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Coeur D'Alene Mines Corp. (NYSE:CDE)

Q2 2009 Earnings Call

August 6, 2009 1:00 pm ET

Executives

Karli Anderson – Director of Investor Relations

Dennis E. Wheeler – Chairman of the Board, President, Chief Executive Officer

Mitchell J. Krebs – Chief Financial Officer, Senior Vice President

Richard Weston – Senior Vice President of Operations

Donald P. Gray – Senior Vice President of Latin American Operations

K. Leon Hardy – Senior Vice President, North American Operations

Donald J. Birak – Coeur's Senior Vice President of Exploration

Analysts

John Bridges – JP Morgan

Pierre Vaillancourt - Macquarie Research Equities

Jorge Beristain – Deutsche Bank Securities

[Chris Mitchenhalt]

[John Dimazo]

Mike Curran – Royal Bank

[Brian Quest]

Operator

Welcome to the Coeur D'Alene Mines Corp 2009 earnings conference call. (Operator Instructions) I would now like to turn the call over to Karli Anderson.

Karli Anderson

This call is being broadcast live on the Internet through our Web site at www.coeur.com, where we have also posted the slides that accompany our prepared remarks. Telephonic replay of the call will be available for one week afterward on our Web site.

On the call today here in Coeur D'Alene are Dennis Wheeler Chairman, President and Chief Executive Officer, Mitchell Krebs Senior Vice President and Chief Financial Officer, Leon Hardy Senior Vice President of North American Operations, and Don Birak Senior Vice President of Exploration. On the phone are Richard Weston Senior President for Operations, and Don Gray Senior Vice President of South American Operations.

Any forward-looking statements made today by management come under the securities legislation of the United States, Canada and Australia and involve a number of risks that could cause actual results to differ from our projections. Please see our full cautionary statement on slide two.

With that, I'll turn the call over to Dennis.

Dennis E. Wheeler

Today is Bolivian Independence Day and I'd like to congratulate all Bolivians and our more than 300 employees in Potosi and La Paz on this important symbolic day. Being a supportive corporate citizen in Bolivia has been an integral part of our development and operation of San Bartolome and we look forward to a long and productive partnership with the people of this country.

As we enter the second half of 2009, Coeur is very pleased to report to you that it's operating from an enviable position of strength. Over the last several weeks, we've certainly seen the sun rising on our new mines that have been years in the making. These investments and outcomes are reflected in a strong second quarter, as the company and its operations gained momentum that will continue through the second half of the year and into 2010.

Operating cash flow rose nearly 700% to $16.8 million for the quarter and we look forward to second quarter net income of $11.6 million or $0.17 per share, an increase of $18 million year-over-year. Our people also set a company record for second quarter silver production with 4.3 million ounces, a 74% increase year-over-year. And San Bartolome in Bolivia led the way with 1.9 million ounces of production followed by Palmarejo with 588,000 ounces during its startup.

Revenue was up over 46% over a year ago, somewhat impressive when you consider that silver prices in last year's second quarter were much higher than in Q2 of this year. We are now mobilized to start work towards the late 2010 start of Kensington gold mine in Alaska, where construction is already 90% complete. There are three steps involved in reinstating our permits at Kensington.

The first major step was achieved June 22 when the United States Supreme Court found in favor of Coeur and the state of Alaska for the original Lower Slate Lake tailings plan at Kensington. The second step was completed when the Ninth Circuit Court lifted its injunction. In fact, the court lifted the injunction much more quickly than we had anticipated.

Only one step remains. The U.S. Army Corps of Engineers must only issue a letter to Coeur saying that our right to resume activity at the site has been reinstated upon the dissolution of the injection. The Corps has already had a 15-day notice period for comments for the lifting of the suspension which ended this past Monday, and we're confident this will be a speedy process.

We're extremely grateful to Juno and the southeast Alaska community for its bipartisan overwhelming support for the mine, which is already 90% completed. We look forward to hitting the ground very soon to put 300 native and southeast Alaskans to work in moving us to production in the second half of 2010.

The economic benefits of Kensington will extend far beyond the mine site and into the Alaska community, which is another reason we're so eager to begin. The mine will have a major impact on local employment with an estimated 300 direct hires locally.

