Witness the Early Stages of Silver's Windfall Profits

For the same reasons that gold will continue its powerful bull market advance for far longer than the remaining skeptics presume, silver is set to resume price momentum following a healthy consolidation phase. Even amid the correction, silver miners are delivering windfall profits right on cue. Compared to the profit growth and cash flow explosion that is yet to come, however, these miners are merely getting warmed up.

Less than one month has transpired since I pointed out that Coeur d'Alene Mines (NYSE: CDE  ) appeared particularly underrated among its peers, and already the stock has surged some 28%. I believe this is just the beginning of an overdue resurgence for Coeur d'Alene. Delivering a convincing third quarter, with $93.8 million in adjusted net income, Coeur trounced analyst estimates by a full $0.35 per share! Operating cash flow quintupled over the prior-year mark, while production growth combined with sharply higher precious-metal prices to yield a 190% revenue jump.

More importantly from a strategic standpoint, Coeur enhanced its attractiveness to prospective investors by indicating the company is mulling a possible dividend. As I pointed out last week, struggling rival Hecla Mining (NYSE: HL  ) exerted some peer pressure upon Coeur by establishing itself at the vanguard of silver mining dividends. Larger producer Pan American Silver (Nasdaq: PAAS  ) pays a pittance, but Hecla raised the bar substantially by linking its payout schedule to the prevailing price of silver. Major miner Newmont Mining (NYSE: NEM  ) had earlier established a corresponding precedent within the gold space.

Weary precious-metal investors, fatigued by a failure of the mining stocks in general to keep pace with the price gains for gold and silver in recent years, are keen to begin seeing their patience pay dividends. Accordingly, Coeur divulged: "As we continue generating significant free cash flow and achieve consistent performance from our operations, we believe we will be well-positioned to invest in high-return internal and external growth opportunities while also returning capital to our shareholders."

Several silver miners have yet to release their earnings, including the uber-profitable Silver Wheaton (NYSE: SLW  ) , which is set to report Wednesday morning. But Coeur's average realized silver price of $38.28 per ounce makes additional profit windfalls a foregone conclusion. Endeavour Silver (NYSE: EXK  ) already furthered its ongoing quest for perfection with a whopping 494% increase in quarterly EBITDA, and a 191% expansion for operating cash flow. And you'd never surmise from Hecla's pitiful price action that the company produced adjusted earnings of $35.4 million, alongside a 49% increase in operating cash flow and a fresh new dividend policy.

Looking deep into the heart of Coeur, I am impressed by the long-term vision exhibited by new President and CEO Mitchell Krebs. He has opted to reduce throughput at the Kensington gold mine over the next six months in order to achieve the sort of steady-state consistency the company now enjoys at its principal operations in Mexico and Bolivia. Because I maintain that gold and silver prices are bound to remain in bull market mode far longer than many market observers anticipate, I for one am pleased when a miner displays a methodical and disciplined approach to long-term profitability. Following a long, hard road that certainly tested the patience of this long-standing shareholder, I believe Coeur d'Alene Mines has finally emerged as a force to be reckoned with in the inevitable forthcoming frenzy of consolidation within the silver industry.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Coeur d'Alene Mines, Endeavour Silver, Hecla Mining, and Silver Wheaton. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On November 08, 2011, at 6:29 PM, golddlog wrote:

    great results for these companies. The irony might be the dollars they make for mining silver as an investment hedge against currency debasement will lose some of their value. Not enough to stop the "windfalls" but enough to make it a strange consequence of these "money making machines.

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