Home Gold & Precious Metals Coeur Mining – Reviewing A Major Silver Producer – Coeur Mining, Inc....

Coeur Mining – Reviewing A Major Silver Producer – Coeur Mining, Inc. (NYSE:CDE)

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GoldCoeur Mining (NYSE:CDE) is a growing precious metals producer, with five mines in the Americas – the Palmarejo silver-gold mine in Mexico, the Rochester silver-gold mine in Nevada, the Kensington gold mine in Alaska, the Wharf gold mine in South Dakota, and the San Bartolomé silver mine in Bolivia. The company has a non-operating interest in the Endeavor mine in Australia and a royalty interest in Ecuador. There are also two silver-gold exploration projects, La Preciosa in Mexico and the Joaquin project in Argentina.

Coueur map

Coeur Mining has historically been renown for its silver mining, but that’s all changed, with its production now split between 60% gold and 40% silver, most notably from its acquisition of the Wharf gold mine, South Dakota in 2015.

A fairly new management team has demonstrated an industry leading 30% cost reduction over the past three years, with general and administrative costs slashed by about 45% over the same period. Their focus is on improving cash flow.

CDE cost reductions

Coeur has a large reserve base with mine lives ranging from three to ten years. Kensington has a three-year mine life due to the higher cost of definition drilling. It’s important for the company to develop economic measured reserves, especially since that’s been lagging as a project for some while. The CEO says they now have the budget to begin expanding reserves by drilling around existing mines, later this year. Drilling existing sites carries a higher possible success rate and return on investment. The company reports:

Drilling around our existing mine sites has the added advantage of a higher probable success rate and a quicker opportunity for payback….

While the goal of conversion drilling is to increase reserves, our priority is to improve the quality of our reserves by targeting higher grade mineralization.

Coeur Mining, Inc. (the “Company” or “Coeur”) today reported 2016 financial results, posting net income of $55.4 million, or $0.34 per share, and cash flow from operating activities of $125.8 million, an increase of $12.3 million, or 11%, over 2015. Adjusted EBITDA1 for the year was $215.2 million, increasing nearly $90 million, or 68%, year-over-year. Over the course of 2016, the Company also meaningfully strengthened its balance sheet, ending the year with total outstanding debt of $210.9 million, a 57% reduction compared to a year ago, net debt1 of $48.7 million, and a year-end cash balance of $162.2 million.

In the fourth quarter, the Company generated a net loss of $8.3 million, or $0.03 per share, due mostly to lower metal prices and a one-time loss of $11.3 million related to the redemption of $190 million in principal of the Company’s 7.875% Senior Notes due 2021.

Coeur’s resources have just been updated for the year, including a significant increase in gold resources at Palamerjo and Kensington, the main focus for its 2017 drilling program. The release states:

The year-end 2016 contained proven and probable mineral reserves of 328.5 million silver equivalent ounces (AgEqOz)1. This 9% year-over-year increase was primarily driven by successful resource conversion at Rochester. The Company also announced measured and indicated mineral resources of approximately 360.2 million AgEqOz and inferred mineral resources of 131.2 million AgEqOz, representing a 13% decrease and 9% increase, respectively, compared to year-end 2015.

“For 2017, planned exploration spending on new resource identification has almost doubled, to $14 – $17 million, compared to 2016. The majority of our exploration budget will be spent at our Palmarejo and Kensington operations and at our La Preciosa silver-gold project in Mexico. Our capitalized exploration budget targeting resource conversion is expected to increase by about 10% to $10 – $13 million, most of which is earmarked for Palmarejo and Kensington.

We also plan to increase earlier-stage exploration spending by around 50% to $7 million, as we seek to enhance our pipeline of future, high-quality sources of silver and gold production in attractive jurisdictions.”

Share Price Reaction

Everything appears to be good news, but this week Zacks has reported high Put volatility in the options market. Are investors still bullish CDE?

Investors in Coeur Mining, Inc. need to pay close attention to the stock based on moves in the options market lately. That is because the February 17th, 2017 $7 Put had some of the highest implied volatility of all equity options today.

Strike Contract Name Last Price Bid Ask Change % Change Volume Open Interest Implied Volatilit

March Calls

March Puts

Considering the stock is currently trading in the $9.00 range, volume is more heavily concentrated in the puts (bullish for sellers of those puts).

Financial Position

GuruFocus shows CDE in an improving debt vs. cash position. Although debt has reduced by about the expected amount into December 2016, debt is still higher than cash.

