TORONTO (miningweekly.com) – US precious metals miner Coeur Mining this week announced a new mine plan to get its Guadalupe underground mine at its Palmarejo operation, in Mexico, up and running by the first quarter of 2015.

The Chicago-based miner, which is the US's largest primary silver producer, said on Monday that it now planned to transition the mine to a higher-margin, longer-life, underground-only operation.

Coeur also reported that it had signed a letter of intent (LOI) to terminate the existing royalty stream agreement with Franco-Nevada on half of Palmarejo’s gold output after the 400 000 oz minimum obligation had been met by September 2016.

Both parties had agreed to a LOI for a new gold stream agreement that would take effect after the current agreement had expired.

Under the second gold stream agreement, Franco-Nevada would contribute $22-million toward the capital required to develop Guadalupe and the cost contribution by Franco-Nevada for half of the gold output from the Palmarejo operation would be $800/oz compared with $408/oz in the existing agreement.

Coeur said the new gold stream agreement was expected to result in improved mine economics and, combined with the development decision for Guadalupe, was expected to significantly extend the Palmarejo mine life.

“In late 2013, we made the disciplined decision to suspend development activities at Guadalupe as we recognised that the original plan would not have generated an adequate return in the current metal price environment. Our revised mine plan is the result of a focused strategy to optimise Guadalupe to extract more value from this considerable deposit, maximise cash flow at the Palmarejo operation and create further prospects for high-return growth through exploration,” Coeur president and CEO Mitchell Krebs said.

He added that the company planned to provide more detail on the revised Guadalupe plan as part of an updated mine plan for the Palmarejo operation within the next month.

“Palmarejo has proven to be a good mine and we continue to see more exploration upside from this large property. We are happy to support Coeur, our partner, in this project and consider the new arrangements to be a win-win for both companies,” Franco-Nevada CEO David Harquail said.

The preliminary Guadalupe development plan assumes mining 2.5-million tons at average grades that are 20% and 38% higher than the average Guadalupe underground silver and gold reserve grade. This plan selectively includes mining higher-grade sections of the Guadalupe orebody, earlier in the mine life, that require about 40% less development compared with the original mine plan for Guadalupe.

Initial output from Guadalupe was expected by the end of the first quarter of 2015 and the mining rate was expected to average 1 300 t/d in 2015 and 1 500 t/d from 2016 to 2018.

Coeur said it had deferred about $7-million of 2014 tailings-related capital expenditures at the Palmarejo mine until 2015, as the current plan enabled the current tailings facility’s life to be extended. That capital was now earmarked to develop Guadalupe during the second half of this year.

At December 31, 2013, Guadalupe contained 72% of the Palmarejo operation's underground reserve tons and 37% of its underground measured and indicated resource tons. Palmajero currently has National Instrument 43-101-compliant proven and probable reserves of 41.65-million ounces of silver and 569 000 oz of gold.

Coeur said it believed the most significant upside opportunity for Guadalupe was in the underground inferred resources. Guadalupe contains 99% of the 3.6-million tons of underground inferred resources at the Palmarejo operation with average grades of 5.26 oz/t silver and 0.12 oz/t gold at year-end 2013.

These underground inferred resource grades were significantly higher than Guadalupe's average reserve grades. Targeted drilling at Guadalupe focused on higher-grade, underground mineralisation is a top priority in Coeur's 2014 exploration programme.

Coeur’s NYSE-listed stock on Tuesday opened $0.56 higher than the Monday closing price, before falling back somewhat to $8.80 apiece.