We'll also be paying out about $25 million in annual payroll, which will benefit the local tax base. We'll spend approximately $20 million on supplies and services spent mostly locally, and most important for our shareholders, Kensington will bolster Coeur's gold production enormously by 185% in 2010 alone and will foster a stronger economy in southeast Alaska. So we're thrilled to be finally so close to production.

To assist in funding Kensington, we have further strengthened our financial position. Specifically, we have reduced our debt by over $150 million year-to-date and last month we successfully exited our four-year investment in the Broken Hill Mine in Australia realizing a 39% annualized rate of return, inclusive of the $55 million in immediate cash proceeds.

Today the company finds itself at an inflection point for our employees, shareholders and the communities we serve, as both production and cash flow are accelerating. We have two of the world's largest and newest silver mines in production, Palmarejo and San Bartolome, and a very significant gold asset, Kensington, now posed to begin operations next year. We have $80 million of cash in the bank with $100 million in projected operating cash flow this year.

Slide four gives you a real sense of where the company is headed. During the second quarter, we produced 2.5 million silver ounces across our smaller mine sites and this year we produced 4.3 million ounces, a 74% increase including the contributions of Palmarejo and San Bartolome.

This chart clearly shows that our transition to long-life, high-volume, lower-cost mines has been successful. Our largest producers are also the newest and our investors can look forward to many years of meaningful production from them.

In light of our strong operational momentum, we iterate our guidance to $100 million in operating cash flow this year compared to $12 million in 2008. At the halfway point of the year, we're confident in our ability to achieve this level of growth and the strong metals pricing environment just adds to our confidence.

Now, I'll turn the call over to Richard Weston.

Richard Weston

The Palmarejo silver and gold mine in northern Mexico continued to ramp up production during its initial quarters of operations. We're still in the commissioning process. During the quarter, Palmarejo produced 588,000 ounces of silver and 9,730 ounces of gold.

Bore construction contractors are now demobilized. Mining operations are producing at expected production rates and grades. Crushing and grinding processes have been fully commissioned and are performing according to plan.

Gold recoveries are coming in according to plan and silver recoveries are increasing rapidly. We expect to reach design capacity at Palmarejo in the third quarter, with an annual run rate of 9 million silver ounces and 110,000 ounces of gold.

I will now pass over to Don Gray in Bolivia.

Don Gray

I'd like to join Dennis in congratulating our Bolivian employees on today's historic Bolivian Independence Day. Here at San Bartolome, the world's largest purest silver mine, we produced 1.9 million ounces during the second quarter and 4 million ounces during the first have of the year.

For the first six months of 2009, operating costs averaged just over $7 per ounce. Our operations at San Bartolome continue to strengthen and we confirmed that we have reached design capacity. During June and July we produced well over 700,000 ounces per month and in August, we're off to a great start.

We recently appointed [Stewart O'Brien] as General Manager for San Bartolome. We also continue developing investing in our Bolivian team and implementing important programs, programs that will enhance our managerial and logistics capabilities throughout the region.

In addition, I would like to mention that our commitment and investment in Potosi goes far beyond just our management team. We have more than 300 employees on site and about 80% of them are from Potosi. In fact, 96% of our employees are Bolivian. Our workers had over 5 million hours without the lost time accident during San Bartolome's construction.

Coeur's Bolivian operations have a direct and crucial impact on Potosi's local economy. For example, during 2009 alone over $32 million will be spent in this community. This $32 million includes direct tax revenues, funding for school infrastructure to benefit the community's children, support for a number of arts and sports programs, programs to support mine safety and skills and funding for community development.

And now, Leon.

K. Leon Hardy

As Dennis mentioned, work is now beginning at Kensington. Leading up to the favorable U.S. Supreme Court decision, we carefully analyzed and reviewed project costs once more. That effort has yielded a detailed estimate of $70 million in capital expenditures to complete the remaining construction projects and mine related investments to get us into commercial production.

