Monday, April 22, 2019

What’s Driving Analysts’ Earnings Estimates for Coeur Mining?

Author:Annie Gilroy


Coeur’s revenue estimates

Analysts’ revenue projections are indicative of a mining company’s volumes sold multiplied by its prices received. Wall Street analysts covering Coeur Mining (CDE) are projecting sales of $768.6 million for 2017. That implies a 15.4% rise in revenue year-over-year (or YoY). Coeur’s actual revenues rose 3.0% YoY in 2016.

Increased mining rates at Coeur’s Palmarejo sites as well as the leach pad extension at its Rochester mines should lead to higher production for 2017 compared to 2016. That seems to be the likely driver of higher revenue estimates. Coeur’s guided production implies a rise of 16.0% for silver at the midpoint.

Revenue estimates for 2018 and 2019 are $856.0 million and $880.0 million, respectively. Those figures imply YoY rises of 11.6% and 2.6%, respectively.

EBITDA margins

Coeur Mining’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) for 2016 was $215.2 million, implying an EBITDA margin of 35.6%. Analysts expect Coeur’s 4Q16 EBITDA to be $55.8 million, implying an EBITDA margin of 32.3%.

Coeur’s EBITDA margin was just 15.7% in 2015. Higher margins in 2016 came mainly on the back of higher precious metal prices. Analysts are expecting an EBITDA margin of 33.4% for 2017. The margin should rise to 38.5% and 38.1% for 2018 and 2019, respectively, according to consensus estimates.

Coeur’s costs going forward should normalize, leading to higher margins.

Coeur’s peers

Coeur Mining’s silver peers (RING) such as Hecla Mining (HL), Silver Standard Resources (SSRI), and Pan American Silver (PAAS), as well as senior peers Newmont Mining (NEM) and Barrick Gold (ABX) are trying to reduce their costs in order to manage the volatility in precious metal prices.

Let’s look next at the technical indicators for Coeur Mining and its peers.

A Look at Technical Indicators for Coeur Mining and Its Peers

Technical indicators

Earlier in the series, we analyzed Coeur Mining’s (CDE) business fundamentals and analyst expectations. We saw that the company’s operating environment has improved due to higher gold (GLD) and silver (SLV) prices in 2016, which have again started showing signs of weakness.

In this part of the series, we’ll see what the technical indicators point to for Coeur Mining and its peers.

Oversold or overbought?

Traders and investors look at moving averages when deciding whether to enter or exit the market. Usually, if a stock is trading below its 20-day or 50-day moving averages, it’s an indication that the stock is oversold. Similarly, if a stock is trading much higher than its 20-day or 50-day moving averages, it indicates an overbought position. Coeur Mining and its closest peers are currently trading below their 20-day and 50-day moving averages.

Coeur is trading 18.4% below its 50-day moving average and 1.7% below its 20-day moving average. Pan American Silver (PAAS), First Majestic Silver (AG), and Tahoe Resources (TAHO) are trading 6.3%, 12.5%, and 12.5%, respectively, below their 50-day moving averages.

The above table shows the moving averages, forward target prices, and returns of the four major silver and gold producers.

Relative strength index

As an RSI (relative strength index) level approaches 70, assets may be overvalued, and we could see a fall in prices. If an RSI level approaches 30, it shows that an asset may be oversold and could become undervalued.

Based on its March 21, 2017, closing price, Coeur Mining is trading at an RSI of 40.6. Based on technical indicators, there might be an upside to Coeur as well as its peers. Although technical indicators mean Coeur could bounce back in the short term, it’s worth noting that the markets could remain overbought or oversold for extended periods.

The iShares Silver Trust (SLV), which tracks silver prices, is trading 0.20% below its 50-day moving average.

In the next and concluding part of this series, we’ll take a look at Coeur Mining’s valuation and what it implies in relation to its historical average and peer average.

Coeur Mining and Its Peers: Closing the Valuation Gap in 2017


The EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation multiple is a good measure for capital-intensive industries. It helps compare companies with various capital structures.

The chart below compares silver miners’ EV-to-forward-EBITDA ratios to their EBITDA margins for 2017.

Is Coeur Mining’s discount justified?

Coeur Mining (CDE) is trading at a forward EV-to-EBITDA multiple of 5.3x. That’s the lowest among its peer group (SIL). Hecla Mining (HL), Tahoe Resources (TAHO), Pan American Silver (PAAS), and First Majestic Silver (AG) are trading at multiples of 9.0x, 6.3x, 9.1x, and 9.4x, respectively.

