Weaker commodity prices have posed a serious headwind for many companies dealing with silver and gold. The weaker prices have hurt margins and the industry has struggled as a whole. But, according to the recent forecasts, a turnaround in gold and silver prices is being observed. This is expected to help many companies in the industry. One such company is Coeur Mining (CDE, Financial), which is one of the key players in the industry. Coeur is confident that the recovering gold and silver prices will help it gain momentum once again, improving all its key financials. But is this the only aspect? Let us have a detailed look at the overall commodity market.
The recovering market is a tailwind
The recovering commodity market is a good sign and it will surely impact the companies dealing in commodity. But if we talk about Coeur Mining, it is quite suspicious. If we notice Coeur’s past record, the scene is somewhat different. The company had been a weak performer consistently in the past. In fact after this recovery in the commodity market, the stock is still trading close to its 52-week low. This is not just enough as in this recovering market, the stock is still trading with a poor profit margin of -99.16% which is a big reason to worry. Moreover, it is also found weak on the return on equity. This can hurt Coeur’s position largely as it can scare the investors away from the stock and it can further lose market share despite recovering commodity prices.
The financial performance of the company is also weak. In the past, the company’s cash balance has declined by $21 million as the company spent to repurchase a portion of its outstanding notes. This wasn’t a wise move by the company as this repurchase didn’t really contribute to its growth. This makes its balance sheet unimpressive which can lead the investors to have some issues with the liquidity of the company. Coeur can further lose market share on the back of it in future.
However, Coeur is aware of this and is now putting efforts to be profitable. It is indeed seeing some positive signs also. Out of its four mines it is seeing high return expansion opportunities with three of mines which is impressive. This opportunity will help the company to further bring down the costs which will help in improving the margins, making Coeur more durable and resilient even at the lower prices.
Under it’s another strategic initiative, Coeur is well prepared to acquire the outstanding shares of Paramount Gold and Silver Corp. by signing a merger agreement. Paramount is indeed positioned to spin-off to existing shareholders into a separate publically traded company. Coeur is expected to provide $10 million cash to this new subsidiary. It is expected to receive a 4.9% common share interest which will help it in its growth strategy.
Conclusion
From the above discussion it is clear that things doesn’t seem so easy for Coeur based on many key aspects which are against it. The company does have some positive signs but the growth in these positive initiatives is slow and will take some more time to be profitable. However, the stock can be a good long term holding as in the next five years its earnings are growing at a CAGR of 22.26% which is more than the industry average of 21.40%. So as of now the investors should consider other profitable stocks and wait for Coeur to gain market share and show some concrete signs of gaining market share.
