|Stage: ||Production |
|Location: ||State of Chihuahua, Northern Mexico |
|Type: ||Open Pit/Underground |
|Metals: ||Silver and Gold |
|Product: ||Doré |
|Ownership: ||100% |
|Land position: ||30,300 acres (122 square kilometers) |
|Production: ||2012 = 8.2M oz Ag and 106,038 oz Au |
|Cash operating costs1: ||2012 = $1.33/Ag oz |
|Proven and probable reserves2: ||53.1M oz Ag and 665,000 oz Au |
|Measured and indicated resources2: ||45.7M oz Ag and 964,000 oz Au |
|Inferred resources2: ||22.1M oz Ag and 457,000 oz Au |
|Employees: ||904 |
The Palmarejo mine is located 420 kilometers by road southwest of the capital city of Chihuahua, and 15 kilometers northwest of the town of Témoris in the Témoris mining district of northern Mexico. Mining at Palmarejo, a modern silver and gold mine commissioned in 2009, is conducted both underground and on the surface. Coeur’s wholly owned subsidiary, Coeur Mexicana, employs over 900 people at Palmarejo while contractor employment totals about 150. Access to the property is via paved and all-weather dirt roads. Electric power is supplied by the local power utility and on-site generators.
The Palmarejo Property is located along the Sierra Madre Occidental silver-gold belt. Surface mining is by conventional drill and blast, truck and shovel operations. Underground mining is accessed from three primary portals to the underground ramp systems designed for life of mine access. The operation is running at full capacity.
Ore feed to the mill is from a combination of surface and underground sources. Ore is blended and fed through a primary crusher at a rate of approximately 6,000 tons per day. Processing entails grinding, flotation, carbon-in-leach and Merrill Crowe-electrowinning recovery of silver and gold and produces a doré, which is shipped to Coeur’s smelting and refining partners in the U.S. and Europe.
(Regarding royalties at Palmarejo, please see Palmarejo Gold Production Royalty Obligation.)
Geology and Exploration Potential
The gold and silver deposits at the Palmarejo mine, typical of many of the other silver and gold deposits in the Sierra Madre, are classified as epithermal deposits and are hosted in multiple veins, breccias and fractures. These geologic structures trend generally northwest to southeast and dip either southwest or northeast. The dip on the structures ranges from about 45 degrees to 70 degrees. In the mineralized portions of the structures gold and silver are zoned from top to bottom with higher silver values occurring in the upper parts of the deposit and higher gold values in the lower parts, sometimes accompanied by base metal mineralization, though local variations are common. The Palmarejo property contains a number of mineralized zones or areas of interest. The most important of these to date is the Palmarejo zone in the north of the concessions which covers the old Palmarejo gold-silver mine formed at the intersection of the northwest-southeast trending La Prieta and La Blanca gold-and-silver bearing structures. In addition to Palmarejo, other mineralized vein and alteration systems in the district area have been identified all roughly sub-parallel to the Palmarejo zone. The most significant of these additional targets are the Guadalupe (including Animas) and La Patria vein systems in the southern part of the property which are currently under development and exploration by the Company.
The Company spent $19.9 million in the Palmarejo district in 2012 to discover new silver and gold mineralization and define new ore reserves. This program consisted of drilling 341,975 feet (104,234 meters) of core. The exploration budget for Palmarejo for 2013 is $15.8 million.
2013 production at Palmarejo is expected to be 7.7 million to 8.3 million ounces of silver and 108,000-110,000 ounces of gold. Palmarejo’s proven and probable reserves measured 53.1 million ounces of silver and 665,000 ounces of gold at year-end. Measured and indicated resources totaled 45.7 million ounces of silver and 964,000 ounces of gold. In addition, inferred resources were 22.1 million ounces of silver and 457,000 ounces of gold.
Please refer to the latest quarterly financial results news release for updated operational guidance.
Palmarejo Gold Production Royalty Obligation
On January 21, 2009, the Company entered into a gold production royalty transaction with Franco-Nevada Corporation under which Franco-Nevada purchased a royalty covering 50% of the life of mine gold to be produced by Coeur from the Palmarejo mine. Coeur received $75.0 million in cash plus a warrant to acquire Franco-Nevada Common Shares (the "Franco-Nevada warrant"), which was valued at $3 million at closing of the Franco-Nevada transaction. In September 2010, the warrant was exercised and the related shares were sold for $10.0 million.
The royalty agreement provides for a minimum obligation to be paid monthly on a total of 400,000 ounces of gold, or 4,167 ounces per month over an initial eight year period. Each monthly payment is an amount equal to the greater of 4,167 ounces of gold or 50% of actual gold production multiplied by the excess of the monthly average market price of gold above $400 per ounce (the $400 floor is subject to a 1% annual inflation compounding adjustment beginning on January 21, 2013).
After payments have been made on a total of 400,000 ounces of gold, the royalty obligation is payable in the amount of 50% of actual gold production per month multiplied by the excess of the monthly average market price of gold above $400 per ounce, adjusted as described above. Payments under the royalty agreement are to be made in cash or gold bullion.
Payments made during the minimum obligation period will result in a reduction to the remaining minimum obligation. Payments made after the minimum obligation period will be recognized as other cash operating expenses and result in an increase to Coeur's reported total cash costs per ounce of silver.
The Company discounts the original obligation, based on the fair value of the consideration received projected over the expected future cash flows at inception of the obligation. The discounted obligation is accreted to its expected future value over the expected minimum payment period based on an implicit interest rate. This accretion expense is reflected in “Interest expense, net of capitalized interest” in the Company’s Consolidated Statement of Operations and Comprehensive Income (Loss).
The price volatility associated with the minimum royalty obligation is considered an embedded derivative under U.S. GAAP. Fluctuations in the market price of gold since inception of the agreement have resulted in the recognition of additional fair value adjustments and resulted in higher payments to date.
This derivative is recorded in prepaid expenses and other and current or non-current portion of royalty obligation on the Company’s Consolidated Balance Sheet and is adjusted to fair value through current earnings on the Company’s Consolidated Statement of Operations and Comprehensive Income (Loss). The mark-to-market adjustments and realized gains or losses are included in fair value adjustments, net in the Company’s Consolidated Statement of Operations and Comprehensive Income (Loss).
(For further information, please see “Debt and Royalty Obligation – Palmarejo Gold Production Royalty Obligation” in the Company’s latest Form 10-K and the Notes on “Debt and Capital Lease Obligations” and “Derivative Financial Instruments and Fair Value of Financial Instruments” in the Company’s latest Form 10-Q.)