Once ramp up is complete, we expect to see cash operating costs of approximately $475 per ounce with 120,000 ounces of annual production and a 12.5 year mine life. We expect operational ramp up to begin in early 2010, starting with initial mine production and ore stockpiling, utilizing standard underground mining methods while mill operations commence commissioning and training on the fully completed 1,250 ton per day flotation plant.

Production is expected to begin in the second half of 2010, resulting in a partial year of gold production totaling approximately 40,000 ounces. Kensington will have an annual run rate of about 120,000 ounces of gold. Since Kensington is already 90% complete, the timeline for construction and startup is a relatively short one. The majority of the required investment relates to the tailings facility and related infrastructure.

Since the Supreme Court decision, we've bid several key construction contracts and have mobilized our own construction management team. We are poised to focus on the construction of the Lower Slate Lake tailings facility during the remainder of the year, and we'll turn towards operational ramp up activities early next year so we can achieve the target startup dates.

I'll now turn it over to Mitch.

Mitchell J. Krebs

Our second quarter results were positively impacted by contributions from Palmarejo and San Bartolome, along with steady performance at Rochester and Martha. We had operating cash flow of $16.8 million, an increase of nearly 700% year-over-year, and net income of $11.6 million. As expected, our operating cash flow is increasing towards our goal of $100 million for the full year.

Our guidance for 2009 is based on $13 silver and $900 gold prices, which we feel are appropriately conservative assumptions. With the proceeds of the interest in the Broken Hills sale, Coeur's pro forma cash position now stands at a comfortable $80 million.

The company's remaining CapEx for the year is approximately $100 million, with the inclusion of Kensington. We plan to fund this remaining CapEx from existing cash of approximately $80 million and cash flow from operations, which we expect to reach $100 million for the full year with $25 million of that having been generated in the first half of the year and the remainder obviously in the second half.

In addition, the company has executed a term sheet to provide Coeur Mexicana with a $30 million revolver and is in advanced discussions to establish a facility to provide additional financing flexibility to support the remaining construction at Kensington. Our commitment to reducing non-operating costs remains strong as G&A expenses declined 22% year-over-year and represents the third straight quarter of declining G&A costs.

Turning to the balance sheet, we have received the $55 million in cash proceeds from the sale of our interest in the Broken Hill mines. As you may recall, we entered into this investment in 2005 at a cost of $36.9 million. And last month we sold that interest realizing an annualized rate of return of approximately 39%.

We have also taken advantage of the state of the convertibles market to opportunistically reduce the remaining balance of our two unsecured convertible debentures we obtained to build our new mines. We started the year with $400 million in obligations related to these two debentures, and that balance now stands at just $230 million, a reduction of 37%. With an enhanced capital structure and improving cash flow, we are proceeding confidently towards completing construction at Kensington.

Slide 14 illustrates how the majority of the company's investment in these new mines is behind us and how CapEx is moderating. The current quarter reflects the combination of Kensington expenditures and final reduction of CapEx down in Mexico. This declining expenditure trend will continue as we complete the remaining investments at Kensington, while at the same time see our operation cash flow from all three new mines contribute to an attractive long-term cash flow profile. Don?

Donald J. Birak

Coeur's exploration in the second quarter of 2009 focused on the Guadalupe area of Palmarejo in Mexico, as well as a Phase II drilling at Joaquin near our Martha mine in Argentina, and definition of a new Delia Vein of Cerro Bayo in Chile.

Favorable results were obtained from all targets. We expect this work and follow-up joint to lead to an increase of reserves at Palmarejo, Cerro Bayo, and along with results from a soon to commence Phase III at Joaquin, an estimate of the first metal resources for that property near Martha.

Looking in more detail at Guadalupe on slide 17, you can see in this long section where we drilled in the second quarter of the year, denoted by stars. This work not only expanded the size of the deposit to the north and at depth, but filled key gaps at the Las Animas in Guadalupe's [sewer] zones where there is strong potential to increase the current surface mineable ore reserves.

Drill pierced points on the Guadalupe and Animas structures are shown color coded by gold equivalent grades selected to match those used in our open pit and underground mines at Palmarejo to the North. We are pleased with the results from this quarters drilling and expect this result and an increase in proven and probable reserves this year.