The last earnings release states:

The Company also meaningfully strengthened its balance sheet, ending the year with total outstanding debt of $210.9 million, a 57% reduction compared to a year ago, net debt1 of $48.7 million, and a year-end cash balance of $162.2 million

GuruFocus also flagged interest coverage, the available revenue to pay interest from operations for the last quarter.

The company states redemption of $190 million of senior notes was from the $200 million stock offering completed in November. This would reduce the debt due to be paid on those notes.

Coeur Mining Inc.’s Operating Income for the three months ended in Dec. 2016 was $15.5 Mil. Coeur Mining Inc’s Interest Expense for the three months ended in Dec. 2016 was $-6.9 Mil.

It also quotes earnings estimates for 2017 and 2018 as follows:

Dec17 Dec18
Revenue (Mil $) 786 799
EPS ($) 0.45 0.48

Zacks reports past CDE earnings in chart form:

Zacks on CDE earnings

So looking at cash flow issues, the price of silver is obviously a major concern. It’s apparent that in the final quarter, silver prices were similar to Q2, in terms of a rough median average. Silver is currently at a potential correction point. If the market does weaken into March, the implications are for reduced earnings, based on the June 2016 quarter silver prices. Zacks earnings calendar above suggests that is exactly what it anticipates for the June 2017 quarter.

Silver weekly

Last March, CDE underperformed against market expectations and then significantly outperformed in the June quarter. At the same time, silver found a low in January and continued higher into the summer, a situation reflected in CDE’s September earnings per share. Consensus expectations were lower in the following December quarter, but CDE considerably underperformed, with earnings below 25% of that of the June quarter.

Coeur Mining stated:

In the fourth quarter, the Company generated a net loss of $8.3 million, or $0.03 per share, due mostly to lower metal prices and a one-time loss of $11.3 million related to the redemption of $190 million in principal of the Company’s 7.875% Senior Notes due 2021.

Analysts reporting through the Nasdaq site expect a significantly higher earnings estimate for 2017, regardless of an expanded drilling budget. To accomplish that, CDE requires either increased production, higher silver prices, or both. Coeur Mining has set its sights on an increased production in 2017 of 16.4 to 18 million ounces of silver. The company produced 14.8 million ounces of silver in 2016, and 15.9 million ounces of the metal in 2015. Cash flow to support this increased production could be an issue, but it also has access to credit lines if necessary.

Analysts are:

  • CORMARK SECURITY
  • DEUTSCHE BK SEC
  • RAYMOND JMS LTD

The company posted net profit of $0.34/share in 2016, however:

For the fiscal year 12/2017, the consensus mean EPS is $0.56, derived from a total of 3 estimates.

This is the equivalent of an earnings increase of over 50% in 2017. In terms of share price growth, Nasdaq reports that the CDE’s P/E for 2016 was 31.59. This compares to a 2016 Goldcorp (NYSE:GG) P/E of 54.48, and S&P 500 P/E for September 2016 of 25.13.

Sentiment

Institutional interest seems to have risen, and that seems likely from the stock offering last year. Institution ownership is over 50% (GuruFocus.com). Fund ownership

Short Interest (shortsqueeze.com)

Short interest has been falling all through 2016, and the current level at just over 2.5% appears to be just general trading noise.

Technical Chart

CDE Chart

While cash flow is still an issue, and the continued rising price of silver and gold in the short term not clear, expectations and delivery of an increased asset valuation could support further share price strength. Zacks’ earnings projection assumes an increased net return (compared to the December quarter) in March and seems more realistic (and with potential upside). Although the company intends to increase production, it isn’t clear that will all take place immediately, but the price of precious metals even in correction should compare to the June quarter.

The stock chart suggests two possible paths. CDE is currently holding the long-term pivot, which is also at a 50% Fibonacci correction (and possible reversal point), with trading having broken up and outside of the downtrend channel from the August high.

Provided the pivot low holds, trading should continue higher. The RSI hasn’t found an absolute oversold low, but has bounced from a similar level before. Looking at the short-term chart below, the fast stochastic has started to rise, the ADX over the MACD has started turning up, and the share price is holding a double test of the low. All of which are bullish signs.

CDE short term

If, however, this level is still part of a larger correction, the stock could either continue to correct, or bounce into a short-term break out, but correcting again from near-term selling resistance to find a further low, creating expanded ABC correction waves. In that scenario, a potential bounce high is just below the high of November 2016, equivalent to the 38% Fibonacci level on the chart above. Potential support levels are highlighted in green, but also include the 200 moving average. Traders should take appropriate risk management measures.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.



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