Coeur Mining: Insiders Are Buying Below Book Value

1. The Company

Coeur Mining (CDE, Financial) is engaged in the ownership, operation, exploration, and development of silver and gold mining properties primarily in the United States, Mexico, Bolivia, Argentina, Australia, Ecuador, and Chile.

1.1 History

• The company was formed in 1928 to mine silver in the Coeur d’Alene region of Idaho.
• In April 2013, Coeur acquired Orko Silver Corp.
• In May 2013 the company changed its name to Coeur Mining from Coeur d’Alene Mines.

1.2 Business Model

Coeur’s goal is to produce and protect value for stakeholders through operating consistently, delivering high-return growth and increasing reserves and resources per share.

(Source: Investor presentation)

1.3 Assets

Coeur has five operating mines and several royalty and development stage projects.

(Source: Fact Sheet)

Coeur’s P&P reserves are 523.5 million silver equivalent ounces or 5.08 ounces per share.

(Source: Earnings release)

2. Management

The CEO Mitchell Krebs joined Coeur in 1995. Mitchell Krebs was named President and CEO in July 2011. Collectively, Coeur’s management team has over 270 years of industry experience.

(Source: Investor presentation)

2.1 Insider Ownership

Coeur’s directors and executive officers own 0.5% of the company.

Here is a table of Coeur’s insider activity during the last 30 days.

There have been 14,750 shares purchased by insiders during the last 30 days.

Here is a table of Coeur’s insider activity by calendar month.

There have been 28,050 shares purchased and there have been zero shares sold by insiders since January 2013.

2.2 Compensation

Here is a table of the management’s compensation during the last three years.

(Source: Proxy Statement)

The management’s total compensation was highest in 2013.

3 Operating Summary

Here is a table of Coeur’s annual silver and gold production since 2004.

Silver production has averaged 14,933,434 ounces and gold production has averaged 143,479 ounces since 2004.

4. Financial Summary

4.1 Current Situation

Coeur reported the second-quarter financial results on August 6 with the following highlights:

(Source: Earnings release)

Silver production increased 10% compared to the first quarter, and gold production increased 4% compared to the first quarter.

4.2 Historical Developments

Here is a table of Coeur’s revenue and earnings since 2004.

(Note: Coeur had an 1-for-10 reverse stock split on May 26, 2009. The EPS numbers have been adjusted accordingly.)

The revenue has grown +584% since 2004. In 2013, there was a $772.8 million impairment charge on the carrying values of Palmarejo and Kensington.

5. Shares

Here is a table of Coeur’s number of shares since 2004.

(Note: Coeur had an 1-for-10 reverse stock split on May 26, 2009. The number of shares have been adjusted accordingly.)

Coeur’s number of shares have grown 353% since 2004, but revenue has grown 584%.

(Source: GuruFocus)

6. Outlook

Coeur’s capital expenditures are expected to be lower in 2014 than in 2013.

(Source: Earnings release)

Coeur’s 2014 silver production guidance is 17,000,000 - 18,000,000 ounces and gold production guidance is 225,000 - 240,000 ounces.

(Source: Earnings release)

7. Valuation

Coeur trades at EV/EBITDA ratio of 7.8, which is below the peer average.

(Source: Investor presentation)

8. Risks

The main risks are negative earnings, the price of gold, and the price of silver. Coeur extended its downside metal price protection program during the second quarter, using put spreads to protect 25% - 40% of expected future production against a sharp decrease in metal prices.

(Source: Earnings release)

9. Conclusion

There have been four different insiders buying Coeur this month, and there have not been any insiders selling Coeur since January 2013. The stock is currently trading at a P/B ratio of 0.5. I believe Coeur could be a good pick below $10 based on the insider buying.

Disclosure: The author is long CDE.