Moving to Chile, our exploration team intersected a very high grade silver and gold mineralization in a new vein termed Trinidad, which occurs just to the West of Delia Vein. Follow-up drilling on this and other targets is underway. Exploration drilling focused on definition and expansion of the large Delia Vein system during the second quarter, which is located less than 500 meters southeast of the Cerro Bayo mill and on testing new targets in the district. Over 13,000 meters of drilling was completed this quarter on all targets.

Over in Argentina, Coeur's exploration team completed a second phase of drilling of 1,900 meters and 15 new Coeur holes at the Joaquin property this past quarter. Two targets, La Morocha and La Morena were drilled at this property near Martha, in which we have an option to earn up to 71% managing joint venture interests. Results from this second phase were similar to those of Phase I and are very encouraging with wide zones of silver and gold mineralization intersected in nearly all Coeur holes.

In the maps on this first slide, you can see the location of the Joaquin property and an enlargement of the Phase II targets drilled. Earlier this year, we also drilled a Phase I at the La Morena target to the west, which intersected a wide zone of mostly gold mineralization. Thus far drilling on La Negra has produced some of the highest grade intersections of all the targets at Joaquin.

Here you can see a plant and sectional view of La Negra with some of the better drill results thus far. Holes 31 and 38 were drilled this past quarter. Mineralization at La Negra is largely oxidized and remains open to the North and at depth.

The La Morocha target occurs about one kilometer to the East of La Negra. Our work at La Morocha has intersected wide zones of silver and gold mineralization in [Brechas] encasing veins and stock works. Some of the significant results are shown on this slide with holes 25 and 26 having been drilled in Phase II. The silver and gold mineralization at La Morocha is also largely oxidized and open for expansion to the North and at depth. A Phase III drilling is scheduled to commence in the third quarter to further test the size potential of both zones and conduct initial metalogical tests. Dennis?

Dennis E. Wheeler

We've entered a new era where our shareholders will benefit from the unique features of silver, which is both an investment vehicle and today's modern world technology metal. We continue to see exciting new applications for silver that will drive demand well into the next decade.

Silver is now being used in most handheld electronics such as iPods music devices and cell phones where manufacturers are employing silver instead of lead due to silver's quality and efficiency. These electronic components alone represent over 200 million ounces of worldwide silver demand and growing each year.

Meanwhile, there's a growing use of silver as a biocide in products that feature antibacterial silver such as in medical devices, appliances and industrial surfaces. While technology silver demand is growing, investment demand is reaching another all time high as we enter the second half of 2009.

The launch of new silver ETF last week called Silver Trust was a big success and the iShare Silver ETF is currently at record levels. Some analysts speculate that this demand has the potential to outstrip mined silver supply in the near-term.

No matter what your individual opinion is about inflation, analysts remained generally bullish on silver. As you can see from just this sample of estimates out there for our metal, the 2010 estimate is in the $14 to $15 range, certainly favorable to Coeur. This translates into further potential upside for Coeur and our shareholders.

We're seeing that investors are holding on to silver and gold. Gold Fields Mineral Services of London said recently that it expected Central Bank gold sales to be at their lowest level since 1994. And we continue to be bullish and feel that there remains excellent upside for precious metal prices and that now is a favorable time for our investors.

Over the next few quarters our investors, employees, and community partners have much to look forward to. We will achieve full production and design performance at Palmarejo, and we will successfully complete our first full year at San Bartolome leading to record production in cash flow generation. We will startup our new Kensington mine next year and, again, substantially boost our gold production and cash flow.

On the exploration front, we will report new reserves from Palmarejo later this year. We will continue to strengthen our balance sheet and finally we'll remain vigilant in our ongoing efforts to reduce non-operating costs, reduce debt, and deliver shareholder value.

Operator, we're now open for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from John Bridges – JP Morgan.

John Bridges – JP Morgan

In your Palmarejo accounts, there's nothing there showing for royalty. Is that payable yet to Franco-Nevada and if so how is it going to be booked going forward?

Mitchell J. Krebs

I'm going to ask Tom Angelos our Chief Accounting Officer to answer that question as far as we treat the Franco-Nevada royalty payments.

