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What Could Drive Coeur’s Costs Down Going Forward?

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Cost containment

Coeur Mining (CDE) has traditionally been a high-cost producer compared to its peers (SIL) due to management’s focus on quantity over quality. This has led the company to suffer huge losses and has eroded investor confidence in the stock.

However, since 2015, cost discipline has been returning to Coeur, and it’s been achieving lower costs across all its operations. Its all-in sustaining costs for 2Q16 were $14.80 per ounce, which is 7.7% lower sequentially. It’s also lower than the company’s cost guidance of $16–$17.25 per ounce for 2016.

It’s important to note that the company’s year-to-date costs are running below its annual guidance. It mentioned in its 2Q16 earnings call that if this trend continues in the third quarter, it could revise its cost guidance downward.

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Transition to high-grade, high-margin ore

Coeur’s costs at Palmarejo have started benefiting from higher-grade underground ore at Guadalupe. Recent modifications to the processing plant have helped increase recovery rates.

The adjusted cost applicable to sales for 2Q16 was $8.24 per silver equivalent ounce, a decline of 19% year-over-year. The transition to lower-tonnage and higher-grade, higher-margin underground operations from Guadalupe and Independencia should also help the company achieve lower costs.

Kensington, Alaska, is also operating at higher throughput, which is helping costs. The development of the high-grade Jualin deposit is progressing well and was more than 50% complete by 2Q16. This should help costs going forward.

Cost improvements

In 2015, Coeur Mining acquired the Wharf mine from Goldcorp (GG). So far, developments are progressing well. The mine’s costs applicable to sales per gold equivalent ounce were $534 per ounce in 2Q16. Process plant recoveries have led to higher plant recovery rates, positively impacting costs.

At its San Bartolome mine in Bolivia, the company is purchasing higher-grade third-party ore to be mixed with lower-grade ore at the operation. The company maintained during its 2Q16 earnings call that this purchase has started to have the intended benefit just now. Currently, the proportion bought is 30%, and the company maintained that this is the sort of ratio it’s looking to maintain going forward.

Notably, peers Hecla Mining (HL), Silver Standard Resources (SSRI), Pan American Silver (PAAS), Newmont Mining (NEM), and Barrick Gold (ABX) are all trying hard to reduce their costs to manage the volatility in precious metal prices.

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