What a difference five years can make.


In 2001, there wasnt much to be happy about at Coeur dAlene Mines Corp. Losses had been mounting for years, and the big silver producer knew the red ink likely would continue to flow. Silver prices had fallen to nearly $4 a troy ounceless than what it was costing Coeur to produce itand the company was writing off assets because of it. Working capital was low, and debt was high. The companys stock price dipped that year to 65 cents a share, and the New York Stock Exchange threatened to delist it.


2001 tested us, says Dennis Wheeler, the Coeur dAlene-based companys chairman, president, and CEO. It became clear that, longer term, we had to do these things: We had to restructure our balance sheet, and we had to learn to operate in a $4 cost environment, and if we did these things, there would be clear opportunities to grow the business.


Grow, Coeur did. Today, the companys assets are nearly triple what they were at the end of 2001, and it soon will have nearly $400 million in available capital, more than 20 times what it had to work with five years ago. It posted net income of $10.6 million last year, its first profitable year since 1995, and its reserves are growing and its cash costs are declining. Its stock price now hovers at about $7 a share.


Last week, Coeur reported record first-quarter earnings of $14.3 million, a nearly 40 percent jump in quarterly metals sales, and a 31 percent increase in silver production.


The company is probably in the best financial position its been in many, many years, says Scott Lamb, Coeurs investor relations manager. I think most people would think well have a pretty good year in 2006.


A big reason for the turnaround is that precious metals prices have been soaring. Silver sold recently at a 23-year high of $14.50 a troy ounce, and gold approached $700 an ounce. Wheeler, however, contends theres another reason as wellthat Coeur has gotten much more serious about having low-cost, long-life mines in its portfolio.


It has taken big steps in that direction in the past year. In two rather unconventional acquisitions last spring, Coeur bought all the silver production and reserves of two Australian lead-zinc mines that produce silver as a secondary metal. Those transactions, which gave it silver rights to the Endeavor and Broken Hill mines there, will cost it a total of $74.5 million, some of it deferred, but together gave Coeur low-cost annual production of another 3.8 million ounces of silver and additional proven and probable reserves of about 38 million ounces.


Mining companies are valued in the stock market by their ounces of production, their ounces of reserves, and their cash costs, says Wheeler, adding that the two transactions helped Coeur in each of those categories. We affiliated ourselves with properties that are not primary silver producers, so they were not getting a silver premium by investors.


Then, last month, Coeur announced it was selling its high-cost Silver Valley operations, which include the Galena mine, with expected 2006 production of about 3 million ounces of silver at a cash production cost of $6.85 an ounce. The transaction, which will bring in $15 million, is expected to close by June 1.


We gave it our all in the Silver Valley, says Wheeler. We invested significant sums of money up there. There are still some good opportunities there, and the new owners will look to those. There are probably a couple of good lead-silver opportunities, but were not lead miners. You have to make decisions that fit into your long-term strategy.


Changing portfolio


More changes are coming to Coeurs mining portfolio.


It has two big mines under constructionthe long-planned Kensington gold mine in Alaska, and a silver mine called the San Bartolome, in Bolivia. Meanwhile, production at its Rochester silver mine in Nevada is winding down, though Coeur will continue to process above-ground stores of mineralized materials there for about four years after mining ends late this year or early next year.


Coeur, known as a silver mining company, has owned 100 percent of the Kensington gold property since 1995. Its located 45 miles north of Juneau, Alaska. Last summer, Coeur began construction of the mine, a project thats expected to cost $190 million and take about 18 months to complete. It hopes to begin production there in late 2007.


The underground mine is expected to produce about 100,000 ounces of gold annually at an estimated cash cost of $250 an ounce. It has proven and probable reserves of about 1.1 million ounces, which would give it a life of about 11 years.


Coeur started construction of the San Bartolome in late 2004, but in recent months has slowed its work on that $135 million project while it analyzed the political environment in Bolivia. News reports out of Bolivia have suggested that the government might take over more foreign-owned interests there, causing concern among investors that Coeurs investments there might be in jeopardy. Coeur, however, says the silver property already is owned by government cooperatives, which lease mining rights to the Coeur dAlene company.


Coeur says it plans to resume full-scale construction of the mine in July, and expects to begin production there in late 2007. The mine is projected to produce between 6 million and 8 million ounces of silver a year at a cost of about $3.50 an ounce. It has probable reserves of about 152 million ounces.


The Rochester, a silver and gold surface mine located northeast of Reno, Nevada, has been operating for about 10 years. It produced about 5.7 million ounces of silver and about 70,000 ounces of gold in 2005, and Coeur expects production to be roughly the same this year.


Coeur has two other operating mines, the Cerro Bayo silver and gold mine in Chile and the Martha silver and gold mine in Argentina.


The underground Cerro Bayo mine, located on the east side of the Andes Mountains in southern Chile, produced 2.9 million ounces of silver and 61,000 ounces of gold last year. Coeur expects silver production to be about the same this year, but gold production likely will decrease some. Cash costs this year for silver will be about $2.87 an ounce. The company boosted silver reserves there last year by 72 percent, to 7.5 million ounces.


About 270 miles southeast of the Cerro Bayo, in Argentina, is Coeurs Martha Mine, a high-grade, underground mine that produced 2.1 million ounces of silver last year. The company expects the mine to produce 2.5 million ounces this year, at a cost of about $4 an ounce.


The Australian Endeavor Mine is expected to produce about 1 million ounces of silver for Coeur this year at a cost of about $2.04 an ounce. It has roughly 23.4 million ounces of proven and probable silver reserves. The mine is operated by a unit of Sydney, Australia-based CBH Resources Ltd. The other Australian mine, the Broken Hill, is operated by Perth, Australia-based Perilya Broken Hill Ltd., and is expected to produce about 2.8 million ounces of silver for Coeur this year, at a cash cost of about $2.72 an ounce. It has proven and probable silver reserves of nearly 15 million ounces.


Coeur says it plans to focus its exploration efforts on its current properties, though it is doing some exploration work in Tanzania and has agreed with a Chinese company to pursue opportunities jointly both inside and outside China. Wheeler says Coeur also will look for additional opportunities in Australia.


We expect to spend $12 million to $13 million on exploration in 2006, he says.


Coeur spent $11.9 million on exploration last year, which was significantly higher than what it was spending earlier this decade.


The company has plenty of cash to spend. As of March 31, it had $374.3 million in cash and short-term investments, including about $146.8 million it raised earlier this year in a stock offering. Add in the $15 million it will get from the sale of its Silver Valley operations, and Coeur will have about $390 million to work with.


The company expects to spend about $182 million this year on its Kensington and San Bartolome projects, plus make a big payment due on its Endeavor acquisition.


Wheeler says Coeurs biggest challenge is to drive down silver production costs, which he says should fall below the companys goal of $4 an ounce this year. Were knocking at the door, he says.


Earlier this year, the company said it expected its overall silver production this year to hit a record 18 million ounces, up 4.3 million ounces from last year, but that figure included the Galenas estimated production. Analysts expect that even without a full year of Galenas output, Coeur will produce about 16 million ounces of silver this year, still a record.


All that has put a smile on the face of Wheeler, who has steered the company through some very tough timesand isnt ready to retire now that black ink is flowing again.


We have solid earnings, lower costs, and were well cashed up, he says. Im 63, and Im having fun.


Contact Paul Read at (509) 344-1262 or via e-mail at paulr@spokanejournal.com.