Feb 25, 2010
Executives
Karli Anderson – Director, IR Dennis Wheeler – Chairman, President and CEO Leon Hardy – SVP, Operations Don Birak – SVP, Exploration Mitchell Krebs – SVP and CFO
Analysts
John Bridges – J.P. Morgan Matthew O'Keefe – Cormark Securities John Tumazos – John Tumazos Very Independent Research Mike Curran – RBC Capital Markets Brian Quast – CIBC Chris Lichtenheldt – UBS
Operator
Good afternoon. My name is Christie and I will be your conference operator today.
At this time, I would like to welcome everyone to the Coeur d'Alene Mines Corporation 2009 earnings conference call. All lines have been placed on mute to prevent any background noise.
(Operator Instructions) Thank you. I will now turn today's conference over to Karli Anderson, Director of Investor Relations.
Karli Anderson
Thank you for joining us today to discuss the company's results for the fourth quarter and full year 2009. The call is also being broadcast live on the internet through our website at www.couer.com, where we have also posted the slides to accompany our prepared remarks.
Telephonic replay of the call will be available for one week afterwards on our website. On the call here today at Coeur d'Alene are Dennis Wheeler, Chairman, President and Chief Executive Officer, Mitchell Krebs, Senior Vice President and Chief Financial Officer, Don Birak, Senior Vice President of exploration.
Calling in from our sites are Leon Hardy, Senior Vice President of Operations and Humberto Rada, President of Coeur South America and Manquiri. Any forward-looking statements made today by management come under securities legislation of the United States, Canada and Australia and involve a number of risks that could cause actual results to differ from our projections.
Please see our full cautionary statement on slide two. With that, I would like to turn the call over to Dennis.
Dennis Wheeler
Welcome and thank you for joining us on the call. In 2009, Coeur set new company records for both silver production and silver reserves.
At Coeur, we do consider exploration to be a competitive advantage. With these new reserves announced today, we are already materially extending the mine lives of our new anchor assets.
Both silver and gold production soared approximately 50% over the prior year, aided by contributions from Palmarejo and San Bartolome. Our planned production growth coincided with the convergence of a favorable metals pricing environment growing operating cash flow to nearly $65 million in 2009 as our mines ramped up.
Our exploration team continues to deliver new reserve ounces through organic growth opportunities at all of our existing properties. This morning, we announced record year-end silver reserves of 269 million ounces.
We also reported an impressive 2.9 million ounce gold reserve. We saw a remarkable increase in gold and silver reserves of 16% and 26% respectively and we're seeing some very encouraging drilling results now in Alaska, Mexico and South America.
Coeur's employees and community stakeholders showed and unwavering commitment to advancing our business in 2009 and these achievements reflect their dedication. From Alaska to Nevada to Mexico and South America, we continue to explore the expansion of opportunities for individuals and businesses in the communities where we operate.
However, we all understand that in 2010, we will do even better. Commissioning of the plant at Kensington is ahead of schedule and on budget with gold production now just a few months away.
We plan to double our gold production and materially boost silver production in 2010. In just the first six weeks of this New Year, silver recoveries at Palmarejo are well up.
Trans at San Bartolome regarding the lifting the mining restrictions are advancing and our support is strong. Just this week, the company finalized the funding agreement with the local IU indigenous community in Potosi, Bolivia to provide much needed social and community enhancement programs that are directed by the community members themselves.
We are very pleased to have these kinds of close relationships in all the communities where we work. The team is meeting the mission to drive all of our large mines.
San Bartolome, Palmarejo and Kensington to fully deliver on their amazing potential. Few mining companies are in such an enviable position with so much growth to come.
We'll get there by optimizing our operations using conventional proven technologies by controlling our costs and by measuring outcomes carefully. Finally, I would like to tell you the transition is taking place within our operations group.
Richard Weston, who has been an integral part of Coeur's evolution to our large mine profile is leaving the company in order to return to his native Australia. Richard made an outstanding contribution to the growth of Coeur over the last few years and we wish him every success.