The lower multiple is probably due to its higher-than-average all-in sustaining costs and higher financial leverage than some of its peers.

As you can see in the above chart, Coeur’s EBITDA margin is only higher than Pan American Silver’s (PAAS). The difference is mainly due to higher costs, which result in a lower valuation multiple. In a weaker precious metals environment, that gap is likely to continue.

Valuation catalysts

Coeur Mining’s (CDE) Rochester expansion is expected to realize cost reductions and positive free cash flow generation. Its recent exploration update also implies an upside going forward, which could lead to higher production at lower costs.

Coeur’s budgeted drilling program in 2017, which aims to expand measured resources, could also provide an upside. But be sure to also look at the company’s cash flow needs, which will be instrumental in achieving its stated production growth.

If you have an appetite for high risk, you could invest in silver miners (SIL) and leveraged ETFs such as the ProShares Ultra Silver (AGQ) and the Direxion Daily Gold Miners Bull 3X ETF (NUGT).

These Factors Have Been Driving Silver Prices Recently

Silver’s performance

Compared to gold, silver is the more volatile precious metal. The overall sentiment in the market for silver is positive, as it recently crossed the 50-day, 100-day, and 200-day moving averages.

Silver has performed slightly better than gold and platinum on a year-to-date basis. Silver had a year-to-date gain of 8.8%, while gold and platinum have risen 7% and 7.4%, respectively, as of March 20. Palladium, however, has outperformed the other three metals with a rise of 14.7% during the same timeframe.

Precious and industrial metals

The fluctuations in the price of silver since 2015 are shown in the above chart. As silver is considered both an industrial as well as a precious metal, the rises and falls in its price are dependent on many global indicators.

When Brexit concerns surfaced in mid-2016, the haven bids caused silver to rise. Similarly, after Trump won the US election, the haven bids impacted the metal. The increase in the interest rate on Treasuries caused non-yield-bearing assets like gold and silver to suffer. In a similar fashion, the overall industrial market performance can also impact silver, as silver is frequently used as an industrial metal.

Silver funds and miners

The fluctuations in silver prices are evident in the iShares Silver Trust (SLV) and the Silver Trust ETF (SIVR). These two funds have risen 9.2% each due to the rise in silver prices.

Silver mining stocks like Hecla Mining (HL), Coeur Mining (CDE), Pan American Silver (PAAS), and Silver Wheaton (SLW) have fallen over the past month due to the fall in silver prices.

Later in this series, we’ll look at the performance of silver miners along with technical details.

Can Coeur Mining Generate Positive Free Cash Flow in 2017?

FCF generation

Coeur Mining’s (CDE) management is focused on generating significant FCF (free cash flow). In 4Q16, the company’s FCF of -$4.5 million after generating positive FCF in the first two quarters.

Negative FCF in 4Q16 was mainly due to increased inventory at Palmarejo as well as the acceleration in interest paid due to early debt repayment. Its Rochester, Wharf, and San Bartolome operations had positive FCF during the quarter.

Negative FCF in 4Q16 led to FCF of -$2.4 million for 2016. Excluding the one-off items, FCF for 2016 was $30.5 million. FCF for 2015 was -$20.9 million.

Drivers for FCF

Coeur Mining management believes that FCF will rise throughout 2017. Below are the main drivers that could drive FCF higher going forward:

  • Coeur Mining acquired the Wharf mine from Goldcorp (GG) in February 2015. The acquisition has already added $60.0 million in FCF for 2016 and a total of $86.0 million since it was acquired. It should help the company generate FCF going forward.
  • Coeur Mining’s minimum gold royalty obligation to Franco-Nevada (FNV) ended in July 2016. In August 2016, CDE shifted to more favorable terms under the renegotiated gold stream agreement, which should be a significant driver of FCF generation.

During Coeur’s 4Q16 earnings conference call, CEO (chief executive officer) Mitchell Krebs said the company is expecting to generate strong FCF in 2017. It has budgeted FCF for silver price assumption at $17.50 per ounce and gold price assumption at $1,250 per ounce.

FCF for its peers

Silver peers (SIL) Pan American Silver (PAAS), Hecla Mining (HL), First Majestic Silver (AG), and Tahoe Resources (TAHO) also reported positive adjusted FCF for 2016. Most of them are looking at growth in FCF if the precious metals price environment remains benign in 2017.

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