Coeur Mining (CDE, Financial) illustrated steady signs of stability at its Kensington operations during 2013; however it was still taken as a nominally high-cost gold mine. In addition, Coeur acquired Orko Silver in the beginning of 2013 even in a significantly elevated cost environment and generated solid mining production results with a sharp focus on delivering superior shareholder returns.
Moving in the right area
In 2014, Coeur recorded approximately 50% increase in the silver equivalent production at Rochester with nearly 30% fall in the mining costs per ton for the year. Going forward into 2015, Coeur expects to generate double-digit percentage expansion in production at much more reduced costs.
The significant increase in silver production at Coeur’s key mines of Kensington and Rochester depicts the robustness of the company operations in addition to the key acquisition capabilities as illustrated by the Orko Silver acquisition.
Crucially, RenGold has declared its intention to sign an earn-in agreement with Coeur Mining on the Arabia Gold Project in Pershing County, Nevada. This major deal will allow Coeur to fund a development and exploration program conducted by RenGold. Further, both the mining majors have plans to jointly complete a Bankable Viability Study very soon and thus giving an option to Coeur for acquiring a 70% interest in the project for no extra contemplation.
Moving ahead, Coeur has strategically decided to transform the open operations at Palmarejo to a fully underground operation that focuses on quality ounces instead of quantity of ounces, and which is proficient in delivering enhanced margins and excellent free cash flows throughout the mine’s life.
The well-planned decision of Coeur to perform joint operations with RenGold in the Arabia Gold Project in Pershing County, Nevada, through a completely bankable feasibility study and the strategic transformation of Palmarejo open mine operations to fully underground operations is believed to significantly enhance the company’s top line and bottom line, going forward.
Strategic moves
In the previous year, Coeur strategically renegotiated the royalty gain at Palmarejo organized by Franco-Nevada, which is forecast to hugely enhance the free cash flows at the mine and allow Coeur enough cash to fund $22 million development at Guadalupe mine for this year.
Moreover in December, Coeur acquired Paramount Gold and Silver which is the neighbouring mine to Palmarejo, to quickly enhance the production of superior-grade ore at reduced costs.
The well-timed decision of Coeur to successfully renegotiate the royalty gain at Palmarejo coupled with the planned acquisition of Paramount Gold and Silver is estimated to significantly grow the company’s production and free cash flows, allowing it to deliver prominently on its promise to expand shareholder’s value.
Coeur is currently extremely well-positioned to deliver robust free cash flows and superior quality production at much lower costs below the industry’s cost average in fiscal year 2017.
The production results depict consistency in the company operations with fiscal year 2014 results matching or exceeding the guidance for the year.
Coeur closed the acquisition of Wharf gold mine on Feb. 20, 2015 and situated near Lead, South Dakota, from a subsidiary of Goldcorp, Inc. The mine was bought in all cash at a cost of $105 million. This key mine has produced over 2 million ounces of gold in a period exceeding 30 years. Moreover, it has seven years of mine life depending on current reserves with significant exploration potential.
This strategic acquisition is believed to immediately boost Coeur’s free cash flow and production in addition to reducing the company’s overall cost structure. It is also an attractively priced transaction with the capabilities to improve the risk profile of Coeur.
Conclusion
Overall, investors are advised to hold their positions in Coeur Mining, Inc., looking at the poor company growth prospects with PEG ratio of -0.26 compared to marginally healthier industry’s average of 0.04. The profit margin of -181.82% signifies no profit but loss. Further, the mining major is hugely debt-laden with total debt of $478.40 million against total cash of $270.86 million only.
