“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,” Krebs informed the attendees of the gold forum in Switzerland.
At about the time Krebs was in Zurich, precious metals prices were going through pretty massive drops. This prompted Coeur to scale back on discretionary spending for 2013, but the company is hopeful that gold and silver prices will bounce back.
“After a difficult period for commodity prices since mid-April, silver and gold prices appear to be finding a bottom recently, although we expect continued volatility throughout the remainder of the year,” Krebs said in August. “Looking ahead, we anticipate supplies of both silver and gold will tighten as a result of project deferrals, difficult capital markets, reduced exploration expenditures, and greater geopolitical and community-related challenges.”
Retooling KensingtonSituated 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 decided 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 complete the needed work, the rate of production at Kensington was reduced by 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.
During the first quarter of 2013 Kensington produced 25,206 ounces of gold at US$1,055 per ounce. Second quarter gold production at the Southeast Alaska Mine dropped eight percent to 23,162 ounces at US$1,115 per ounce.
Average mill head grade of 0.18 oz/t was 10 percent lower than the first quarter 2013 due to the processing of lower-grade stockpile ore at the Southeast Alaska operation. Improving gold grades as higher-grade stopes are mined and processed in the second half of 2013 are anticipated to increase production by 25 percent and lower unit operating costs by 20 percent compared to the first half of the year.
“The Kensington gold mine in Alaska is now demonstrating its ability to operate more consistently as planned,” said Krebs. “We expect production from Kensington to increase and unit costs to decrease significantly during the second half of the year due to higher grades.”
Kensington produced 29,049 ounces during the third quarter and Coeur anticipates full year production to be 108,000-114,000 ounces of gold at a cash cost of US$950-US$1,000 per ounce.
Capital expenditures of US$7.4 million at Kensington during the second quarter were spent primarily on underground capital development and reserve category drilling.
Squeezing valueKensington 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.
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.
During the first half of 2013, Coeur invested US$13.6 million in expensed exploration for discovery of new mineralization and US$4.7 million in capitalized exploration for definition drilling.
Coeur’s exploration program for 2013 is focused on expanding the existing silver-gold reserves and resources at the Palmarejo Mine in Mexico, including the nearby Guadalupe and La Patria deposits; adding high-grade gold resources at Kensington; drilling historic stockpiles at the Rochester mine in Nevada to add low-cost silver-gold reserves and resources; expanding the size of the silver-gold resources at the Joaquin project in Argentina; continued silver resource expansion at the San Bartolomé Mine in Bolivia; and exploring for new silver and gold deposits across all of its properties.
“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.
Hans Rasmussen, which assumed the position of vice president of exploration in September, will lead Coeur’s efforts to generate returns through exploration.
“Hans brings extensive experience as a geologist, geophysicist, exploration manager and company executive. He has a proven record working with teams on major discoveries in locations including Penasquito, Mexico; Whistler, Alaska; and Lindero, Argentina,” Krebs said upon the appointment.
Kensington drillingAt Kensington, Coeur had three drills turning during 2013. One rig was dedicated to definition drilling in the immediate Kensington mine area, while the remaining two were allocated to exploration drilling at Kensington and neighboring Jualin property.
At the end of 2012, the Kensington mine had proven and probable reserves of 4.67 million short tons at 0.218 ounces of gold per ton for total reserves of 1.02 million ounces.
To increase these reserves and expand known resources, 2013 drilling in the immediate Kensington Mine area focused largely on Zone 10. Initial results from widely-spaced drilling have revealed new gold mineralization extends more than 200 feet from the south limits of the current reserves.
Highlights from Zone 10 drilling include: Hole KX13-025, which cut 4.0 feet (1.22 meters) averaging 0.296 ounces per short ton gold; K13-026, which cut 4.0 feet (1.22 meters) averaging 0.108 oz/t gold, 4.0 feet (1.22 meters) averaging 0.277 oz/t gold and 1.6 feet (0.49 meters) averaging 4.263 oz/t gold; and K13-029, which cut 3.4 feet (1.04 meters) averaging 0.463 oz/t gold; 4.0 feet (1.22 meters) averaging 0.129 oz/t gold; and 12.5 feet (3.81 meters) averaging 0.129 oz/t gold.
Surface drilling at Jualin, which hosts which hosts the historic Jualin gold mine, targeted the number 4 vein, a zone of auriferous quartz and sulfide veining situated about 1,500 feet (460 meters) due south of the mill. Coeur selected targets with that demonstrate the potential to produce zones of mineralization with grades higher than the current reserves.
A similar focus on higher grade mineralization on the Kensington property during 2012 produced positive results. Drilling at the Raven vein, located roughly 2,000 feet (600 meters) from the main underground workings at Kensington, has identified initial proven and probable reserves of 151,000 tons averaging 0.33 oz/t, or about 51 percent higher than the overall average reserve grade at Kensington.