We’re now greater than two-thirds of the best way by the Q2 earnings season for the Silver Miners Index (SIL), and Coeur Mining (CDE) was one of many first names to report its earnings. Whereas the corporate had a tough Q1 with free-cash-flow hitting a 1-year low, the corporate had an honest Q2 given the challenges it was up towards with COVID-19. Regardless that Coeur’s flagship Palmarejo Mine was shuttered for many of Q2 on account of COVID-19, its US operations picked up a lot of the slack, with an affordable quarter throughout the board. Given the upper metals costs and the improved working metrics, Coeur’s earnings pattern is lastly bettering after two years in a row of web losses per share. Whereas I see significantly better alternatives elsewhere within the silver area, I consider we should always see a flooring at $6.35 for the inventory given the buildup we noticed final month.
(Supply: Writer’s Chart)
Coeur Mining launched its Q2 outcomes earlier this month and reported quarterly gold manufacturing of 78,200 ounces and silver manufacturing of 1.6 million ounces. Whereas gold manufacturing was solely down barely 12 months over 12 months regardless of the COVID-19-related headwinds, silver manufacturing took a beating, down by almost 50% from the three.1 million ounces produced final 12 months. This was on account of a 45-day shutdown at Coeur’s largest contributing mine, Palmarejo, which was associated to the government-mandated shutdowns aiming to curb COVID-19 unfold. Nonetheless, regardless of near-unprecedented headwinds, the corporate managed to have an honest quarter throughout the board, and issues ought to enhance massively on condition that the silver (SLV) spot worth is over 50% increased than it was in Q2. This had led to upwards revisions in earnings estimates in addition to quarterly revenues. Let’s take a better have a look at the outcomes under:
(Supply: Writer’s Chart)
Starting with the Palmarejo Mine, it was a really powerful quarter, with quarterly gold manufacturing of 15,200 ounces vs. 28,400 ounces in the identical interval final 12 months. Relating to silver manufacturing, the decline was even worse, with silver manufacturing slipping from 1.73 million ounces to 867,00Zero ounces because of the shutdown. Primarily based on these a lot softer working outcomes, we noticed free money circulation plunge, from $Eight million in Q2 2019 to (-) $Eight million in the newest quarter. Luckily, operations are principally again to regular at Palmarejo, with Coeur at the moment processing 4,600 tonnes per day vs. a typical run price of 5,00Zero tonnes per day. The marginally decrease throughput is to stay in pointers with the federal government to maintain workforce capability at simply 85% in the intervening time. Nonetheless, primarily based on Coeur going after increased grades and the a lot increased silver worth ($26.00/ouncesvs. $16.00/oz), we should always see an enormous Q3 from a cash-flow standpoint whatever the barely lowered workforce.
(Supply: Writer’s Chart)
Luckily, whereas Palmarejo suffered on account of COVID-19-related closures, the corporate’s Kensington Mine in Alaska operated with no hitch, with a strong quarter throughout the board. Throughout Q2, the corporate produced 33,100 ounces of gold at a quarterly price of gross sales of $934/ouncesvs. 34,00Zero ounces produced within the year-ago interval at $842/oz. The marginally decrease manufacturing was on account of marginally decrease grades (0.21 ounces per tonne gold vs. 0.23 ounces per tonne gold), with the upper prices stemming from increased therapy and refining prices. Nonetheless, whereas we noticed a slight dip 12 months over 12 months, this was the most effective quarter since Q3 2019 and in a giant manner. As proven above, free money circulation got here in at a formidable $23.9 million, and throughput hit a multi-year excessive at 170,500 tonnes processed. Total, it was a strong quarter, and the corporate stays on observe to supply 130,00Zero ounces of gold this 12 months.
(Supply: Writer’s Chart)
Lastly, on the firm’s Wharf Mine in South Dakota, we noticed an impressive quarter, with quarterly gold manufacturing coming in at 24,800 ounces, up 58% 12 months over 12 months. This distinctive efficiency was pushed by a lot increased ore tons positioned in Q2 of 1.Four million tonnes vs. 919,400 tonnes within the year-ago interval. In the meantime, grades additionally improved significantly to 0.032 ounces per tonne gold, the most effective quarter since 2018 from a grade standpoint. Given the spectacular outcomes and far increased common realized gold worth ($1,715/ouncesvs. $1,311/oz), the corporate generated $18.Eight million in free-cash-flow, a brand new 1-year excessive for the operation and an enormous enchancment from the dearth in free money circulation generated in the identical interval final 12 months ($0.three million).
