Silver prices have rallied more than 16 per cent in 2011 to reach record highs, and Coeur D'Alene Mines is hoping to revamp its business fast enough to take advantage.
Coeur is a 50/50 gold and silver producer with three big mines -- San Bartolome silver mine in Bolivia, Palmarejo gold/silver mine in Mexico and Kensington gold mine in Alaska.
The company has proven and probable reserves of 227.1 million ounces of silver and 2.5 million ounces of gold. The company spent a lot of money bringing these mines into production in the middle of a global recession.
Mitch Krebs, chief financial officer, says the company tallied $365 million (U.S.) in capital expenditures at the end of 2008, early 2009 and only had $12 million in operational cash flow. Coeur had to keep on issuing shares and earned the reputation of not being nice to shareholders. "That's behind us now and what we have left is very manageable," says Krebs.
In 2010, Coeur earned 39 cents a share on record metal sales of $515 million. Operating cash flow popped almost 200 per cent to $183.9 million whereas capex was down 29 per cent to $156 million.
"The fourth quarter was our first real window into what this company is capable of doing," said Mr. Krebs. About 40 per cent of the company's results happened in the fourth quarter as Kensington's production ramped up. Despite the marked improvement, the company still has an uphill battle swaying its critics. Coeur is hoping 2011 will be even better as it marks the first full year of production from all of its three mines.
"So looking into 2011 with these three mines now running for a full year for the first time we're looking at producing 20 million ounces of silver, which is a 19 per cent increase over 2010, and about a 60 per cent increase in our gold production to about 250,000 ounces," Mr. Krebs projected.
The company's cash flow estimates are averaging selling gold for $1,250 and silver for $27.50. Both metals are currently trading 12 per cent and 25 per cent higher, respectively, leaving a lot more room for profits. Total cash costs for an ounce of silver are $11, but operational cash costs for both metals averaged $6.53 in 2010. Two of the biggest challenges facing Coeur are high cash costs at Kensington, which came in at $875 in the fourth quarter, and rising oil prices.
Mr. Krebs says that once Kensington runs like it's supposed to and the ramp up inefficiencies are fixed, cash costs should fall to the mid $500's during the second half of 2011.
The ominous rise in oil prices is a different story, but the company is trying to buy goods like tires and explosives in bulk to help offset the costs.
Fuel makes up about 10 per cent of Coeur's total operating costs and Krebs acknowledges that this is a wild card for the company. Coeur still carries debt, about $159.6 million, but with an abundance of cash flow the company isn't anticipating having to issue any more shares, which it hasn't done in three consecutive quarters.
Mr. Krebs calls current debt "de minimis." The company is also trying to capitalize on high silver and gold prices by looking at old mines in a new way. For example, Mr. Krebs said that Coeur is re-engineering its Rochester mine in Nevada, which it has owned since 1986, by constructing a new heap leach pad, which extracts precious metals from ore.
The company is expecting to see ounces coming out in the fourth quarter of 2011 and the change should provide 2.5 million ounces of silver and 35,000 ounces of gold to Coeur's annual production for the next 8 years. Krebs boasts that "for every dollar that silver increases that adds $20 million of net free after tax cash flow to our bottom line."
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