A report dated Sept. 11, 2017, reported Coeur Mining Inc. (CDE:NYSE) announced it is acquiring JDS Silver, the private mine development firm that owns Silvertip in British Columbia (B.C.). Silvertip is "a high-grade silver-lead-zinc Indicated resource of 2.35 Mt grading 352 g/t silver, 9.41% zinc and 6.73% lead," described Andrew Kaip, analyst with BMO Capital. Also, the mine "has a 1 Ktpd mill on site, which is undergoing commissioning."
The $200 million purchase price is viewed "as fair, as we estimate a value of ~$248M for the asset," added Kaip.
As far as the details of the transaction, Coeur "will pay $146.5M in cash, $38.5M in shares and assume $15M in debt," the analyst explained. "The company will also "pay an additional $25M contingent on receiving expansion permits and $25M contingent on resource expansion. CDE is expected to fund the cash portion with cash on hand and with a new $200M revolver (expects to draw $100M)."
Kaip said BMO views the deal favorably for a few reasons. "The acquisition makes sense," he added. "It will help boost the company's production profile and offset declining production at San Bartolomé."
The deposit's "high grades (and low costs) will help to improve operating margins and bolster diversification, as Coeur will have six producing assets upon closing," Kaip said. Silvertip also "will add lead and zinc to CDE's revenue mix."
Another plus is Silvertip's "large (38,000 hectare), unexplored land package in a good jurisdiction," wrote Kaip. "We see the potential for exploration upside."
Coeur and JDS are in "discussions with the B.C. Ministry of Energy and Mining to increase mining/milling rates to 1 Ktpd year-round," Kaip noted. "Current permits allow for mining/milling at only 70 Kt/year (500 tpd)."
BMO Capital has an Outperform rating and $11 per share target price on Coeur Mining. The company is trading at around $9.26 per share.
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Disclosures from BMO Capital Markets, Coeur Mining, Sept. 11, 2017
Analyst's Certification: I, Andrew Kaip, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.
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Company Specific Disclosures
Disclosure 9: BMO Capital Markets makes a market in Coeur Mining.
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