Coeur d'Alene Mines Corporation CEO Discuses Q1 2013 Results - Earnings Call Transcript

| About: Coeur Mining, (CDE)
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Coeur d'Alene Mines Corporation (NYSE:CDE) Q1 2013 Earnings Call May 9, 2013 1:00 PM ET


Wendy Yang - Vice President of Investor Relations

Mitchell Krebs - President and Chief Executive Officer

Frank Hanagarne – Senior Vice President, Chief Operating Officer and Chief Financial Officer

Joe Phillips - Senior Vice President and Chief Development Officer

Donald Birak - Senior Vice President of Exploration


Jeff Wright - Global Hunter Securities

Jorge Beristain - Deutsche Bank

Andrew Kaip- BMO Capital Market

Anant Inani - JPMorgan

Brett Levy - Jefferies & Company


Good afternoon. My name is Sandra, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2013 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. (Operator Instructions). I would now like to turn the call over to your host, Ms. Wendy Yang, Vice President of Investor Relations. Ma’am you begin.

Wendy Yang

Thank you, Sandra. Welcome to our first quarter conference call. I’m Wendy Yang, Vice President of Investor Relations.

This call is also being webcast on our website at Where we have posted slides to you accompany our remarks. Telephonic replay of the call will be available on our website through May 23rd.

We will be discussing some forward-looking information today and we caution our audience that such statements involve risks and uncertainties that could cause actual results to differ materially from projections.

Please review our cautionary statement shown on slide two and review the risk factors, including some that are specific to our industry described in our latest annual and quarterly financial reports filed with the U.S. SEC and Canadian regulators.

On the call today we have Mitch Krebs President and CEO; Frank Hanagarne; Senior Vice President, Chief Operating Officer and Chief Financial Officer; Don Birak, Senior Vice President of Exploration; and Joe Philip, our Senior Vice President and Chief Development Officer.

We will get started. Mitch, please go ahead.

Mitch Krebs

Thanks, Wendy. Good morning everyone, good afternoon to those on the east coast. During the first four months of the year, we have continued to pursue several key strategic objectives that are shown on slide four. None of these objectives will be achieved overnight but we are making steady progress and none of these objectives will be achieved without the right people and the right level of technical expertise in place.

We are committed to succeeding in this new world of capital discipline, execution, cost reduction, returns and better management of the risks inherent in our industry. Success requires building a team of technical and financial talent that can become a true competitive advantage for our company and that’s exactly what we have been doing and I am really excited about the people that have recently joined Coeur.

We have added a new season Chief Financial Officer in Peter Mitchell who will help us maintain a flexible balance sheet, mitigate risks and appropriately deploy free cash flow to achieve optimal returns and lead our efforts to better manage cost and information. We have also added a new Chief Development Officer in Joel Philips to lead the company’s capital project initiatives. Joe and his group are keenly focused on the importance of delivering projects on-time and on-budget whether their projects in support of existing operations or more significant projects such as La Preciosa or Rochester’s expansion.

In order to better identify and manage risks, we have hired a new head of health and safety in Bill Holder who is providing leadership, support and the tools necessary to achieve our goal of making sure everyone goes home safely to their families every night.

We have new general managers in place at Palmarejo, San Bartolomé and Rochester who are driven to make their operations as safe, consistent and efficient as possible.

In addition we have added a stable of very talented, technical, financial, IT and operations professionals who are driving the company forward in ways that will lead to more consistency, better planning and better decision making. What we have undertaken here is essentially a complete overhaul of this company. We are serious about making Coeur a true leader in the precious metals industry. Being a leader doesn’t necessarily mean the biggest. That’s the lesson this industry has learned the hard way over the past decade. We are striving to become the example of how a mining company should run and demonstrate a willingness to embrace new ideas and approaches in an effort to make our shareholders money. This will all be accomplished over time with a new name and a new headquarters location which we believe sets the tone for the kind of change we are talking about.

Despite recent volatility in silver and gold prices we have been aggressively pursuing cost reductions and efficiency gains at our operations since late last year, and we are beginning to see results. We have begun a top to bottom review of all ongoing and planned capital expenditures to ensure we are deploying capital in the projects that are either necessary for the long terms sustainability of the operation or that will generate an appropriate return on that capital.

