Founded in Coeur d’Alene (Idaho) in 1928, Coeur Mining is now one of the longest-established mining companies in the USA. The share was an underperformer for years. Since the high in January 2021, the share price has fallen by 80%. This is due to the drastic cost overruns in the expansion of the Rochester Mine in Nevada. But this now seems to be coming to an end. Coeur Mining could therefore also be an interesting turnaround speculation in view of the high gold prices.
Downhill from the top!
When President and CEO Mitchell J. Krebs took office in July 2011, one share of Coeur Mining ($2,58 | $CDE) cost an impressive $30. Today, the share can be bought for just $2.50 on US stock exchanges. This corresponds to a price drop of around 90 percent. Two home-made problems were responsible for this:
- The purchase of the Silvertip Mine in British Columbia (Canada) in 2017 proved to be a complete failure. Production was initially revived, but was discontinued in 2020. Since then, Silvertip has been an exploration asset. A new mine plan is being worked on.
- Coeur Mining has owned the Rochester Mine in Nevada (USA) since the 1980s. The expansion of this mine, with the aim of doubling production, cost 80 percent more than planned. This led to a dilution of the share price due to the need for capital increases on unfavorable terms and an unhealthily high level of debt.
To be fair, it should be noted that the VanEck Junior Gold Miners ETF as a benchmark has lost around 75% since July 2011. That is less than the 90 percent of Coeur Mining, but also a hefty loss. As a reminder: in 2011, the precious metals sector was at an all-time high. Today, sentiment is probably worse than ever before, even though the gold price is once again flashing towards 2,000 dollar.
Is there Light at the end of the tunnel?
Coeur Mining owns a total of four producing mines (see map below): the Palmerejo Gold-Silver Complex in Mexico, the Rochester Gold-Silver Mine in the US state of Nevada, the Kensington Gold Mine in Alaska (USA) and the Wharf Gold Mine in South Dakota (USA). The company headquarters were relocated from small town Coeur d’Alene in Idaho to Chicago in 2013.
On September 22, the investment bank RBC Capital raised its rating for Coeur Mining from “Perform” to “Outperform” with a target price of $4 after the first gold and silver was produced at the new Rochester processing plant. “The Rochester mine expansion is almost complete,” said analyst Michael Siperco. “The ramp-up of production by mid-2024 is the key driver for the share price.” After visiting the mine, Siperco was impressed by the extent of the changes. The modernized and greatly expanded infrastructure, together with higher production, should lead to lower costs into 2025. The half-year figures published on August 9 paint a different picture.
The cash flow statement shows that the company has spent much more money in recent quarters than it has earned from the sale of gold and silver. Not all of the four mines performed strongly. Revenue was down 13.2% year-over-year in the second quarter ($177.2 m vs. $204.1 m), which was only partly due to lower precious metal prices. Silver production in the second quarter of 2023 was almost constant at 2.4 million ounces, while gold production fell from 84,786 ounces in the prior-year quarter to 67,090 ounces. The guidance for 2023 was adjusted accordingly (304,000-352,500 vs. 320,000-370,000 oz gold). The major balance sheet problem is the debt of USD 448m, with cash of only USD 57m at the end of June. Due to persistent inflationary pressure, particularly on wages in Nevada, the cost estimate for the expansion of the Rochester mine has been raised again to USD 710-730 million, which is 6-9% higher than three months ago.
Cash flow: turnaround in 2024?
How do you process this jumble of figures, especially with a view to the next two years? Seeking Alpha author Taylor Dart at least sees “a light at the end of the tunnel” – even if he still does not count Coeur Mining among his favorites. After a negative free cash flow of -$300 million in the past twelve months, he expects a turnaround to +$50 million (2024) and +$150 million (2025) (after repayment of part of the debt). He writes: “Although the outlook for Rochester and free cash flow has improved, I am less optimistic about the growth in ore reserves and margins at the other three mines.” He derives a rather modest price target of USD 3.10 from this. Coeur Mining reports reserves (Measured + Indicated) of 3.094 million ounces of gold and 181,897 million ounces of silver, as well as resources (Inferred) of 1.728 million ounces of gold and 70,021 million ounces of silver. These are not impressive figures for a company of this size – especially as the ore grade is quite low in some cases.
Dare to speculate?
Since the entire sector is down, at least on the stock side, investors currently have a lot of choice – like in a supermarket full of special offers. The latest quarterly figures provide an indication of why Coeur Mining could be interesting: Gold accounted for 68.5 percent of sales, silver for 31.5 percent. That is relatively high. The current company presentation states that silver production is set to increase by 45 percent by 2025 – due to the capacity expansion at Rochester. If the price of silver can rise to over 30 US dollars per ounce, Coeur Mining will very likely be perceived by investors as a “silver stock”. This already worked once before in 2016, when the price shot up from $2 to $16 in eight months. In the precious metal bull market of 2020, the price started another rally at $2, which ended at $10. The bear market low was also at $2 in 2023, but the price has since risen to USD 2.50 due to the positive outlook. That at least looks constructive. Thinking straight ahead: with Coeur Mining, you can profit from a rising silver price in a highly leveraged way. The gold then comes on top as a bonus.
Please note: Investments in the capital markets are associated with a high level of risk. Investors can lose all of their capital – and more. Remember to do your own due diligence! The content of this website is intended exclusively for readers who are permanent residents of Germany. The German disclaimer applies (see below).
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Graphics: Das Investor Magazin, Pixabay, Coeur Mining
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