Coeur Mining (CDM.TO, NYSE:CDE) has released the results of an extremely disappointing PEA on the La Preciosa silver project in Mexico.
Using a silver price of $21/oz (which is a premium of 8% over the current silver price), the IRR is just 6.2%, the payback period a disturbingly high 11.5 years and the NPV10% is even negative at -$32M. Even if you look at their base case scenario using a silver price of $25/oz (a premium of 29% over today’s silver price), their IRR is still only 16.5%, and the NPV10% just $130M. This means even in their base case scenario, the NPV of the La Preciosa project is lower than what Coeur D’Alene paid to acquire Orko Silver, which means the acquisition definitely wasn’t accretive, unless the silver price goes much higher.
It’s almost certain the project won’t even get built if the silver price remains below the $25/oz level, as Coeur needs a silver price of in excess of $30/oz to realize an internal rate of return of 30%.
Keith Neumeyer’s First Majestic Silver (FR.TO, NYSE:AG) can be happy they didn’t start a bidding war to acquire Orko, and instead received a C$11.6M break fee after Orko elected Coeur’s proposal as the superior one.
> Click here to read the press release
Disclosure: The author holds no position in Coeur Mining. Please see our disclaimer for current positions.