Leon Hardy, who has been serving as Senior Vice President for North American Operations and a former general manager of our Martha Mine and San Bartolome has been elevated to the position of Senior Vice President of Operations. Leon knows our mines and projects in depth and is well prepared to assume a more prominent role within the company.
On that note, Leon, would you please update us on Coeur's operations.
Leon Hardy
Thanks. As Dennis mentioned, Coeur's technical services team is taking the lead in making some important process improvements in order to materially boost production rates.
At Palmarejo, silver recoveries increased from around 54% last year to upper values of around 75% in late January and February. We are targeting beet levels in the mid-80s.
Based upon current results at the operations, we plan for Palmarejo to produce about 7.9 million silver ounces and 109,000 gold ounces at cash costs of about $250 per ounce of silver. Coeur's San Bartolome Mine in Bolivia completed its first full year of operations in 2009 with production of 7.5 million silver ounces.
Coeur has adjusted its mine plan at San Bartolome to deal with a temporary suspension of mining activities above the elevation of 4,400 meters. The Supreme Court decree protects our rights to mine above the 4,400 meter level.
Mining continues on the remainder of the property. We are working diligently to have the restriction lifted soon.
In order to maximize production under this temporarily adjusted mine plan, we've upgraded our grade, our ore grade and washing and screening process and improved the mill feed grade. Moving on to Kensington, we've shared some recent photos on the next few slides to illustrate the progress we're making towards a third quarter startup.
Construction of the pipeline for the tailings facility is advancing while commissioning of the processing plant is well under way. The on site worker camp is nearing completion as we hire and train the work force which now numbers over 100 employees and construction workers.
On slide eight, you'll see the Coeur still of the embankment followed by the new camp where the local permits have been issued for occupancy. Meanwhile, our planned restart of operations at Rochester continues to move ahead.
Today, we reported new reserves of 25.9 million silver ounces and 232,000 gold ounces, which underpin our mine plan. That plan calls for six years of incremental production, with an average of 2.5 million silver ounces annually and 33,000 gold ounces.
This is in addition to our residual leaching, which is expected to continue through 2014. While we turn our operational focus to Coeur's new larger operations, we continue to pursue our previously disclosed strategy of rationalizing the smaller assets.
Martha had a record year. At Cerro Bayo we had favorable exploration results for 2009.
I will now turn the call over to Don Birak to discuss our recent exploration accomplishments.
Don Birak
Thanks, Leon. Today, we reported our third straight year-over-year increase in silver and gold reserves.
Our year end 2009 mineral reserve levels of 269 million ounces of silver, 2.9 million ounces of gold represent a 16% and 26% increase respectively compared to year end 2008. The biggest contributor to the increase was the Guadalupe deposit in the Palmarejo silver and gold mine in Mexico.
We also added substantial reserves at Rochester as Leon just talked about. At Coeur we consider exploration to be a competitive advantage.
Our focus is not just to grow resources and place production, but also to grow reserves. Coeur invested nearly $19 million in a robust exploration program in 2009.
Our priorities centered on expanding metal reserves and resources at our existing properties, the ones that offer the greatest opportunities for exceptional growth. Coeur's 2010 exploration effort will again focus on organic growth with a $17.9 million investment emphasizing the Palmarejo district in Mexico, Kensington, Alaska and Joaquin in Argentina.
I'll kickoff our discussion of our exploration activity with the Kensington mine in Alaska. Looking north at this 3D image shows some of the major gold mineral ice structures at Kensington.
All of the current metal resources and reserves occur in just the Kensington and the Horrible clusters. Other major systems are Elmira, New Ellen and the new Kimberly system.
We believe Elmira and Horrible have high potential to expand into major new deposits and Kimberly and JoEllen offer great growth prospects as well. JoEllen system consisting of four separate gold appearances occurs immediately to the west of the mill facilities.
Kimberly is a new gold bearing vein system exposed in the deep plant from the mill to the Kensington mine. We drilled the first holes at Kimberly in 2009 and 8 of those 14 phase one core holes intersected very significant gold mineralization.
