Coeur Mining (CDE, Financial) is positive about Rochester delivering double-digit expansion in both gold and silver production in 2014, at significantly lower and better unit cost over last year.
Exploring the right areas
The Palmarejo exploration of the Guadalupe deposit is much ahead of the expectations, representing the start of a superior grade of future operations. Coeur is also changing its mining focus from the mines which earlier targeted on quantity of ounces produced to those focused on quality ounces coupled with the maximization of free cash flows.
The impressive growth of gold and silver production at Rochester during 2014 at an improved and lesser cost compared to the previous year is estimated to enhance the company’s profits significantly driving increased shareholder value. Coeur also plans to widen Rochester’s expanding production and its free cash flow base. It expects to enhance leach pad capability during the fiscal year 2016. Further, the mining of Guadalupe deposit at Palmarejo highlights the efficiency of the company’s operations.
Coeur estimates to be mining 500 tons per day on average from Guadalupe during December, and it plans to expand the production to approximately 1,500 tons per day during the third quarter of next year. Guadalupe has a net of 10.5 million tons of resources and M&I reserves and an extra 4 million tons of contingent resources. Coeur reported $937 an ounce cost reduction at Kensington owing to superior grade ore in the mining plan.
Coeur witnessed $21 million decline in cash balance to $295 million in the quarter. The cash decline is primarily due to Coeur spending $12.4 million to buy back a part of its outstanding 7.875% notes at a discounted rate and as it acquired two royalties in the quarter at a net cost of $13.8 million.
The confidence of Coeur to increase its production at the Guadalupe mine is believed to benefit the company in a long run. However, the cash decline for the quarter is expected to slightly hinder or delay the future planned investments by the company.
A look at key mines
Three of Coeur’s four mines including mines at Kensington, at Palmarejo and at Rochester have solid and greater return growth chances being presently followed by the company. Coeur targets on leveraging a portion of its current liquidity to finance those efforts, which it estimates to help bring down the cost and support the company in becoming highly resilient and durable at lesser prices.
Coeur estimates to have an early resource at Independencia by the year end and expects to increase the size of Independencia in 2015.
The improved production and opportunity of mine expansion for the key mines at Rochester, Palmarejo and Kensington is expected to be partially offset by the increased expenditure on these growth plans. The resource discovery at Independencia is forecast to drive enhanced business expansion of Coeur.
Coeur recently signed an amalgamation deal to acquire all the Paramount Gold and Silver Corp.’s outstanding shares for approximately $146 million. Coeur is expected to offer $10 million in cash to Paramount Nevada Gold Corp. or SpinCo and gain a common share interest of 4.9 percent.
This key strategic acquisition by Coeur is estimated to create considerable long-term value with Guadalupe and Don Ese together estimated to produce nearly 110,000 ounces of gold and six million ounces of silver yearly on an average for the next eight years.
In general, economic growth in the developed economies during fiscal year 2015 is estimated to enhance by 2.3%, an increase from 1.8% during fiscal year 2014 which might increase the gold demand.
Coeur Mining Inc. shares have witnessed a sharp decline of 56% since last year. The company offers no dividend. Coeur has continuously reported earnings per share loss since the last four quarters which is expected to continue. The loss forecasted for next fiscal year is greater than the consensus approximation for this year. This weaker condition is estimated to hold looking at the sluggish silver prices.
Conclusion
Overall, investors are advised to avoid investments into Coeur Mining Inc. looking at the declining growth prospects with PEG ratio of -0.29 compared to solid industry’s average of 0.04. The profit margin of -99.16% represent no profit but loss. The company also has huge debt levels with total debt on the balance sheet of $469.48 million and total cash of $295.45 million only.
