DENVER ( TheStreet ) - Silver prices are up 31% year-to-date while gold prices have risen 18%, but gold and silver producer Coeur D'Alene Mines ( CDE - Get Report) is having a hard time profiting off the increases.

Coeur reported a net loss of 57 cents a share in the second-quarter, despite rising cash flow, production and sales. Gold production popped 68% from a year earlier because of the opening of its Kensington gold mine in Alaska. Silver production rose 7% and the company is now 50/50 in terms of gold and silver production, but shares are up only 5.6% year-to-date.

Coeur has explosive potential. In 2010, the company is hoping to produce 17.3 million ounces of silver and 170,000 ounces of gold at cash costs of $4 and $490, respectively. I sat down with CEO Dennis Wheeler recently at the Denver Gold Forum to see how Coeur will take advantage of high precious metal prices.

TheStreet: Coeur reported a net loss of 57 cents a share but your gold production was up, your cash flow was good, your sales were good, your silver production was up, so how come you had to report the loss?

Wheeler: Well that had to do basically with a mark-to-market adjustment with regard to the royalty we have with Franco Nevada on the Palmarejo mine in Mexico to complete our construction there.

Is that growing pain done now going forward?

We'll continue to have that reporting requirement. Some quarters you'll see it as a positive addition, a non-cash addition to income, sometimes you'll see it negative.

So for the third quarter and the fourth quarter can investors expect a loss?

I think the investors are perfectly accustomed to just taking that royalty adjustment and looking instead at the operating performance of the company ... this will be of course the first quarter that we reported income from our Kensington mine where we just stared production .... So we'll have strong cash and incremental production to our gold, which is up strongly this year over last year to about 170,000 ounces in total.

In terms of that gold mine in Alaska, it went into production earlier than expected so you're going to see benefits to your earnings right away?

It's going to be a major contributor and more importantly to us we look at it from the standpoint of cash flow and production and reserve growth.

What's it going to do to your overall production and cash base for the long and short term?

We're going to have cash costs there of $490, which is below the world average cash cost of production right now. We expect that our exploration program which has just kicked off .... is going to add to the reserves of the company.

Now does this signal any strategic shift into gold out of silver?

We're the only company that produces only silver and gold and of course both metals are performing very strongly right now. With the addition of Kensington our revenue mix will trend more to 50/50 silver and gold going forward at these price levels.

Let's talk about your cash costs for silver because when I was reading over Hecla Mining's (HL - Get Report) recent quarter and their cash costs were negative $1.82 an ounce. It seems like that's your stiffest competition. They're reporting at a negative cash cost, you're not, what do you do ?

There are other producers with a larger production basis. I mean we also compare ourselves to Pan American Silver ( PAAS - Get Report) ... but I assume that's because Hecla's is giving a bi-product credit to their zinc production and base metal production . We don't have any base metal production. But I can share with you, for example, in Mexico our new Palmarejo mine .... had negative cash costs the last two quarters on a silver basis .... It really depends on how you account but the main theme for Coeur is that we are only silver and gold.

You said your gold cash cost is around $490, so what would be your average silver cash costs be?

I think our average cash costs ... in Bolivia is $8, I mentioned to you at Palmarejo in Mexico its $3 an ounce for the year and down in Rochester below $3 an ounce .... On a blended basis I think we should be in around $4 for the year.

Are you done growing for now?

Well no actually you're just seeing now the growth we've been planning ... Kensington will add 50,000 ounces of gold this year but 125,000 a year when we hit first full year of production next year. We're just ramping up production at Palmarejo in Mexico, which will be about 6.3 million ounces this year but we expect it to reach 8 million or so next year.

So are you going to look to buy more assets now or perhaps smaller companies?

Well our focus right now remains continuing to optimize our three new mines and make sure that they are running as planned. We are also increasing our bench strength at Coeur, we're recruiting top-notch professionals in our operations arm for our new mines. We are always interested in opportunities though so we are always looking.

So if you are looking at the broad spectrum of where you want Coeur to be at its full powerhouse potential, where do you think you are right now on a scale from one to ten?

I'd say we're 75% of where I want us to be.

Let's turn to your stock then for a second. What I was noticing is that it doesn't seem like your stock is as closely correlated to silver prices as some of your competitors like Pan American and even Silver Wheaton (SLW), for example, why is that?

We actually have some of the closet correlation to silver and gold price movements today of any of the producers and that's because of the fact that we don't have any other metals than silver and gold in our production base.

It does seem less than Pan American unless I am missing something.

Nip and tuck. The horses are racing to the finish line.

What are your gold and silver prices targets right now?

Well it's interesting what's happened since you and I were last visiting just a couple of months ago and we were talking about the dynamics that could come into play and it seems to me that what we were talking about has basically continued to unfold.

If you look at what's continuing to unfold in the world unfortunately with regard to anxiety and concerns about the U.S. particularly in terms of the economic performance and the country's standing, my expectation is you're going to see record levels of investment into the silver ETFs and the gold ETFs. People are clearly now saying to themselves I need to have silver or gold investment in my portfolio.

What does $1,300 gold mean to Coeur?

Well at a price level that is, for example $900 above where we were just a couple of years ago, and you take a production base this year of 170,000 ounces and growing next year, and you take a silver stream of 17.3 million ounces with a cash margin of anywhere from $17-$12 an ounce depending on the property and I think you are starting to see the strong cash generation from Coeur.

What are some trends that you are noticing out of the Denver Gold Forum?

How are we going to grow? Growth is a major area of discussion. I think people are beginning to see that there are finite gold and silver resources in the world.


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-- Written by Alix Steel in New York.

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