Our plans for 2010 are to test the extents of the Horrible and to follow up on our good results from 2009 in Kimberly and refine other targets for future drilling. This planned view now shows the location of the Kimberly vein where it intersects the JoEllen to Kensington tunnel about 700 feet from the portal.
Total of 14 core holes were completed from three drill stations last year. Eight of those core holes cut very significant gold metalization and define a body that is at least 600 feet long off strike and about 600 feet down dip.
Assay composites are showing here for three holes completed in phase one and a full set of drill composites are included in the appendix of this presentation. Kimberly is not exposed on surface, consists of at least two structures as can be seen and hold 13 composites and remains open at depth and on strike.
The subsurface discovery suggests that Kimberly may develop into a major new gold system at Kensington and bodes well for future such blind discoveries. Wrapping up our discussion on Kimberly, these photos show their style of mineralization intersected in the same three core holes on the previous slide.
Thus far, the first phase of drilling at Kimberly is intersected mineralization typical of other major goal systems at Kensington gold hosts in veins and stock works associated with pyrate and carbonate alteration of the hole struck. Very encouraged by our results to date from this first phase of drilling and have plans to drill additional holes at Kimberly in 2010, as well as test other targets with potential to add to resources and reserves at Kensington.
Now let's turn to Palmarejo, where we spent over $7.3 million in exploration last year, in the first half of 2009, over 15,000 meters of core drilling were completed in the Guadalupe system alone. This and our prior work there help to find a major increase in reserves announced in November.
And in the fourth quarter here, we completed additional 4,000 meters on Guadalupe further added to reserves and resources at year end. This shows the projection of the Guadalupe structure which consists of three main zones for gold and silver mineralization, Norte, Main and Luz Eliana, all of which are open at depth.
Also in 2009, we focus on identifying new targets in the Palmarejo district. The result of that work is the discovery of the La Prieta and La Blanca veins and structures near to Guadalupe and new golden on lays from surface sampling at La Patria, about 1.5 kilometers Southwest of Guadalupe.
We will explore this entire area in 2010 with a budget of $4.5 million U.S. Now, we shift to Argentina, where we have some equally exciting new results to present on the Joaquin project.
Joaquin is located about 80 kilometers north of our high grade Martha silver and gold mine in the Santa Cruz province, home to several precious metal mines and occurrences. You'll recall that nearby in Chile, Coeur also owns a Cerro Bayo gold and silver mine, a similar style occurrence hosted in rocks similar to those in this region of Argentina.
Now, in more detail on the next two slides, we will focus on La Negra and some of the drill results from Phase III completed in 2009. At La Negra we have defined multiple parallel zones of vein, stock works and breaches trending northwest.
The encouraging aspect of this drilling is the wide nature of the intercepts which is demonstrated in the cross section on the left side of the image. Late in Phase III, we also identified three new target areas noted on this slide, with an on let silver values and rock chip samples and we intersect very high silver grades and new structure in core holes 43 to 48.
Zooming in a little closer on La Negra, we can see the results from drilling at the north end of the structure and the new structure trending north-south with some very high grade notable results are shown here in core holes 43 and 58, each of which contains silver values over 7,000 grams per ton. I'll turn it now over to Mitch.
Mitchell Krebs
Thanks, Don. Hello, everyone.
On slide twenty four, we provided an update on our balance sheet. Today, our net debt is 25% lower than it was at the end of 2008, while our cash position is 158% higher.
We reduced the company debt by over $300 million last year and our debt-to-equity ratios are within a comfortable range and as of February 5, our working capital levels stood at $97.4 million. Turning to slide twenty five, our top line grew significantly in 2009.
Metal sales from continuing operations increased 76% to $300.6 million compared to $170.9 million in 2008, as a result of the full year production from San Bartolome and from a partial year of production from Palmarejo. Coeur's unique production profile is 100% precious metals with roughly 80% silver and 20% gold in our current mix, though gold's share of our revenues will rise this year with the start up at the Kensington gold mine and full year of contribution from Palmarejo.
With our gold production expected to double in 2010 over 2009 levels, we plan to see sustained revenue and operating cash flow growth throughout the year. Slide twenty six indicates a very positive quarter-over-quarter results.
