Among precious metal and mining stocks, Coeur Mining (CDE) was one of the most successful in 2016, rising more than 268.0%. The uptrend was mainly driven by rising gold and silver prices. But when 2017 arrived, Coeur stock became one of the worst performers in its peer group (SIL), second only to Tahoe Resources (TAHO).
What’s behind its underperformance?
Year-to-date as of March 20, 2017, Coeur Mining stock has fallen 18.0%. Tahoe Resources stock has fallen 23.0%. During that period, Hecla Mining (HL) and First Majestic Silver (AG) fell 7.1% and 1.4%, respectively. Pan American Silver (PAAS) was the only gainer, rising 9.3%.
Tahoe Resources stock has been under pressure in 2017 after giving disappointing guidance on January 5, 2017. Its guidance was lower than expected for production, and its costs and capex (capital expenditure) were on the higher side.
Coeur Mining is a high-cost operator. So operational leverage at its Coeur d’Alene Mine is the major reason for its underperformance. In a weaker precious metal price scenario, the stock usually comes under pressure due to higher costs.
We have to wonder if Coeur Mining (CDE) will continue its underperformance with its high operational leverage in a weaker precious metals price environment. Or maybe the company could turn around based on its fundamentals.
In this series, we’ll do a fundamental and technical analysis of Coeur Mining. We’ll also explore its near-term challenges and opportunities, perform a thorough analysis of costs and production growth, and examine what Wall Street thinks about the company.
Let’s begin with Coeur’s production levels.
Could Coeur Mining See Production Growth in 2017 and Beyond?
In 4Q16, Coeur Mining (CDE) reported a record quarterly silver equivalent production of 10.0 million ounces. Silver production was 3.9 million ounces, and gold was 102,500 ounces. That took 2016 production to 14.8 million ounces for silver, which is in line with the company’s guidance of 14.4 million–15.7 million ounces.
Coeur expects its 2017 production to be 16.4 million–18.0 million ounces for silver and 362,000–387,000 ounces for gold. That implies a silver equivalent production of 38.1 million–41.2 million ounces. At the midpoint of this guidance range, expected production growth is 9.0% YoY (year-over-year).
Production growth drivers
The Palmarejo mine complex is Coeur Mining’s silver and gold mine in Mexico. In 2016, Palmarejo produced 4.4 million ounces of silver and 73,913 ounces of gold. That’s in line with the company’s guidance. Coeur expects to increase the mining rate at its Guadalupe and Independencia complexes at Palmarejo to 4,500 tons per day in 2017 compared to an average of 2,500 tons per day in 2016.
Construction of the Stage IV leach pad expansion for the Rochester mine is on schedule and on budget with commissioning expected in early 3Q17.
For Kensington, production in the fourth quarter was the highest for the year, rising 27.0% quarter-over-quarter. Gold production at its Wharf mine in South Dakota was also the highest for the year at 30,675 ounces. The company expects a lower production from Wharf in 2017 at 85,000–90,000 ounces due to the anticipated completion of mining at the higher-grade Golden Reward deposit in mid-2017.
Among Coeur’s peers (SIL), Pan American Silver (PAAS), Hecla Mining (HL), Silver Standard Resources (SSRI), and Newmont Mining (NEM) are also trying to increase their production levels at the lowest possible costs.
In the next part, we’ll look at the reserves update for Coeur Mining.
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