Thomas T. Angelos

Basically the accounting rules that we looked at this last quarter was the royalties are considered an obligation so its treated as a debt until we fund the minimum quantity of 400,000 ounces and then it would convert to a royalty.

John Bridges – JP Morgan

So where would it appear in your accounts this quarter?

Thomas T. Angelos

The royalty is on our balance sheet as a liability. And we haven't really started – as we sell the gold ounces its offset against the liability on the balance sheet and it would not reflect in the P&L until we reach the 400,000 ounce minimum quantity.

John Bridges – JP Morgan

When do you expect that to be?

Mitchell J. Krebs

John, that's run rates of production estimated at Palmarejo that would be in another six years or so.

John Bridges – JP Morgan

Just as a follow up, do you have a detailed breakdown of how your capital was spent last quarter?

Mitchell J. Krebs

We do, John, yes. The $42 million of CapEx for the quarter is really driven mostly by Palmarejo obviously. For the three months ended June 30, $32 million of that $42 million was spent at Palmarejo, $6.6 million at Kensington, and $2.6 million at San Bartolome. That gets you pretty much there. There was just a deminimus amount spent at Martha and Rochester, less than $0.5 million each.

John Bridges – JP Morgan

The mill problem at Cerro Bayo was that in any way related to the previous problem?

Mitchell J. Krebs

I couldn't hear that, John. Could you ask that again?

John Bridges – JP Morgan

The SAG mill problem during the quarter was that related the – was there any similarity with the previous problem?

Richard Weston

I think you're referring to San Bartolome there.

John Bridges – JP Morgan

Yes. San Bartolome.

Donald P. Gray

In May we were temporarily impacted by a mill motor issue. That has been successfully resolved.

John Bridges – JP Morgan

So that's different than the bearing problem you had before?

Donald P. Gray

Yes.

Operator

Our next question will come from the line of Pierre Vaillancourt - Macquarie Research Equities

Pierre Vaillancourt - Macquarie Research Equities

I just wanted to ask if you provide me with a little clarification on the difference between the cash operating costs and the cash costs, like at San Bartolome its 737 cash operating costs. So what makes the difference to take it up 1064?

Mitchell J. Krebs

It's really the difference between cash operating costs and cash costs are royalties and taxes. A good place to get a better description of that different is in the footnotes in the press release to the production table. You'll see there are detailed explanations for what goes into both of those calculations but it's mainly the royalty component.

.

Pierre Vaillancourt - Macquarie Research Equities

So if you're looking at these mines, obviously, Palmarejo you're still ramping up but you'll get to steady state by year-end. So what does next year look for both of these mines in terms of steady state production and cash costs?

Mitchell J. Krebs

We've stated that the run rate at Palmarejo was about 9 million ounces of silver, same for San Bartolome. And the gold at Palmarejo of about 110,000 ounces on a run rate basis. We have not put out any kind of mine-by-mine operating cost or cash cost estimates but with these new mines that trend overall companywide of cash costs will decline.

Pierre Vaillancourt - Macquarie Research Equities

You've been fluctuating quite a bit at San Bartolome. I mean is it safe to say that you can look to improve on what you did this quarter? Or is this fairly representative of what you can expect?

Dennis E. Wheeler

Well, Don Gray mentioned that we reached design capacity there in June and July, Pierre, so my expectation is that we will continue to see cost improvement now that the operation has reached those levels and certainly we'll continue to be driven to achieve that.

Pierre Vaillancourt - Macquarie Research Equities

Can talk about the costs that you achieved in those months?

Mitchell J. Krebs

This is Mitch. The full year as we said in the press release, our operating costs at San Bartolome are expected to be right around $6.50. And as we said through the first six months of the year, they were just a tad over $7, so that kind of gives you a sense of where we expect costs to be in the third and fourth quarters.

Pierre Vaillancourt - Macquarie Research Equities

You sold Broken Hill, is Endeavor also for sale or how do you see that?

Dennis E. Wheeler

I think you've seen as a consequence of that sale that Coeur continually looks at our assets and in view of the fact that we have our major mines now coming on stream our portfolio is getting some increased attention.

