An Underrated Silver Play

Imagine the crowds in Beijing chanting in unison: "How low can you go?"

While limbo likely won't become an Olympic event, metal mining companies seem to be training already on Wall Street. As investors wonder how low they can go, one silver producer deserves a spot on the podium.

When I first recommended Coeur d'Alene Mines (NYSE: CDE  ) back in March, silver fetched $20 per ounce, and shares were marking fresh highs above $5. Since that time, silver has corrected all the way back to below $15 per ounce, while Coeur d'Alene has dropped more than 60% to trade at less than $2.

Tarnished silver?
It's important to note that Coeur d'Alene isn't the only limbo contestant among the silver miners. Shares of Hecla Mining (NYSE: HL  ) and Silver Wheaton (NYSE: SLW  ) have each shed around 50% from their respective 52-week highs. Since I think the underlying fundamental drivers of the multiyear bull markets in gold and silver are completely unchanged, I fully expect these metals to mount a recovery.

Exacerbating the plummeting spot price for silver, Coeur posted a $5.4 million loss in last week's earnings release. Results suffered from setbacks and delays in bringing the San Bartolome mine in Bolivia into production, and predevelopment costs from the Palmarejo project in Mexico. Originally slated to add 6 million ounces of silver production in 2008, San Bartolome will now chip in only 3.2 million ounces.

Outlook and valuation
Slated to commence production in March 2009, Palmarejo is expected to be one of the top five silver mines in the world. A feasibility study completed last quarter added 29% to the company's total silver reserves and 51% to the gold tally. After aiming to produce 13 million ounces of silver in 2008, Coeur expects 85% production growth to reach 24 million ounces in 2009.

As downtrodden as the shares are right now -- and further hiccups are not out of the question -- I see a chance to own a potentially world-class silver mine at a dirt cheap price. I believe that opportunities abound in silver here, including companies like Pan American Silver (Nasdaq: PAAS  ) and Silver Standard Resources (Nasdaq: SSRI  ) , but for pure upside potential, I consider Coeur d'Alene a silver standout.

Further Foolishness:

More than 250 CAPS All-Stars have rated Coeur d'Alene an outperform. Create your own portfolio at Motley Fool CAPS and get on your way to becoming an All-Star investor. It's free and fun!

Fool contributor Christopher Barker captains yachts and writes about stocks. He can also be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Coeur d'Alene, Hecla Mining, Silver Wheaton, Silver Standard Resources, and Pan American Silver. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (28)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 13, 2008, at 6:11 PM, TengriTrader wrote:

    Various write ups on CDE have appeared on Motley Fool for sometime now. The write ups I recall, made the case that CDE was hugely undervalued and investors would regret not buying in on this discounted Silver play etc etc

    This line of thinking proved to be wrong and many have lost considerably on CDE at a time when the most of the sector did quite well.

    Now stop and think about this for a moment. A supposedly discounted stock falls over 50% at a time when the sector does great. I don't know about the rest of you people out there but to me that means whoever made these calls - was wrong. You can slice it and dice it anyway you want but ultimately they were wrong.

    We all can be mistakes, and I am surely not writing this to point a finger at one person or people. However, why not use CDE to make a point about 'not catching a falling knife'? That sometimes some stocks are discounted for good reason and to avoid them until say earnings demonstrate the company's performance looks to improve?

    Interestingly, I finally bought CDE. Not at the near $5 price but at $1.75

    Even at this price there is more downside risk. Yes, CDE could go lower with further drop in the price of Silver, with more delays etc etc. Buying a discounted stock is in many ways like a delicate surgery. You cannot just rush in and if anything should be much more cautious cause you are in essence dealing with a wounded animal - it can be an easy kill or turn on you and cause you great harm.

  • Report this Comment On August 14, 2008, at 9:17 AM, XMFSinchiruna wrote:

    I have tremendous confidence in CDE, and I would point out that the sector has NOT performed well. Junior mining stocks have been viciously pummeled by short interest throughout the multi-year bull market in gold and silver, and CDE has been one of the most dramatic examples. Even at these valuations relative to silver reserves, the short interest remains entrenched with a double-digit percentage interest, so therein lies the near-term downside risk... along with the potential (which every junior has) for hiccups along the way in development. I was a buyer above $4 on valuation and growth potential, and I was a buyer again below $2 on valuation and growth potential.

    As I pointed out in the article, as battered as CDE shares are, when considered in the context of the declines of industry favorites like Silver Wheaton and Yamana Gold, CDE's drop is not as conspicuous. Established in 1928, CDE has seen its share of cycles in the precious metals market. Thanks to Palmarejo, I think this miner will dig its way out of this hole.

    Fool on! :)

  • Report this Comment On August 29, 2008, at 2:01 PM, Eric41 wrote:

    I'm very bullish on silver! But stocks have too many variables to count.

    Anyone remember Breax (sic? ). Perhaps 10 years ago this stock WAS a high flyer on ore examples tests. It turned out to be completely false.! I was personally invested in Atlas ming, A Philippine Co. It had great expectations. and ten years later. no results. and stock worth a tenth... . Aside from out and out fraud there is too many numbers to figure.: !) South American mine nationalization. It happerns regularly. 2.) Futures sold by the mining stock in order to facilitate financing. This kills the fluxuation both ways, up or down sides.

    The above ground short supply for silver is very bullish The demand is very bullish. Electronics can not replace it. Plumping needs silver solder. and for medical...Silver kills germs .

    Lastly , latest reading states that the U.S. is printing 16% more money. Banks are borrowing ever increasing amounts going where numbers have never gone before. Europes Euro ,although a new comer has matched the U.S. in printing money. Therefore inflation must continue its ever growing march upward. Too bad for with heavy inflation, everyone losses.:( Lastly , you don't believe the official inflation figures do you?

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