Coeur had third quarter versus fourth quarter. Metal sales were up 9.3% to $98.2 million, up from $89.3 million in prior quarter.
General and administrative expenses declined over 15% compared to the prior quarter, which is a result of our ongoing efforts to reduce non-operating costs. Gross profit increased from $2 million in the third quarter to $12.7 million in the fourth, while operating cash flow remains steady at approximately $23 million in the quarter.
Over the next several quarters, operating cash flow growth will be supported by our large mines, as well as new contributions from Kensington. This will nicely build on the trend of sustained revenue and cash flow growth, as we began to demonstrate in the second half of 2009.
On to slide twenty seven, in the fourth quarter, 2009, we spent $44 million in CapEx, which is a bit below our prior guidance of $48 million. In 2010, we are planning for a total of approximately $150 million in capital expenditures to cover development in the Guadalupe deposit and final paling down at Palmarejo, as well as final construction activities at Kensington leading to production start ups in the third quarter.
These projects are all already funded. I would say also that 2010 represents the last year of significant CapEx with 2011 declining to a more sustaining level of ongoing CapEx of $30 million to $40 million annually.
Slide twenty eight shows gold and silver prices during 2009. I would like to briefly discuss the impact to these metals prices on our financial results.
Coeur realized averaged prices of $17.57 for silver and $1,108 for gold in this most recent quarter and $14.83 and $1000 -- $1003 per ounce of silver and gold respectively during the full year of 2009. Included in Coeur's 2009 full year income statement is an $81.7 million adjustment for non-cash marked-to-market adjustments related primarily to the Franco-Nevada royalty, which we're acquired to date, each periods to reflect such changes in metals prices.
You'll notice on that price chart a steep increase in the gold price in 2009, which impacted those marked to market adjustments. Dennis?
Dennis Wheeler
Thank you, Mitch. We've been looking closely at the external metals price estimates in the last few weeks, trying to judge the future of Coeur's business and we continue to believe that metals prices for silver and gold will remain robust in the next few years.
Right now, the average estimate for silver and gold for this year stand at approximately $17.09 per silver and $1,075 for gold. This is actually an increase over the forecast from three months ago and thus continues to support our view that favorable pricing going forward is quite sustainable.
We think there are several factors supporting this price environment. And this diversity of these reasons for buying gold and silver underpin our optimism.
We continue to see favorable Central Bank purchasing and activities, such as the IMF engaged in recently in its sale to India. Institutional investors seem increasingly positive about silver and continue to increase their exposure to gold, with even traditional pension funds and sovereign wealth funds increasing their allocations to precious metals.
The world gold council notes that western inflows into gold funds and ETFs have remained resilient, even as the global economy has shown some modest signs of recovery. Add to this the continued growth in financially empowered countries like India and China with their growing history and attitudes towards precious metals investment, we believe that we will continue to see added investment by these countries as safe havens for gold and silver.
The economic powers of the Far East will be the major new drivers of this millennium for Central Banks and investors by hundreds of millions will not only support, but energize precious metals prices into the future. In 2010, look for continued news flow out of Coeur as we work to maximize the potential of our long, large-life mines, which we believe will continue to offer terrific upside for our company and shareholders.
Specifically, look for updates on the path to the third quarter start up at Kensington. We'll also keep you posted on the status of the expansion at Rochester, which could lead to new production in early 2011 at this great mine.
And we expect fully to continue to improve and report on silver recoveries at Palmarejo. We are optimistic that we are near a resolution to the temporary mining restriction, above 4,400 meters at San Bartolome.
Finally, our fine exploration team will build on their 2010 accomplishments with a focus on Joaquin, Kensington and Palmarejo. We continue to have no silver hedging and some of the best leverage in the industry to strong silver prices.
Operator, we'll now be happy to entertain questions.
Operator
(Operator Instructions) Your first question comes from the line of John Bridges of J.P. Morgan.
John Bridges – J.P. Morgan
Hi, Dennis. I thought I would get the thing rolling.