It is important that we stress test all projects and operations per prices to determine the optimal path forward without being too reactionary to the volatility in silver and gold prices, we experienced during April. We need to maintain our focus on long term prices given we are making decisions that are over five to twenty year time period.

Although, we are primarily focused on our existing operations we will continue to be opportunistic towards external growth. We currently see a lot of dislocation in the market, especially within the late stage exploration company sector, that we will selectively pursue. We remain committed to repurchasing our shares which we believe represent tremendous value at current levels. So far we have completed $32.5 million of the $100 million program our board authorized in June of last year.

Turning to slide 5. Couple of weeks ago, I was in New York for the release of the 2013 World Silver Survey. Although industrial demand declined last year, investment demand remain strong and is expected to continue to be the key to sustained silver prices. Other key highlights from the silver survey are summarized on slide 5.

And just a quick comment on gold which makes up 47% of our sales, I haven’t seen the sentiment for gold this negative in a long time. Yet, here we are at $1470 an ounce, after touching $1380 an ounce just three weeks ago. We think the long term case for gold remains intact and we like our metals mix of silver and gold.

Turning to slide 6. I would say we had a mixed first quarter that ended much stronger than it started. As we announced in our April 15th news release, first quarter production was steady and we expected to accelerate this flat compared to the fourth quarter gold production was down slightly compared to the fourth quarter but up 30% compared to the year ago first quarter. D'Alene gold mine in Mexico rebounded compared to the prior quarter in terms of higher production levels and significantly lower costs. Having said that Palmarejo started slowly in January and February but had a strong March which resulted in a decent quarter. We expect to see more months like we experienced in March and April and what we are seeing so far in May and fewer like January and February throughout the rest of the year and we are confident in our full year guidance at Palmarejo.

Our Rochester silver and gold operation in Nevada which is undergoing a further expansion this year started the year slowly due to cold snowy weather and fewer tons being crushed in plant. The mine is catching up but the first two months of the year has put Rochester behind budget. Performance at our San Bartolomé silver mine was solid in the first quarter and the result at our Kensington gold mine were stable and we expect production there to increase during the remainder of the year. so operationally for us the two big keys are to sustain the performance at Palmarejo that we have seen in March April and so far in May and accelerate the crushing rates at Rochester to make up for the slow January and February. Overall sales and operating cash flow was down but there was about $39 million of metal sales that didn’t make into the first quarter that were realized in the current quarter. If you add that back into the first quarter results we were ahead of the fourth quarter and in line with the year ago first quarter.

Overall costs were down in particular Palmarejo’s cost per ounce dropped from $7.55 per ounce in the fourth quarter to $2.20 per ounce in the first quarter. San Bartolomé’s cost per ounce also declined by 5% versus the prior quarter.

We recently closed the Orko Silver acquisition which adds the world class La Preciosa silver project in Mexico to our list of life of long life assets and Joe will have more to say about La Preciosa in a few minutes. We were opportunistic in the capital markets during the first quarter which has resulted in a very flexible balance sheet. Our strategic objectives for 2013 remain clear and unchanged and are shown on slide seven.

Turning now to the financial update, slide nine highlights our first quarter financial results. We produced 3.8 million ounces of silver and almost 57,000 ounces of gold in the quarter but only sold 3.1 million ounces of silver and 52,000 ounces of gold due to timing which gave rise to a $39 million lag in metal sales that I mentioned earlier. We generated about $59 million in operating cash flow from about $172 million in metal sales. Production cost at our mines are on plan and we are now seeing some reductions versus budget thanks to a lot of hard work. Consolidated production cost were about $89 million in the first quarter which was 4% lower than last year’s first quarter and 17% lower than the fourth quarter of last year. On a per ton mill basis production cost were 16% lower compared with the first quarter of 2012.

