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Investor with extensive analytical and portfolio management experience and a focus on discovering and exploiting differentiated ideas with significant dislocations and clear catalytic paths.
  • Coeur D'Alene Mines Reports A Transformational Quarter That Warrants A Revaluation Of The Company’s Shares 1 comment
    Aug 7, 2012 11:25 AM | about stocks: CDE

    This morning, Coeur D'Alene Mines (NYSE:CDE) reported its second quarter earnings results, which significantly exceeded expectations. Following disappointing cash cost and production results from Barrick (NYSE:ABX), Goldcorp (NYSE:GG), and Newmont (NYSE:NEM) in the past two weeks, Coeur's stellar results were in stark contrast to those of the industry and a function of the company's relatively new world class mine portfolio. The company reported revenue of $254 million, significantly exceeding the $222 million consensus expectation. Importantly, gold production was up 44% sequentially, which was driven by Coeur's Kensington mine. Recall that Kensington was in a transitional phase in the first quarter of this year, and the company's disappointing results last quarter caused the stock to decline substantially. Cash costs were virtually flat sequentially, and gold cash costs were down significantly from artificially escalated levels. The company guided up its annual production to the high end of its previous guidance and costs to the low end. There hasn't been a single precious metals company of which I am aware that has guided up both metrics; in fact, most companies in the GDX index have guided both metrics down as a result of lower than expected grades and soaring labor costs. The company now has $200 million of cash on its balance sheet, and it is in a position to repurchase a substantial portion of its outstanding shares through its buyback program implemented this quarter.

    One highlight of Coeur's press release that is likely to be overlooked is the company's exploration success. As I indicated in my previous article, "Though the market may be concerned about CDE's production profile declining beyond 2014, the company has several low cost sources of production and reserve growth that investors are currently overlooking. Coeur is implementing an aggressive spending program on Palmerejo this year to advance the Guadalupe and La Patria deposits located near the primary deposit and to expand existing ore bodies through the operation of 6 core drills. As the core assays are released to the market in the months ahead, investors could begin to contemplate a significant upside scenario in which Palmerejo's production growth potential amounts to millions of additional ounces of silver. Past exploration at Palmerejo had been focused on only 10% of Coeur's >12,000‐hectare land position." CDE reported this morning that "mineralization at Guadalupe has now been defined over a length of more than 2.5 kilometers (+8,200 feet) from southeast to northwest and remains open to the northwest and at depth." Beyond the strong possibility that these results will lead to Palmerejo's resource being upgraded, veining and alteration similar to that of the main Kensington mine with encouraging gold grades were encountered at CDE's Kensington South target and the August 2012 mineral estimate for Joaquin reflects a 102% increase in contained silver and an 18% increase in contained gold in measured and indicated resources compared to the May 2011 mineral estimate.

    As I articulated in my Seeking Alpha piece on June 23rd (seekingalpha.com/article/739641-coeur-d-...), "As Wall Street grapples with the mining industry's persistent string of earnings misses, the monolithic declines across the group have presented an unprecedented opportunity to extract alpha. The confluence of peak gold production, rapidly depleting grades, and substantial escalations in cash mining costs has been supportive of higher commodity prices. Such trends, however, have had a significant adverse impact on the industry's margins. The key to making a fortune in the mining realm going forward is to invest in unique high quality assets with stable cash mining costs, clean balance sheets, and flat or rising production and reserves. Coeur d'Alene Mines (CDE) fits this profile perfectly and perplexingly trades at a significant discount to NAV, close to 3X EBITDA, and an 18% FCF yield despite having almost $100 million of net cash on its balance sheet. Coeur is buying back stock after recently implementing the first repurchase plan in the history of the company, and the resulting accretion could be significant."

    Coeur perplexingly continues to trade at a significant to its NAV of ~$25, but this discount should substantially dissipate following its results this morning.

    Disclosure: I am long CDE.

    Stocks: CDE
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    Thanks for the update. I am very happy with CDE stock and looking forward for the price to appreciate to $30.
    Does anybody have any opinion on any of the six exploration companies CDE invested in? Would it make sense to invest in some of them in anticipation of CDE buying them up?
    7 Aug 2012, 11:58 AM Reply Like
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