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Can Coeur’s Larger Exploration Spend Lead to Production Upside?

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Aug. 15 2016, Updated 8:04 a.m. ET

Increase in exploration spend

Coeur Mining (CDE) has increased its exploration spend guidance by $8 million. While this is still less than what it was spending prior to 2013, it shows how the company is ready to take advantage of the buoyant metal price environment.

However, underspending on exploration activities isn’t unique to Coeur. To face the declining gold and silver price environment, many precious metal producers, including Hecla Mining (HL), Newmont Mining (NEM), Eldorado Gold (EGO), and Barrick Gold (ABX), have been cutting discretionary spending such as exploration and growth capital expenditure.

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Exploration distribution

In its 2Q16 earnings call, Coeur Mining said that about half of the increased amount of exploration guidance, or ~$4 million, will be expensed for exploration. This will be used to try to add new resources at Kensington and Palmarejo in high probability areas. It will also use this amount to fund early-stage exploration programs on properties in Nevada and Mexico.

The rest of the additional exploration budget will be capitalized. It will be used to accelerate the conversion of resources to reserves at Palmarejo, Rochester, and Kensington.

Upside from exploration?

Coeur also increased its capital expenditure guidance by $10 million. About half of this amount will be used to accelerate work on the stage for leach pad expansion at Rochester. It’s important to note that in 2Q16, the company got the requisite permits to go ahead with the leach pad extension at Rochester, which will extend its mine life.

The other half of the increased capex (capital expenditure) guidance will be used to create another portal into Guadalupe along with funding the ongoing development work at Jualin at Kensington.

The company also has development stage assets, including Le Preciosa and Joaquin, which it could develop in the long term to extend the mine life of its assets.

Coeur has the ability to create value through exploration over the medium to long term. Notably, Coeur’s peers (RING) Hecla Mining (HL) and Pan American Silver (PAAS) have rather long-lived assets.

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