Capital expenditures were about $13 million in the first quarter, which was a 59% decrease from the first quarter of 2012. And cash, cash equivalents and short term investments ended the quarter at about 333 million. We use 99 million of this balance to fund the cash portion of the Orko Silver acquisition last month and the company's $100 million revolving credit facility remains undrawn.

The table on slide 10 shows average realized prices, ounces produced and sold and cash operating costs on a per ounce basis. Now I'll turn the call over to Frank who will take us through first quarter operational performance.

Frank Hanagarne

Thanks Mitch. We will turn to slide 12; this slide lists the first quarter 2013 operational highlights and priorities for all of our four operating mines. First quarter of 2013 production at our Kensington gold mine in Alaska was down 12% in fourth quarter 2012, all cost remained constant. Kensington contributed 20% of our operating cash flow. We expect production for this mine to increase and cash operating cost to decline in the second half of the year, as we expected ore grades.

Our Rochester silver gold mine in Nevada had a good quarter, the silver and gold production up 47% and 65% respectively for the first quarter of last year. Rochester started the year slowly due to processing challenges from severe winter weather in January and February. The mine contributed 23% of total operating cash flow for the quarter. The capital expansion underway at Rochester increased 2013 production, 35% to 50% year-over-year.

Underground and open pit mining rates at our Palmarejo mine in Mexico improved and stabilized in the first quarter, compared with the last few months of 2012. Palmarejo contributed 37% of Coeur’s total operating cash flow. Development of Guadalupe continues and we're optimizing the mine plan to incorporate a new open pit production plan to augment underground production.

San Bartolomé demonstrated strong mill throughput and silver recovery rates, contributing 18% of Coeur's consolidated operating cash flow for the quarter. The planned mill expansion at San Bartolomé is expected to drive annual production levels up over 6 million ounces of silver in 2014 and for the next several years.

Turning to slide 13, the bar charts at the bottom of slide 13 shows a steady increase in silver and gold production in our operations over the past 5 years. 2012 production totaled 18 million silver ounces and a record 226,486 gold ounces. We expect to produce 18 to 19.5 million ounce of silver and a record 250 to 265,000 ounces of gold in 2013.

Looking at Coeur's metal production by mine, Palmarejo continues to contribute the majority of silver and gold production. But the increased production at Rochester and Kensington has been notable. Our longest lived operation, Rochester is placed to be our second largest cash flow contributor in 2013 and could become the company's largest cash flow contributor in five years.

Turning now to the operating performance details of each of our mines, slide 14 shows the first quarter 2013 highlights of Palmarejo; although production levels of Palmarejo started off slowly this year as a result of mining lower than plant or grades. March and April were strong months and we remain confident in our 2013 guidance for this important asset.

Palmarejo generated metal sales of 57 million from 1.1 million ounces of silver and 14,500 ounces of gold in the first quarter. As mentioned earlier, we produced more ounces and we sold due to quarter end time; Palmarejo produced 1.65 million ounces of silver and 22,965 ounces of gold at cash operating cost of $2.20 per silver ounce.

Operating cash flow was 31.5 million. Capital expenditures were 5 million for the quarter. Palmarejo's underground and open pit mining rates improved and stabilize during the first quarter compared to the last four months of 2012. Silver or gold or grades from both the open pit and underground operations are generally expected to improve through the rest of the year as they did in March and April.

Progress at Guadalupe is accelerating through improved development results and we anticipate intercepting the authorized in the second quarter. We are proud to report that Palmarejo's mine rescue team are in first place and first aid response team are in second place in the respective competitions that the northern Mexico mine rescue and first aid competition held in mid-March 2013.

In addition, for the fifth consecutive year, Ghana was recognized by the Mexican center for Philanthropy with solely responsible business distinction award for demonstrated leadership, excellence in corporate social responsibility, environmental stewardship and sustainability of Mexico. We are very, very proud of our Palmarejo team for these achievements.

Turning to slide 15, San Bartolomé generated 33 million in sales in the first quarter from 1.1 million ounces of silver sold. This was less than metal production of 1.4 million ounces of silver, cash operating costs per silver ounce for $13.27 in the first quarter 2013 compared to $13.97 in the fourth quarter 2012.