Just wondered, you made a lot of progress towards your production targets. I just wondered how, how far into the year you were thinking it would take before we started to see a black bottom line and which are the key initiatives for the year do you think is going to drive that?
Dennis Wheeler
I think, John, that the keys to watch for as our declining expenses at Coeur, I can assure you that we are fully engaged here at a cost review at all of our sites and I do expect we're going to see some material consolidation in some of those expenditures as we go forward. Secondly, I think that with regard to our operating mines, Palmarejo, I remain very confident now that the plan we have in place to optimize silver recoveries is in fact showing results and that we will continue as a consequence of the fine tuning in the plant process down there that we are engaged in to see higher silver recoveries, which would be a major factor.
I fully expect that Kensington is going to meet its cost targets and we'll have robust cash flow to us. And competitive gold production that will at least meet the world average cost of production for major, major gold mines.
Rochester, if we continue to make progress there on this plan, has always been a low cost producer and we'll be expanding our production there upon completion of that project. We do need to see some better costs coming out of San Bartolome, but I think that we have the key to that, as a question of implementation.
John Bridges – J.P. Morgan
Right. Right.
What exactly is the problem with the recovery? Is it Palmarejo?
Dennis Wheeler
Pardon?
John Bridges – J.P. Morgan
The recoveries at Palmarejo, silver recoveries?
Dennis Wheeler
Well, John, honestly I would say that we dropped the ball a little bit there at start up with regard to the processing plant. We thought that it was going to operate a little more simply with the managers that we had there.
We've given them some added training, but also we've identified some process improvements with the existing plant there that we can make and we are making. At the end of the day, you've seen some robust changes in our early startup as far as recoveries and I expect that to continue into the mid-80s.
John Bridges – J.P. Morgan
Dennis Wheeler
Yeah. Thanks, John.
Operator
Your next question comes from the line of Matthew O'Keefe of Cormark Securities.
Matthew O'Keefe – Cormark Securities
Hi. Thanks.
Just wanted to follow up a bit on the San Bartolome issues there. My understanding was it was -- there was some stability issues high above the 4,400 meter level and that there was some regulatory authority reviewing, reviewing the conditions and so what is the nature of the negotiations that you mentioned?
And what kind of time frame are you looking for resolution?
Dennis Wheeler
Well, we are at a sensitive point in our resolution of that issue. So I'm going to be somewhat guarded about what I say here today.
What I can tell you is that this apparent resolution adopted by the state mining company, Conmebol extended to levels of mining above the 4400 meter level while they were engaged in taking a look at the impacts of mining above that level on the mountain. I can tell you that the United Nations organization, UNESCO, issued a report in 2007 after a full review of our activities and were very complimentary about the benefits that San Bartolome was providing and that we were not in any fashion since we were only surface mining impacting the profile of the mountain.
We had completed our own additional internal review and as we use no explosives, no explosives at San Bartolome at all and we are perfectly comfortable that this restriction, which was put into place during the political season there should and will be soon lifted. I think that the only final thing that I would say is that Leon mentioned our mining rights there are fully protected by some supreme decree of the country, the Constitution and the agreements that we have in place with the miners groups, the cooperative vestas, who take their title from Conmebol.
So an unfortunate development there but we do consider that this temporary situation is close to resolution.
Matthew O’Keefe – Cormark Securities
Okay. And in the meantime, you said you found you're going to -- I guess you've targeted some higher grade areas below that level.
Do you have any idea of what those grades are and how long that is sustainable?
Dennis Wheeler
Well, that really depends on the area that we're mining in. I think suffice it to say that we have adjusted our plan there in the short-term.
We will be fine until we return to regular levels of mining.
Matthew O’Keefe - Cormark Securities
Okay. Thanks.
That's it for me.
Operator
Your next question comes from the line of John Tumazos of John Tumazos Very Independent Research.
John Tumazos – John Tumazos Very Independent Research
Congratulations on the reserve gains.
Dennis Wheeler
Thanks, John.