(Supply: Administration Dialogue & Evaluation)
At Kensington, Coeur nonetheless posted adverse free-cash-flow in Q2 of $6.7 million. The silver lining was that this determine was a major enchancment from the (-) $30.2 million final quarter, and it is value noting that the thesis for Coeur has fully modified over the previous months. It is because the silver worth is at the moment greater than 60% increased ($26.00/ouncesvs. $16.25/oz), whereas the gold worth is greater than 10% increased ($1,900/ouncesvs. $1,641/oz). Due to this fact, whereas Coeur Mining has been unable to generate free money circulation persistently and has been a serial share diluter the previous couple of years, we’re prone to see a totally completely different Coeur at present metallic costs. Let’s check out the corporate’s development metrics under:
(Supply: YCharts.com, Writer’s Chart)
As we are able to see from the earnings pattern above, Coeur is lastly anticipated to put up constructive annual EPS this 12 months, an enormous enchancment from the web loss per share of $0.04 that was anticipated simply a few months in the past. These upwards earnings revisions are a results of the a lot increased metals costs and what’s prone to be a significantly better second half for Coeur Mining with Palmarejo again on-line. If we look forward to FY2021, annual EPS estimates are at the moment sitting at $0.30, and this may translate to 200% development in yearly EPS 12 months over 12 months vs. estimates of $0.10 for FY2020. That is fairly bullish because it’s the primary shift to a rising earnings pattern we have seen for Coeur in a decade now. Assuming the silver worth stays above $23.00/oz, I consider the annual EPS estimates of $0.30 subsequent 12 months are conservative.
(Supply: YCharts.com, Writer’s Chart)
Shifting over to quarterly revenues, we noticed a fairly vital dip in Q2 on a sequential foundation. Nonetheless, revenues had been solely down 5% 12 months over 12 months because of the increased common realized gold worth ($1,641/ouncesvs. $1,277/oz). If we look forward to Q3, although, we should always have a multi-year excessive for quarterly income on deck, with present estimates sitting at $212.6 million. This may translate to over 6% development in income 12 months over 12 months, confirming that we’re lastly seeing a turnaround. Whereas this income development is way decrease than the trade common, that is definitely a step in the fitting path.
(Supply: Firm Video, Firm Web site)
Primarily based on the improved earnings pattern and two quarters in a row of income development forward primarily based on estimates, I consider the worst is lastly over for Coeur Mining. Whereas it took a lot increased metallic costs to lastly obtain this, and the corporate stays a laggard, I’d anticipate the inventory to search out sturdy help at $6.35 going ahead. That is primarily based on each the technical image and the truth that valuation would develop into a tailwind. At a share worth of $6.35, if we had been to see a deep correction, Coeur can be buying and selling at simply 20x FY2021 annual EPS, which could be very cheap for a corporation rising earnings at triple-digit ranges and working out of principally Tier-1 jurisdictions. Let’s check out the technicals under:
(Supply: TC2000.com)
As we are able to see from the day by day chart above, we noticed three accumulation bars in mid-July on the $6.00 to $6.50 area, and customarily, these accumulation bars develop into the brand new flooring for the inventory going ahead. It is because if large cash rushed into the inventory at these costs, judging by the huge quantity, we’d anticipate them so as to add to or defend their positions on any pullbacks to this space. In the meantime, the $6.20 to $6.35 space additionally coincides with the earlier ceiling, and previous resistance typically turns into new help. The one situation at the moment is that Coeur Mining is nestled up towards $9.00 space resistance, and this could possibly be a tough space to get by on the primary check. Due to this fact, for traders seeking to leap into the inventory, I consider any pullbacks in the direction of $6.35 can be low-risk shopping for alternatives. Personally, I want to stay with the leaders, so I’ve no plans to purchase the dip right here.
(Supply: Firm Presentation)
Simply over three months in the past, I mentioned that any rallies above $5.50 can be a promoting alternative on Coeur Mining, and I used to be clearly flawed in my evaluation. Whereas the inventory has been a laggard for years and we have seen vital share dilution, there is no such thing as a denying that the funding thesis right here has improved significantly if $20.00/ouncessilver costs are right here to remain. It is because we should always see excessive double-digit income development in FY2021 and an earnings pattern that’s lastly entering into the fitting path. Whereas I should not have any plans to purchase the inventory as I want the leaders within the sector, I do consider that the $6.20 to $6.45 space is prone to be the brand new flooring for Coeur Mining. For now, I’d watch out getting into new positions within the $8.80 space because the inventory stays just a little prolonged brief time period.
Disclosure: I’m/we’re lengthy GLD. I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (aside from from Looking for Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.
Further disclosure: Disclaimer: Taylor Dart shouldn’t be a Registered Funding Advisor or Monetary Planner. This writing is for informational functions solely. It doesn’t represent a proposal to promote, a solicitation to purchase, or a suggestion concerning any securities transaction. The data contained on this writing shouldn’t be construed as monetary or funding recommendation on any subject material. Taylor Dart expressly disclaims all legal responsibility in respect to actions taken primarily based on any or the entire data on this writing.