Operating cash flow totaled 12 million; the 17-20 million mill expansion project underway at San Bartolomé is expected to increase processing capacity at the mine by approximately 10-15% in 2013. We expect the expansion to generate a less than two year pay back and to increase the mine's annual production to over 6 million ounces of silver for the next several years; a reduced cash operating cost per ounce. This expansion project is on schedule and expected to be completed late this year.

Capital expenditures in San Bartolomé were 500,000. In celebration of the City of (inaudible) San Bartolomé donated silver bars which were made into commemorative medallions. Great for the possible relationships we have in Bolivia and welcome the opportunity to give back to the community where we operate.

Turning to slide 16, first quarter production at Rochester was 648,000 ounces of silver and 8742 ounces of gold, a cash operating cost of $13.54 per silver ounce, lower than the first quarter of 2012 but higher than the first quarter of 2012. Metal sales totaled $39.5 million and operating cash flow was $17 million.

We remained very enthusiastic about 2013 expansion underway at Rochester. We will invest about $4 million this year expand crushing capacity from 9 million tons to 14 million tons. Monthly crusher throughput is expected to be between 1.2 million and 1.4 million tons in the second half of 2013 leading to expect higher second half production of silver and gold.

In addition to expanding the mine heap leach capacity to approximately 67 million tons than an estimated capital cost of about 15 million, this plan expansion will accommodate sustain higher production rates driven by mining or contained in historic stock files. These stock files were created during the mine 26 years' operating history and gold and silver prices were significantly lower than the current market.

Capital expenditures of Rochester were $3 million in the first quarter. Rochester is located in Nevada the silver state. This month for donated 1000 ounce silver bar to Nevada Governor Brian Sandoval to produce commemorative coins marking the State’s 150th anniversary, (inaudible) part of the community and the state both (inaudible) history.

Moving to slide 17, Kensington produced 25,206 ounces of gold in the first quarter a cash offering cost of $1055 per annum which is much improved over the first quarter of 2012. Costs were higher at that time due to a temporary production scale back to complete several critical underground and surface infrastructure projects.

Now, the sales totaled 39 million and offering cash flow was 15 million first quarter of 2013. Mechanical availability of generators during the first quarter reduced underground backfilling which impacted overall mining efficiency and cost at Kensington. Bill throughput was 129,057 tons consistent with the fourth quarter of 2012.

Gold grade is expected to gradually increase during the remaining quarters of 2013 as scheduled (inaudible) in process; capital expenditures at Kensington were $3 million. As we mentioned, Joe Phillips recently joined our team as Chief Development Officer and brings with him international mining development experience including the successful construction of two mines in Mexico. Joe will lead our development efforts at La Preciosa and other capital projects.

I will now turn the call over to him.

Joe Phillips

Thank you, Frank. I would like start by saying its pleasure to be part of Coeur's team and to work on developing exciting projects like La Preciosa. I would like to start with slide 19. On April 16th Coeur acquired Orko Silver. The key asset of this acquisition is the La Preciosa project in Mexico with 32,400 hectare of contiguous mining plants almost three times the size of the Palmarejo district.

This acquisition provides four key benefits to our shareholders. First is diversified Coeur’s portfolio across the larger platform of assets. Second, it reduces our overall political risk profile. Third, it provides accretive significant growth in production and cash flow over a long mine life. Finally, it’s expected to generate rate of return in excess of our cost and capital.

La Preciosa is one of the largest undeveloped silver deposits in the world with the potential to grow even larger through further drilling. The silver resource estimate is 99 million ounces of indicated and 140 million ounces of inferred. The property is well located with significant infrastructure in place including highway access to the property and close proximity to power and railroad lines.

Our efforts at La Preciosa is focused on three principle areas. First is to complete a preliminary economic assessment which will provide a scoping level at the mine plants and projects economics M3 engineers will prepare the PEA by the end of the second quarter of 2013. Following completion of the assessment, we expect to start basic engineering and full feasibility work in the second half of 2013 along with exploration in filed and development drilling.

As mentioned in previous announcements, our studies indicate that a large surface mine will provide the most robust project at current metal prices. And we’ll enable the recovery of a larger percentage of the resource.