John Tumazos – John Tumazos Very Independent Research
With Kensington running by the end of the year, you'll have all of your assets in production generating cash flow. I was wondering if you could review your goals for the balance sheet in the most conservative way counting the miscellaneous long-term liabilities other than deferred taxes and short-term debts due.
There's 410 million of obligations and 22.8 million of cash. What would be your goal for the end of 2011, the end of 2012 for the balance sheet?
When can we look to institution dividend? And I notice the exploration budget is a million less this year.
Presumably you're looking to control costs in the vein of the questions I'm asking.
Dennis Wheeler
John. Let me take the dividend question and then Mitch Krebs is going to chime in for the rest of the answer.
As the dividend policy of the company is a policy to be set by the board of directors. They have not addressed that recently.
I'm sure that with growth in Coeur's operation and cash flow, it will be a subject that will receive a great deal of discussion in the Coeur board room as we move forward through this year.
Mitchell Krebs
Yeah. Hi.
John. It's Mitch here.
John Tumazos – John Tumazos Very Independent Research
Hi. Mitch.
Mitchell Krebs
I'll take your other questions -- couple of them at least in terms of the balance sheet, where we are and where we see that going. As you pointed out, net of 12-31-08, we had a cash balances of 29 million, that, as of today, is about 75 million post sale of the 100 million senior unsecured notes that we did in early February.
As I mentioned in my comments, we reduced debt by $300 million last year. That was primarily related to the two converts that we had on the balance sheet.
There's that 1.25 convert and then there's the 3.25 convert. We started last year with about 180 million of 1.25.
We now have only about 2.5 million of those remaining. And that's real critical because that, that security has a put feature back to the company in January of 2011.
So that will start to get to be a near term obligation and it's important for us to chop down that balance of 1.25 of 2009, which we were able to do successfully. So those 1.25s are now are all but gone.
The 3.25 we started last year with about $230 million outstanding. We reduced those down to a current balance of about $148 million outstanding.
That also has a similar put feature back to the company but not till March of 2013. So we're able to be a lot more patient there in terms of how we go about defeating the remaining balance of the 3.25.
The new notes, the $100 million notes that we've added here recently are three-year term, 12-quarterly amortization payments. So that will, that will be a pretty rapidly declining security on the balance sheet.
So we would like to see ourselves end 2010 with a further reduction in debt and as Kensington starts to ramp up in the third and fourth quarters, we see ourselves building that cash balance up through net cash flow from operations.
John Tumazos – John Tumazos Very Independent Research
So three-year capital spending, 2007, 2008, 2009, was nearly 800 million. What's your best guess for what the capital spending might be the next three years?
Mitchell Krebs
Yeah. We put a lot of money into these new mines and that's now all largely behind us.
I think I mentioned this year we're looking at about 150 million, which the lion's share of that is made up of about 80 million at Kensington and about 55 million at Palmarejo. Most of that is related to a final pailings facility.
Then as you look into 2011, really that's depending on what we do with Rochester, excluding that from the picture, 2011 CapEx would be more in the 30 to $40 million range, which would be more of a sustaining CapEx level for the business without any new growth initiatives. So that's kind of how we look at the next three years of CapEx profiles of the company.
John Tumazos – John Tumazos Very Independent Research
So it's possible that the next three years could be under 300 million?
Mitchell Krebs
Yes. Yes.
It's possible. John.
John Tumazos - John Tumazos Very Independent Research
I'm giving you lots of wiggle room. Could be under 250 million.
Mitchell Krebs
Yes.
John Tumazos – John Tumazos Very Independent Research
Thank you.
Mitchell Krebs
Thanks, John.
Operator
Your next question comes from the line of Mike Curran of RBC.
Mike Curran – RBC Capital Markets
Good afternoon, guys. Wondering of the 120 million ounces of reserves at San Bartolome, what percentage or rough guess to how much of those reserves are above the 4,400 meter level?
Dennis Wheeler
We have a significant amount of our reserves above the 4,400 level. I wouldn't quantify the exact amount for you here today but it is material.
Mike Curran – RBC Capital Markets
Okay. No, that's great.
That's all I'm looking to see. Thank you.