Pierre Vaillancourt - Macquarie Research Equities

Sounds like it's not a Coeur asset, if I understand correctly.

Dennis E. Wheeler

Well, I think we have an obligation to maximize value for shareholders.

Operator

Our next question comes from Jorge Beristain – Deutsche Bank Securities

Jorge Beristain - Deutsche Bank Securities

It's Jorge Beristain with Deutsche Bank. Just wanted to follow up, do I understand it correctly that you are not giving explicit unit cash cost guidance for Palmarejo at this point?

Mitchell J. Krebs

We have not done that in terms of looking forward on really any of our assets from an asset-by-asset cash cost perspective.

Jorge Beristain - Deutsche Bank Securities

Could you give me a ballpark looking forward unit cash cost both pre and net by product, net of by product say for 2010?

Mitchell J. Krebs

We haven't put anything out like that publicly and I guess we'll be looking at that more closely as we go into the budget season during the second half of the year but no, no guidance on that at this time.

Jorge Beristain - Deutsche Bank Securities

When will Broken Hill be deconsolidated?

Mitchell J. Krebs

As of June 30, that was the last period.

Jorge Beristain - Deutsche Bank Securities

So by third quarter you'll have the cash in the bank for that asset sale.

Mitchell J. Krebs

Yes, cash is in the bank. We received the funds.

Jorge Beristain - Deutsche Bank Securities

In terms of your, maybe just refresh us here with your latest basic and fully diluted share count estimates for the third quarter looking ahead, what numbers we should be using?

Mitchell J. Krebs

In terms of looking forward on that, that's not something I'm in a position to do. I'd be happy to have Karli follow up with you on that. I think in the release itself we talk about where we are as of August 4 on a basic outstanding basis with 75 million shares.

Jorge Beristain - Deutsche Bank Securities

Sure and fully diluted?

Karli Anderson

About 80.

Mitchell J. Krebs

About 80, right about 80, Jorge.

Operator

Our next question comes from [Chris Mitchenhalt]

[Chris Mitchenhalt]

Just first, unless I missed it, I don't think you've changed the production guidance at Palmarejo of 5.3 million ounces, is that right?

Mitchell J. Krebs

That's right, [Chris].

[Chris Mitchenhalt]

So if we look I think 9 million ounces a year going forward implies a run rate of somewhere around 2.25 million ounces each quarter, so it looks like you'd have to sort of be producing a bit ahead of that in the back half of this year to hit that 5.3. Is that still a number you're reasonably comfortable with?

Mitchell J. Krebs

But first from the company's perspective, the second quarter represented the initial periods there at Palmarejo and we do expect to see dramatic increases in production in the third and fourth quarter.

[Chris Mitchenhalt]

My next question, just the [world] here at San Bartolome looks to have roughly doubled from the first quarter. Is there something unique going on there in this quarter? I think it was just around 3 million and then it was over 6 million in this quarter if I'm not mistaken.

Mitchell J. Krebs

It really, [Chris], just depends on where we're mining and what the royalty rates are by area, so nothing unusual or unexpected from the company's perspective.

[Chris Mitchenhalt]

So it shouldn't necessarily remain at this higher level?

Mitchell J. Krebs

Yes, it'll continue to bounce around from area to area. I don't know if Don Gray, if you have anything to add to that.

Donald P. Gray

No I think that's true, Mitch, is that it depends on the area we're mining from and the type of material.

[Chris Mitchenhalt]

Lastly as it relates to the royalty or it relates to the deal the Franco deal at Palmarejo, there's still a completion payment I think coming at some point. Do you have some idea as to when that may be coming and how much that might be worth at this point?

Mitchell J. Krebs

Yes, it's a 90-day completion test where we have to meet certain production criteria and we expect that to be completed in the second half of the year that relates to 317,000 shares of Franco-Nevada stock. So if you can do the math from there.

[Chris Mitchenhalt]

Yes and you'd expect to monetize that when you get those?

Mitchell J. Krebs

That's right.