Our second effort is to build the team which will take La Preciosa forward to feasibility, construction and operation. We’ve hired Bruce Kennedy as the General Manager of the project. Bruce most recently led the turnaround of large Pirquitas Silver mine in Northern Argentina and has successfully managed projects in Latin America including Goldcorp's large Peñasquito Mine in Mexico where he was the operations manager.

Finally, we’re working on key infrastructure at the site and establishing an effective community relations program.

On slide 20 you’ll see an aerial photo of the property looking south at the mine site plant and tailing locations. The La Preciosa property is a favorable location to build the mine.

Slide 21 breaks down the expected timeline for advancing La Preciosa. As mentioned, the PEA completed in second quarter of 2013 and we will continue developing our exploration and development teams. Our third quarter the technical report for the PEA will be filed and we expect the commence exploration drilling. 2014 will be dedicated to the feasibility study. 2015 to 2016 will be mine construction and we expect initial production in the second half of 2016.

Continuing on the slide 22, I’d like to talk a bit about our capital expenditures for 2013. As Mitch mentioned we’re currently reviewing all of our capital projects inline of recent changes in metal prices. To ensure the expected returns meet our investment hurdle rates. We expect this process to result in a reduction of our capital spending in the second half of the year. Our capital projects for 2013 are focused on increasing production capacity, reducing cost and improving efficiency.

The projections on slide 22 do not yet include CapEx estimates for the La Preciosa for the reminder of the year. And with that I’ll turn the call over to Don to take us through the first quarter 2013 exploration highlights.

Donald Birak

Thanks, Joe. Good morning everyone. At the peak of the quarter, we had 10 drills and crews working continuing at the pace we have set in 2012. Majority of our investment remains focused on our large operating and advanced stage properties with Palmarejo leading the way. You will see some favorable results the 108, Las Animas and Tucson‐Chapotillo zones at Palmarejo and from Rochester Kensington and San Bartolomé.

I will describe some of these in more detail next. Four core drills rags given the Palmarejo district, two underground and two on surface. Two underground drills are working at the 108 and 76 zones. On surface we drilled at Tucson‐Chapotillo and Las Animas. Favorable results were obtained from all of these areas but particularly from 108 and Las Animas. As the compilations are included in the appendix section of this presentation for your reference.

Our objective in 108 is to upgrade and expand mineral resources which will lead to new reserves. 526 shows a section BO108 working northeast and a three dimensional view in the upper left corner for prospective. We are pleased with the results we received thus far and a new phase of drilling is being planned.

Shifting to Guadalupe, surface drilling there in the first quarter was devoted to the Las Animas Zone. In 2012, we reexamined the zone and saw good potential for it to be mined with surface method. As a result, first quarter drilling and surface trenching were used to define and upgrade new mineral resources up dip and on straight.

We are now making plans for follow up drilling all of which we expect to increase the size of Las Animas this year. We have recently acquired La Curra, a property which adjoins Las Animas on the southeast. The addition of this property to our portfolio will benefit both surface mine planning and follow up drilling.

Shifting now to United States, slide 28 identifies stockpiles build up at our Rochester mine since we began operating there over 25 years ago. Last year we commenced drilling on the west stockpile to define mineral resources compliant with current standards. Successful in that initial work demonstrate the viability of stockpiles as a new stores of these for the company's heap leach moderating facilities. This material now accounts for over 42% of our reserve tonnes and about 40% of the contained silver ounces all within just one of the stockpiles.

Much of our work in the Rochester in the first quarter was devoted to further infill drilling of the west and an initial drilling on the south stockpile.

Slide 29 shows the results from first quarter drilling on the west stockpile in more detail where 2012 drilling shown for reference. In the coming months we will continue with reverse circulation and sonic drilling on these stockpiles.

Finally, our first quarter program at Kensington Alaska continues to focus largely on definition drilling and outlying new mineral resources. One of the targets we're drilling in this year is Kensington south. (Inaudible) gold-bearing quartz sulphide vein situated about 1,000 feet south of the Kensington mine. Late 2000 drill results received this quarter are shown on slide 30.