Operator
Brian Quast – CIBC
Hi. Just a little bit more detail on San Bartolome.
What changes has the mining restriction made to your mine planning that's raised the costs. Obviously the grades are lower but on a per ton basis, seems like it's getting a bit higher as well.
So what's the difference there in terms of being able to go above 4,400 and not being able to go above 4400?
Dennis Wheeler
Yes. Leon, could you address that, please?
Leon Hardy
Right. The area below the 4,400 is a more clay material minor grade, finer material and has a completely separate feed system into the plant, which has been going through a commissioning process.
This wasn't used before, because we weren't mining in that material. So the switch has caused us to start up an area of the plant that hasn't been performing up to expectations and we're in the process of making modifications to get the full throughput.
Brian Quast – CIBC
Okay. And so going forward, if the restriction was lifted, you would expect to go back to the previous part of the plan and we would expect cash costs to come somewhere between where they were and where they are?
Dennis Wheeler
Yes. I would expect that to be correct.
Leon Hardy
Yes.
Brian Quast – CIBC
Sorry. Guess you had two people going there.
Dennis Wheeler
Yes. We would expect costs to return to more normal levels.
Brian Quast – CIBC
Would you not be running both parts of the plant or is it just a separate feeder system and your 100% capacity with one or the other rather than a blend of the two?
Leon Hardy
No. We can run both systems in parallel, so there will be some advantages to be able to do that in the future.
Brian Quast – CIBC
Okay. So like I said, your cost per ton would be somewhere in the middle of where it was a year ago and before the ban and where it is now?
Leon Hardy
No. I think our cost per ton will come back to where it was a year ago.
It won't be in the middle.
Brian Quast – CIBC
Okay. Great.
Thanks a lot.
Operator
Your final question comes from the line of Chris Lichtenheldt of UBS.
Chris Lichtenheldt – UBS
Good afternoon. Thanks.
Just a quick, couple quick questions on recoveries. Can you tell us where silver recoveries at Palmarejo were in Q4 and what silver recovery level you're assuming for guidance in 2010?
Mitchell Krebs
Yes. I can handle that one.
Chris, this is Mitch here.
Chris Lichtenheldt – UBS
Hi.
Mitchell Krebs
Hi. In the fourth quarter, Palmarejo's silver recovery was 67.2%.
Chris Lichtenheldt – UBS
Okay.
Mitchell Krebs
And what we have built in for 2010 along the lines that Leon mentioned is a gradual and we're seeing this actually through the first six weeks or so of this year, the steady climb up into the low to mid-80s by mid year. And that's what's underpinning that production guidance that we gave of 7.9 million ounces of silver and gold continues to perform well and the recovery there of 90-plus percent is what we assumed for 2010, which underpins that 109,000 ounce number for gold production guidance for 2010.
Chris Lichtenheldt – UBS
Okay. In terms of your comfort in getting to the mid-80s on silver, is there still some additional capital that has to go in order to achieve that or --?
Mitchell Krebs
Leon. I'll take a crack at it and fill in if you feel you need to address that accurately.
But I think the process improvements that has been enacted in the fourth quarter and ongoing now here in the first quarter are not capital intensive at all. They are much more along the way of operational enhancements.
I know we use the word optimization a lot in this industry but true optimization of existing processes. The only significant piece of capital that we've invested to date in bringing these recoveries up is the construction or installation of a Merrill-Crowe facility there on site, which is about 5 million, 50% of the weight needed.
Otherwise, really not Chris. Leon, is there anything you want to add to that?
Leon Hardy
No. That was very good.
Chris Lichtenheldt – UBS
Okay. Thanks, guys.
Operator
I will now turn the conference back to Dennis for closing remarks.
Dennis Wheeler
Thank you. Operator, we would like to thank the interested parties for joining us here today.
We're pleased with the results that we have reported here overall but we are always looking forward to doing better at Coeur and I can assure you we remain focused on the major objectives we have talked to you about here today for 2010 and we'll look forward to keeping you posted on progress at Coeur. Thanks again.
Operator
This concludes today's conference call. You may now disconnect.