Weaker commodity prices have affected companies dealing in gold and silver, who are struggling to maintain their profitability. The impact is clearly visible from the soft financial performance of Coeur Mining (CDE, Financial). Silver prices are declining and are showing no signs of recovering soon. Silver has dropped another 19% after a 36% decline in 2013.
This is a matter of worry for Coeur as it is losing market share. However, the company is aware of this down trend and to maintain its market position, it is undertaking several defensive measures that will help it secure its long-term performance. With many strategic initiatives, including cost reduction and acquisitions, Coeur is trying to be profitable. Let us see how?
Expecting better times ahead
Coeur looks optimistic for its better performance in future, but the journey doesn’t appear easy for it. The market is not supportive and a further down trend in the silver prices is anticipated. Still, Coeur is making some strategic moves to gain in the short term. It is making several tough decisions including improvements in the organization which can benefit it in short term.
The company is majorly counting on Rochester and Palmarejo which are the only two mines that are showing good progress. Coeur is confident of the solid profile at Rochester and is expecting double digit percentage production growth at even lower costs this year. The company is also relentlessly focusing on maintaining a solid cost structure. So, with a solid cost structure along with the current production levels, Coeur is expecting better cash flows at Rochester. In addition, Coeur is also working hard to address operations at Palmarejo.
Further, it is engaged in developing more efficient high return and low capital plan to develop nearby Guadalupe deposit because it is expecting the Guadalupe to become one of the main sources of high grade silver and gold production at Palmarejo in during upcoming years which will strengthen its long term prospects.
Another exciting fact is that Palmarejo has also successfully negotiated the royalty stream which was held by France-Nevada. This seems to be good achievement by Coeur and is expected to significantly boost Palmarejo’s free cash flow in future. Moving on, Coeur is also expected to gain on the back of some acquisitions that also includes Paramount acquisition. The main benefit that Coeur is expected see is that Paramount's main deposit is expected to become a second source of high-margin silver and gold to supplement the growing production from the Guadalupe deposit that's located only 800 meters away.
Silver outlook for 2015
Silver and gold are very much interrelated. So as gold prices are showing no near signs of recovery silver is also expected to be on a down trend in the future. Even if inflation struck, gold will be readily bought by the central banks, but silver is more used as an industrial metal so it is expected to go down by a bigger percentage. If economy erodes in future, silver is expected to fall badly as it doesn’t have the privilege of being bought by the central banks as gold has. Thus, long term prospects for the companies dealing in silver is shaky.
Moving on, the stock is definitely not a wise pick as of now. It is disappointing with a bad profit margin of -181.82%. But in the long term it is showing some improvement as its earnings are growing with a CAGR of 22.26% as compared to the industry average of 20.00%. However, there is a lot more risk in investing in silver now so I would like to suggest the investors to see investment in Coeur from side lines as of now.