To improve further drilling access, this year we commenced driving a new 750 foot long hanging wall drift, new drift is on schedule and upon completion expected to improve definition of this exciting new target. With that I will turn it to over to Mitch.

Mitch Krebs

Thanks Don. Before I close, I want to take a minute to recognize three Coeur directors who will not stand for re-election at this year’s shareholder meeting. My thanks go to Jim Curran, Jim Winter and Michael Bogert for their significant contributions and service over the years. I am grateful to each of them for their dedication and support. Joining the Coeur board in 2013, our Linda Adamany, and pending their election of the annual meeting on May 14, Kevin Crutchfield and Randy Gress, each have distinguished backgrounds and bring significant expertise to the company’s board. I would also like to thank our Chairman Rob Miller and all remaining directors for their continued advice, guidance as we worked towards the common goal of building a great company.

On slide 32, as I have said before, our team is driven by the strategic priorities shown on this slide which are straight forward and achievable and provide the foundation for every decision we make. By accomplishing these objectives we are confident, we will create value over the long term for our shareholders.

This is a great time to be a cash flow generating precious metals Company with no external capital needs. There are many opportunities right now and we feel the landscape will only become more attractive. I have never seen anything like it in my seventeen years in the business. Many companies’ evaluations, ones with quality assets, just don’t make a lot of sense at current levels.

Although we will be opportunistic and disciplined as we look at ways to create value, we’re first and foremost focused on achieving operational consistency and efficiency. We appreciate the fact that it’s the free cash flow from our existing mines that makes everything else possible and makes this unique within our challenged industry.

Thanks again for joining us on the call today. Operator, we are not ready for questions.

Question-and-Answer Session


(Operator Instructions) And your first question comes from the line of Jeff Wright of Global Hunter.

Jeff Wright - Global Hunter Securities

I am looking at Rochester first. It looks like there was a follow up on the silver recoveries. Can you guys discuss, is that due to dilution or what is being done to address to get the recoveries back to more than normal range from the previous quarters?

Frank Hanagarne

There has been really no change in the behavior of the ore in the metallurgical sense, still target long term recovery rates of silver of 60% and the range of 90% on gold. We do have inner period fluctuations of recovery depending on how much ore has been placed on the path and all that was leach lines and so on. So well I think you would be seeing a slight pattern that would reflect some of those fluctuations that can take place but we are still looking at 60% over the long term on silver.

Jeff Wright - Global Hunter Securities

Then if I am, kind of moving over to Palmarejo if I am looking at the grade obviously in the press release you guys mentioned that the grade did come up in March and into April what do you think we should be looking at for silver grades at Palmarejo for the balance of the year? What number would you guys will be comfortable with?

Mitch Krebs

If you look Joe just at March results in the open pit we averaged about 4.5 ounces per ton silver and about 0.3 ounce per ton gold those are open pit grades and the underground grades of little over 4.5 silver and 0.12 on gold we will see most likely increase in the underground grades but those open pit grades will be about like what I just stated from March.

Jeff Wright - Global Hunter Securities

And given the fall of in silver and gold prices over the past 30 days have you guys contemplated or are you in the process of contemplating pushing any developments or other capital expenses or cancelling any development or capital expenses for the balance of the year?

Mitch Krebs

Well we are talking a look at all of our capital expenditures for the remainder of the year to make sure they make sense under a lower priced environment and prioritizing those that are critical to the sustainability of our operations or compliance driven. Anything after that that has to exceed our hurdle rates based on a lower price assumption and so that exercise is underway. I think Joe that is scheduled to be completed at the end of June just. so we will have more tom say about that I guess on our second quarter call but we are taking a look at that from a development standpoint there is really nothing that we are looking at changing there and from a mine planning standpoint it is pretty much steady as she goes what we need to do there is just focus on what we would be focusing on at any price and that is to be more efficient and identifying opportunities to reduce costs and improve consistency. And that like I said that takes place and has been taking place despite the volatility we saw in silver and gold in April.