Operator

(Operator Instructions) Our next question comes from [John Dimazo]

[John Dimazo]

Could you explain a little more the delay between since June 22 in terms of the Army Corps of Engineers advancing Kensington? I'm a little confused as to how our government works and why the Supreme Court ruling didn't expedite the resolution.

Dennis E. Wheeler

[John], these are procedural timelines set forth in the rules of the court. And it has been a completely orderly process as expected or not as expected. As I mentioned, we actually saw the injunction dissolved more timely by the Ninth Circuit Court of Appeals than they could have had they exhausted all of the days that were allowed under the procedural rule for the dissolution of the injunction. So we're pleased with where we are and I indicated to you that at this point, the Corps of Engineers has basically an administrative function left to issue the letter that just says resume at Kensington.

Operator

Our next question comes from Mike Curran – Royal Bank.

Mike Curran - Royal Bank

I'm interested in San Bartolome and the gold recoveries in the mid to high 80s. I really think longer term or life of mine was kind of looking for a much lower recovery sort of in the high 70s. Is this a surprise or sort of part of the plan and then you'll see recovery sort of drop-off with grades in future years?

Mitchell J. Krebs

Mike, just to clarify, did you mean San Bartolome or you said –

Mike Curran - Royal Bank

San Bartolome, sorry, I'm not sure what I said.

Mitchell J. Krebs

That's okay, you said gold recoveries and we don't –

Mike Curran - Royal Bank

Sorry, yes silver recoveries.

Mitchell J. Krebs

So, silver recoveries at San Bartolome?

Mike Curran - Royal Bank

Yes.

Dennis E. Wheeler

Don, do you have any comment you'd like to make about that? We did reach our design capacity, our plans I mentioned to you, Michael in June and July. And clearly approaching a steady state there but Don, do you have anything else to add in terms of percentage recovery?

Don P. Gray

No, I don't have anything else to add. The recovery is good now and the plant is running at design capacity.

Mike Curran - Royal Bank

So you think you can maintain kind of those mid to high 80s going forward?

Donald P. Gray

It always depends on your grade recovery, but right now those are the recoveries that we're running.

Operator

Our next question comes from [Brian Quest].

[Brian Quest]

I was just looking at the depreciation for Palmarejo and I was wondering is that just a function of the inventory build and the startup of the mine or is it going to be quite high going forward as well?

Mitchell J. Krebs

It's definitely related to the ramp up and we see that level out as we continue to ramp up.

[Brian Quest]

And could you give us some sort of an idea of maybe dollars per ounce or something like that to run rate going forward?

Mitchell J. Krebs

I think it ends up being, [Brian], somewhere around $4 or $5 an ounce.

Operator

Our next question comes from John Bridges – JP Morgan

John Bridges - JP Morgan

Dennis, just a follow-up on Palmarejo again, you've got a mix of underground and surface, have you started the underground yet? Is that going to be relatively stable or are you going to [alt] between the two ore sources?

Dennis E. Wheeler

Richard?

Richard Weston

Yes, Dennis, I can answer that. Mining operations are producing at expected production rates and grades and that's both from underground and the open pit.

John Bridges - JP Morgan

How much comes from the pit and how much from underground?

Richard Weston

We're getting about 40,000 tons a month from underground and the balance from the open pit we are going to ramp up with the underground when we start stripping in August.

John Bridges - JP Morgan

So is it going to be a steady state with that or is it going to depend on where you are at stripping and whatever?

Richard Weston

Both the underground and open pit, we expect to be in steady state. Once we get to stripping underground, we expect that tonnage to be steady and also from the open pit.

John Bridges - JP Morgan

What's the difference in the grades from the two different sources?

Richard Weston

I'd have to get back to you on that.

Operator

We have no more questions at this time. Do you have any closing remarks?

Dennis E. Wheeler

We'd like to thank all of our interested investors from on joining us on today's second quarter results call. As you've heard, these are exciting times at Coeur and our management team and employees are totally focused on achieving the benchmarks in our strategic plan that we've set forth to you throughout the year and we look forward to reporting to you the results of the third quarter. Thanks again.

Operator

This does conclude today's conference call. You may now disconnect.

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Source: Coeur D'Alene Mines Corp. Q2 2009 Earnings Call Transcript
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