Although low silver prices are negatively affecting all silver miners, some companies are suffering more than others. These are the ones with higher costs, which make it difficult to operate profitably at current price levels. Coeur d'Alene Mines (NYSE: CDE ) , whose stock is the worst performer out of silver miners this year, is an example of such a company. Coeur d'Alene Mines recently reported its first-quarter earnings results, which came in above analysts' expectations. Will this bring upside to pressured shares of Coeur d'Alene Mines?
Costs trend lower, but it's not enough yet
The company reported that its all-in sustaining costs per silver equivalent ounce were $19.12, down 4% from a year ago. However, the price of silver was significantly higher in the first quarter of 2013, and this improvement was not enough to offset the silver price decline. What's more, Coeur d'Alene swung to negative operational cash flow in the first quarter.
The average realized silver price was $20.29 per ounce in the first quarter. So far, the second-quarter average silver price is lower, so Coeur d'Alene Mines' next set of results will likely reflect this. The company was able to reduce its first-quarter capital spending to just $11.9 million, which spurs optimism that it would hit the low end of its full-year capital expenditure guidance of $65 million to $80 million. However, even with the low capital spending levels, Coeur d'Alene Mines needs a rise in silver prices to start operating profitably.
Production growth is under question
This year, Coeur d'Alene Mines is unlikely to show production growth on a silver equivalent basis. The company expects silver production to rise by more than 50% at its Rochester mine. However, silver production will fall at Palmarejo, San Bartolome, and Endeavor. All gold mines will likely show production declines.
Gold production is as important for Coeur d'Alene as for Hecla Mining (NYSE: HL ) , which received more than 40% of its revenue from gold in the first quarter. Thus, it's a major factor to consider. The decline in gold production will likely offset the increase of silver production this year, making growth closer to zero.
The company stated that the Franco-Nevada royalty was still a big piece of where cash flow from Palmarejo mine went. As a result, the mine remained cash flow negative for Coeur d'Alene Mines. The difficulty is that the Franco-Nevada stream is not going to disappear, so Coeur d'Alene Mines will have to find a way of increasing efficiency at the mine.
Coeur d'Alene Mines is also conducting a feasibility study of its La Preciosa project. This project could be a source of growth going forward. The company stated that its previous estimate of capital investment for the project was $348 million and that it wanted to fund the project with money from the balance sheet. However, Coeur d'Alene Mines finished the first quarter with nearly $320 million of cash and equivalents on the balance sheet, so it cannot afford investment at La Preciosa at this point of time. What's more, the company stated that it was not going to search for additional debt this year, so the project will be postponed further into the future.
Coeur d'Alene Mines' shares could find themselves under even more pressure should silver prices trend closer to the $19 mark. However, the company has a very solid balance sheet that will protect it in the case of lower prices, so the downside should be limited.
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