Your next question comes from the line of Jorge Beristain of Deutsche Bank.

Jorge Beristain - Deutsche Bank

My question had to do a little bit with capital discipline sort of in light of the new perceived reality of gold and silver prices, in terms of La Preciosa and I don't want to put the cart before the horse here, but could you talk a little bit about if you did get to a construction decision there, you have any kind of optionality in terms of doing a phased or a staged project and would you contemplate perhaps bringing in a joint venture partner at some point down the road, again given the concern we've see with companies historically of perhaps biting off more than they can chew, I just wonder if you could talk about how you would do the development potential of that project without endangering your company's equity value.

Mitch Krebs

I'll say a couple of things then I'll turn it over to Joe on that. We will only do things with our capital that exceed our cost of capital and I don't think that has been a rule followed all that frequently, historically by the industry and we hope to be and plan to be to the point of having a construction decision to be made on the Preciosa next summer, so in the meantime we'll be doing the feasibility study, first the PEA then the feasibility design engineering, (inaudible) drilling and so the price that we’ve seen fall off here in the last few weeks is certainly a consideration but then it also has to be factored against where we think silver prices will be in a year from now and that construction decision needs to be made and then what that outlook we think looks like over the following 20 years which is always a challenge.

This is a large deposit but from a size standpoint relative to our company it’s not a huge bite, it's not a multibillion dollar project, it’s not something that we see ourselves you know putting the company at great risk over. We’re comfortable with the size of this project so I, we don't really have any interest in bringing in a joint venture partner. This is sort of right down the middle of our fairway for a company our size; at least we feel that way. I'll let Joey answer from his perspective on the rest of your question, Jorge.

Joe Phillips

Hello Jorge. Thanks for the question. One of the things that I think the benefits that we'll be taking advantage of with Coeur being a cash flowing company at a time like this is my view from being a mine builder this is the best time in history for someone to build a mine, all of the engineering companies, suppliers and consultants are starving for work so you get good prices, get the A-team and you get things delivered on time, so again presuming as we hope for positive results from our PEA, we'll be looking to go forward.

Jorge Beristain - Deutsche Bank

Maybe just re done a follow up; you mentioned at Rochester that 40% of the resource was identified in one stock file. Could you talk a little bit about the legalities; the legal challenges around the ownership there and if you could still be proceeding ahead now based on the fact that there is a lot of concentration of the oar in one stock pile.

Mitch Krebs

Let's come back to your question; it was mentioned 40 some percent basically is in the reserve category on this. So if you look at the technical reports that we filed Jorge, you will see that in the Rochester; these stock piles are personal property so I will discuss more about the legal aspects of it just that we feel comfortable putting them where we haven't?


Our next question comes from the line of Andrew Kaip of BMO Capital Markets.

Andrew Kaip- BMO Capital Markets

With respect to La Preciosa I am just wondering if you indicated that you haven't set a budget for the project over the next twelve years as you move to a decision. But I am wondering if you can give us a sense of what are the key priorities that you think that needs to be done and with respect to not it would include items like land acquisitions has that have been started and then also; I like to get a better sense on the infill drilling program; I know that PAN American had been quite embedded into drilling and certain aspects of the deposit. But there are other portions of the deposit that remain very widely spaced in drilling and I am just wondering what your view on infill drilling and the quantity of infill drilling that you foresee.

Joe Phillips

Looking at our spending in our activity over the remainder of the year; probably three main things we will be working on. Land acquisition being one, water rights being the second one and our exploration and infill drilling activities being the third. We will have ongoing engineering studies and design to which we will also add to the costs. So we are looking at expenditures probably in the range of 10-20 million.

Your second question on the infill drilling and I'll pass it on to Don if he wants to add anything else but being familiar with the property. The previous PEA was done on the evaluation I believe; 16 of the veins on the property and there is a reasonable amount of drilling on the property, certainly enough for my design. But there is certainly an opportunity for us to upgrade the components in some of those resources. The second thing is, I believe another 14 banks on the property that were identified in fact by one or two holes, but don’t have a confidence level for us to be included in the current PEA and we are quite interested and anxious to do a little more drilling on those to see if they might be rolled in, reduce our strip ratios and improve the economic.

