Gold closed at $1,223.40 per troy ounce and silver reached $14.38 per troy ounce on the London bullion market on Monday. The precious metals have averaged $1,221.25 per ounce and $14.3969 per ounce, reflecting a 4.8% year-over-year decline in the price of the yellow metal and a 15.3% year-over-year decrease in the price of the grey metal.
Investors are waiting for the next Federal Reserve interest rate hike, which is expected to take place before the end of the year. Currently, the action from the U.S. central bank appears to be the only event that can, in the short term, determine a break in the trend of the commodity and move prices up.
In the event of a rising commodity, investors cannot allow themselves to be unprepared to benefit. A way to not miss the train is gaining exposure to changes in the precious metal through investments in its publicly traded producers.
However, a low-price environment brings an advantage for gold investors. The odds of finding a good stock that has a compelling valuation is higher when commodities are trading higher. The results of my screening suggest investors should have a look at Coeur Mining Inc. (CDE, Financial).
The closing share price of $4 on Monday was below the 200-, 100- and 50-day simple moving average lines. Following a 48% decline for the 52 weeks through Nov. 26, the closing price was just a few dollars off the 52-week low of $3.94 and 123.5% below the 52-week high of $8.94. The market capitalization is approximately $813.1 million.
The price-book ratio is 0.98 versus an industry median of 1.74 and the EV-to-EBITDA ratio is 7.78 compared to an industry median of 9.3. These ratios also suggest Coeur Mining is trading cheaply. The 14-day relative strength indicator of 33.45, which falls into the 30 to 70 range, indicates the stock is nearing oversold levels.
Coeur Mining is a Chicago-based mineral explorer and producer of silver and gold concentrates. The company produces the metal from the Palmarejo complex in Mexico, the Silvertip mine in British Columbia, the Rochester mine in Nevada, the Kensington gold mine in Alaska and the Wharf mine in South Dakota.
The company also develops the assets it acquires. The most relevant are the La Preciosa silver-gold project in the Mexican State of Durango and the Sterling Gold Project in Nevada. In the fourth quarter, Coeur Mining will close an important deal with Alio Gold Inc. (ALO, Financial) for the purchase of the Lincoln Hill Project and other mineral assets. These assets, which are adjacent to the Rochester mine, have all the characteristics of becoming the miner's next generator of strong returns and free cash flow.
The miner's customers are refiners and smelters located in the U.S. and China. The company also sells some zinc and lead, though gold and silver contribute nearly 100% of total revenues.
In the third quarter, the miner posted revenue of $148.8 million, a nearly 7% decrease from the prior-year quarter as a result of lower metal prices. Coeur Mining missed revenue expectations by $5.06 million. Despite declining gold and silver prices, the profitability of Coeur Mining’s operations was almost on par with the industry. The trailing 12-month earnings before interest, taxes, depreciation and amortization margin was 21% of total revenues versus the industry median of about 23%.
Coeur Mining is milking the precious metal from total proven and probable reserves that, as of Dec. 31, 2017, consist of 169,545,000 ounces of silver and 2,853,000 ounces of gold. Looking ahead, the miner is targeting production of 2 million to 3.5 million ounces of silver equivalent for full-year 2018 at a cost applicable to sales of $15 to $15.50 per ounce of metal.
The recommendation rating is 2 out of 5, which means analysts suggest buying the stock. The average target price is $8.69 per share, reflecting a 117.3% increase from the market value at close on Monday.
Commodity permitting, the company needs some catalysts to corroborate expectations on the target price over the next 52 weeks. The Rochester operations should continue growing production and reducing costs. Rochester will also experience an improvement in silver recovery rates following the installation of a new crusher in 2019. The Silvertip mine should benefit from an ongoing increase in throughput rates.
The strongest impact on total revenues will be produced by the Rochester operations since they generate about 25% of the top line. The Silvertip mine usually covers about 2.5% to 3% of total revenues.
Disclosure: I have no positions in any securities mentioned in this article.
Read more here:
