Coeur d'Alene Mines Corporation's (CDE) stock price increased nearly 7 percent following the release of the company's 2012 second quarter financial and operating results. Highlights of the earnings report include a 10 percent increase in sales, a 44 percent quarterly increase in gold production, and earnings of 31 cents per share, which beat Wall Street estimates by 11 cents per share. Despite the stock price rally, Coeur remains undervalued, as it is currently trading just $3 above its 52-week low.
Coeur is the largest U.S.-based silver producer, and has expanded its operations to include gold mining as well. In 2012, the company is on pace to achieve production estimates of 20 million ounces of silver and 230,000 ounces of gold. Coeur currently operates silver and gold mines in the United States, Mexico, Bolivia, Argentina, and Australia.
In a conference call with investors, Mitchell J. Krebs, Coeur's President and Chief Executive Officer, attributed the sales growth to higher gold and silver production levels at the company's Kensington gold mine in Alaska and Rochester silver and gold mine in Nevada. The company also realized production efficiency gains, resulting in substantially lower operating costs at several mines. From an operations standpoint, Coeur achieved recognizable success in the second quarter. However, the strength of the earnings report was somewhat diluted by a 15 percent drop in the price of silver, which yielded a negative impact on the company's second quarter profit.
Coeur has wisely expanded its niche to include gold mining, and is beginning to reap the benefits. The company's Kensington gold mine notably tripled production in the second quarter. Coeur is also producing gold at its mines in Nevada and Mexico. This is relevant from a growth perspective, as the company is increasing its production capacity and valuation ceiling.
In addition to the aforementioned positive indicators, Coeur also appears financially sound, as evidenced by a $47.1 million quarterly increase in cash, cash equivalents, and short-term investments to $200.3 million. The company has used its growing cash on hand to invest in silver and gold mining companies with prospective land holdings in Mexico, Canada, and the United States. On August 7, 2012, Coeur purchased a 9 percent stake in Huldra Silver Inc. (HUSIF.PK) for $2 million.
In July, Coeur also spent $3 million to purchase a 13.1 percent stake in Northair Mines Ltd (INM), a mineral exploration and development (E&D) company with active drilling projects in La Cigarra and Sierra Rosario, Mexico. A month prior, Coeur purchased nearly 11 million shares of Pershing Gold Corporation (PGLC) Common Stock, another gold E&D company with prospective land holdings just one mile south of Coeur's Rochester Mine. Early drilling at Relief Canyon has revealed gold intercepts longer and thicker than previously estimated. This has led to speculation that Pershing Gold could increase the mine's probable gold reserves in its third quarter operations report.
The strongest indication that the company is undervalued is Coeur's recent $100 million share repurchase program, which amounted to 5.3 million, or 6 percent, of the company's outstanding shares. This suggests to investors that Coeur considers its stock price a bargain, and believes it will rise in the near future. Currently, Coeur is trading $11 below its 52-week high, so there is certainly room for growth, especially as it becomes a bigger player in the gold mining industry.
There are risks to investing in Coeur and the precious metals industry in general. First, the price of silver dropped 15 percent in the second quarter, which negatively impacted the company's income. Regardless, if Coeur can increase production in the third quarter, income may not meet expectations unless the price of silver rebounds. Second, it is well known that the world's gold reserves are shrinking, and prospective land holdings are becoming harder to discover. As Coeur lends more resources to gold mining, it could face hardships when it comes to increasing annual gold production and, thus, increasing the company's market valuation.
Coeur's continual gains in free cash flow have led it to invest in other prospective companies, as well as its own future, through the share repurchase program. The company's sustained sales growth led to projected earnings growth of 44.10 percent in 2013, which is nearly double the industry average of 22.60 percent. When also considering the company's positive news on the operations front, it is clear that Coeur remains undervalued and a cheap opportunity for investors to evaluate.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: The writer is not a licensed broker or investment adviser and therefore cannot recommend that you buy, sell, or hold any security. While every attempt was made to verify the information in this report, much has been derived from public sources and cannot be guaranteed for accuracy.