Mitch Krebs

I mirror what Joe said, Andrew. This deposit, you could see lots of opportunities to grow this both internally and externally and the first thing we need to do is see how the results of the PEA that Joe talked about come up and designed the drilling program accordingly and right now we can do it on paper but it would be better to look at where we need to strategically place drill holes based upon the results of the analysis.

Andrew Kaip- BMO Capital Markets

Okay so you’re really going to use that PEA as really the template for moving it forward?

Mitch Krebs

Yes that’s right, Andrew.


Your next question comes from the line of the Anant Inani from JPMorgan.

Anant Inani - JPMorgan

Most of my questions have been answered but a couple of quick ones, so you’ve talked about dislocation in market and opportunities in junior mining space, are you looking some more specific assets?

Frank Hanagarne

We always are and we stay focused on really the jurisdictions where we currently have a presence like I said where our priority number one is achieving a level of consistency in our operations but we do have our head up and opportunistically looking at some situations that we think represents some real fundamental value and make sense for us to be evaluating. Now, it’s nice now to have more of a technical staff and skill set here than we’ve had I think historically to be able to evaluate these things a bit more thoroughly and we’re going through that process on several different situations.

But we will only do something that the organization can handle, absorb. We will only do something that achieves the right kind of return and we will do something in the right jurisdiction for the business. We’re not going to go out there and do anything really huge or anything that really gets us off of what we considered would be our core business.

Anant Inani - JPMorgan

Thank you and do you have any thumb rule as to the size of the project et cetera that you seek out?

Mitch Krebs

Like I said, we don’t want to do anything back to Jorge's point earlier is that is a company maker breaker that’s not we think the right thing for this company right now but at the same time we want make sure that we’re spending our time in resources on opportunities that would at least move the needle for the company, so I know that’s a pretty wide range, I just painted there but we’re not looking for anything really big and we’re not going to waste our time on something really small.

Anant Inani - JPMorgan

Okay got it and more generally you also talked about change in your opening comment so, with this organization wise staff movement you move to Chicago changing the Company name. What message are you trying to send to investors in the market?

Mitch Krebs

We are trying to send the message that we are serious about following a different path than the one that’s been followed by the industry over the last 20 years. That playbook has not scored a lot of touch downs over the last couple of decades and we’re willing to go our own path and be a bit of a pioneer and that’s reflected in selection of a new headquarter city and in not completely stepping away from the heritage of our name but simplifying it a bit and reflecting the fact that it is a bit of a restart for company that’s had a long presence in the silver industry.


(Operator Instructions). And our next question comes from the line of Brett Levy of Jefferies.

Brett Levy - Jefferies & Company

Do you guys mentioned that you were potentially looking at more acquisitions then I guess I figured between La Preciosa and other ramp ups that you’re got going on here and share buybacks. It feels like your plate is pretty full. Are you looking for a large acquisitions, tuck-in acquisitions and then sort of obviously more from a bondholder standpoint, would you add more leverage to make these acquisitions?

Frank Hanagarne

We don’t have an appetite do anything that's significant in size, tuck-in anything where we can leverage existing infrastructure, people know how and it has be some strategic merit to an acquisition and not just going out to acquire ounces. That is a bit of a futile exercise in our opinion. Would we add more debt to the balance sheet? We have a pretty conservative philosophy there of one times or less trailing EBITDA, if there was an acquisition opportunity that had existing cash flow that would provide us with the ability to maintain that conservative ratio, but add a little bit of leverage to make an acquisition in a shareholder friendly way, that’s a situation we’d certainly consider but we very mindful of the fact that we’re in a cyclical commodity business and we want to maintain a balance sheet that reflects that.

Mitch Krebs

Okay. It sounds like we don’t have anybody else in the queue. So, with that we’ll wrap up. And again I appreciate everybody’s time and we will be back with you again in three months with hopefully progress on all the initiatives that we laid out for you here today. So, thanks again for your time.


This does conclude today’s conference call. Thank you for your participation. At this time, you may now disconnect.

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