Coeur Mining: Is It Time to Buy Before Earnings?

CDE data by YCharts

Coeur Mining (NYSE:CDE) was listed as my #5 overall silver stock to own in 2017 back in December. The stock price hasn’t performed as well as some of its peers, declining by 5%, compared to a 2.92% gain in the silver miners index (NYSEARCA:SIL).

Do I regret this decision to include Coeur as a top silver stock? I do not. While not much has changed since that article, Coeur’s production has been really strong and should get even stronger as the year progresses.

The company just reported that it produced 3.9 million ounces of silver and 88,218 ounces of gold, or 9.2 million silver equivalent ounces (SEOs), in Q1 2017. The company has maintained its full-year 2017 guidance, which calls for production to fall between 16.4-18 million silver ounces, 362,000 to 387,000 gold ounces, and 38.1-41.2 million SEOs.

Investors may not be blown away by this news, as it appears Coeur is performing as expected. After all, it’s not like Coeur raised its 2017 production guidance. However, the company certainly deserves some praise for these production results anyway in my opinion.

Production was particularly strong at the Palmarejo operation in Mexico, which produced 3.37 million SEOs, up from 2.7 million last quarter and 1.81 million last year, due to higher mining rates. Silver and gold sales jumped by 110% and 164%, respectively, due to higher production and sale of metal that carried over from last quarter.

Palmarejo is a key growth driver for Coeur going forward; for 2017, production is expected to ramp up to 13.1-14 million SEOs, which would make up 34% to 36% of Coeur’s total production. It’s also one of Coeur’s lowest-cost mines, with cash costs expected to fall around $10-$11 per ounce in 2017, according to a recent presentation.

The company’s stream restructure with Franco-Nevada (NYSE:FNV) will also improve cash flow going forward; back in 2014, Franco agreed to pay $800 per ounce vs. the previous $416 per ounce under the old agreement. Franco-Nevada gets 50% of the total gold produced at $800 per ounce at Palmarejo.

There were some challenges in Q1. In particular, silver and gold production at the Rochester mine in Nevada declined by 12% from last quarter. The company blames the lower production on record precipitation in January and early February, which negatively impacted its operations. Production also fell sharply at the Kensington gold mine in Alaska due to lower grades and mine sequencing. However, higher grades are expected for the rest of 2017 and production should pick up at both mines, so guidance was not negatively affected.

The balance sheet remains strong; as of the fourth quarter, Coeur has total debt of $279.5 million; however, this figure decreased by 57% year over year and is likely continue to fall. As of Q4, the company’s total debt to last twelve-month (LTM) adjusted EBITDA declined to 1x, down from 3.8x the previous year, and 5.5x just 15 months ago.

Should Coeur Mining be bought before its Q1 earnings to be reported on April 26? Despite the stock not performing well lately, I remain bullish on the company’s long-term prospects and would say it’s a pretty decent time to buy shares.

Q1 production was strong overall, even though a few mines reported production decreases. Coeur still has strong organic growth coming, a strengthening balance sheet, and provides investors with big leverage to gold and silver prices. I don’t think the stock underperformance will last much longer.

Disclosure: I am/we are long FNV.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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