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Does Coeur Mining’s Recent Exploration Update Mean an Upside?

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Focus on exploration sharpening

Coeur Mining (CDE) increased its exploration spending guidance by $8 million from its 2Q16 results to $30 million–$34 million. Although this spending guidance is still less than what the company spent prior to 2013, it is 82% higher than its 2015 exploration spending.

However, underspending on exploration activities isn’t unique to Coeur Mining. To face the declining gold and silver price environment, precious metal producers such as 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

Approximately 85% of the exploration budget is expected to be allocated to drilling at or near the company’s existing operations. Out of the total budget, close to 75% is expected to be invested at Coeur Mining’s Palmarejo underground silver-gold mine in the Mexico Kensington underground gold mine in Alaska and the Rochester open-pit silver mine in Nevada.

The company is focused on spending its exploration budget on upgrading existing higher-grade resources to reserves and the discovery of new higher-grade resources near its existing infrastructure.

Upside from exploration

Coeur Mining’s (CDE) exploration activities have yielded positive results to date. The company’s most active exploration efforts have been at Palmarejo. At the Independencia site, it has achieved encouraging results on definition drilling to help in mine planning.

At Guadalupe, the company is focused on upgrading its existing high-grade inferred resources. During its 3Q16 earnings call, Coeur Mining’s head of exploration, Hans Rasmussen, noted, “To offer a sense of our incremental exploration efforts at Palmarejo this year, we drilled a total of almost 100,000 feet or 30,000 meters in the six months from March through the end of August. That’s almost double the amount of drilling that we did in the full year of 2015.”

Rasmussen also expects to drill test a number of new targets in 2017 that were generated in its new surface geologic mapping program.

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

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

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