What happened
Shares of Coeur Mining (CDE +2.43%), a silver and gold mining company with properties located throughout North and South America, tumbled a whopping 26% during February, according to data from S&P Global Market Intelligence. There appear to be two primary catalysts that weighed on Coeur's share price last month.
So what
If there's a clear-cut reason why Coeur Mining's share price was throttled, it's the company's disappointing fourth-quarter results, released on Feb. 8.
Image source: Getty Images.
For the quarter, Coeur reported $159.2 million in revenue, which was down modestly from the $164.2 million in sales reported in the year-ago quarter. Total tons milled dropped from 301,274 in Q4 2015 to 287,569 in Q4 2016, with the silver recovery rate notably lower by more than 6 percentage points.
In terms of its bottom line, Coeur Mining reported a net loss of $8.3 million, or $0.03 per share, which was considerably better than its one-time charge-riddled $303 million loss in Q4 2015. However, on an adjusted basis, Coeur delivered a $0.01 per-share profit in Q4 2016, which was nicely improved from the $0.31 adjusted loss from the year-ago quarter.
Comparatively, though, both Coeur's sales and adjusted profit missed the mark. Wall Street had been looking for $181.9 million in sales and $0.11 in adjusted earnings per share (EPS). It simply wasn't even close.
The other issue for Coeur, and precious-metal miners in general for that matter, is that the likelihood for a March Federal Reserve rate hike has been rising substantially over the past couple of weeks. The U.S. economy has mostly produced solid growth and jobs data, and the Fed governors have predominantly hinted at an orderly increase in the federal funds target toward the 3% mark within a few years.
Higher interest rates aren't typically good news for precious metals like gold and silver, because neither metal offers a dividend. As interest rates rise, the yields on interest-bearing assets, such as savings accounts, bonds, and CDs, will start rising, too. If those yields move nicely above the rate of inflation, they'll probably attract investors away from gold and silver, hurting the spot prices for both precious metals.
Image source: Getty Images.
Now what
Though Coeur Mining delivered subpar results in Q4, there's simply too much good news to ignore.
For example, despite having relatively high all-in sustaining costs (AISC) compared to its peers, the company's move from a hybrid of surface mining and underground mining to an entirely underground operation should lead to higher ore grades and lower capital expenditures. In other words, in a matter of a few quarters, Coeur Mining could have one of the lowest AISC's of the silver-mining industry.
Also, Coeur Mining has a veritable bounty of catalysts. The underground development of its flagship Palmarejo mine is expected to drive an estimated 3.4 million silver equivalent ounces of growth in 2017. What's more, investments in the Rochester mine have doubled production and reduced unit costs by nearly half over the past three yeas. Coeur also has the ability to trim its costs at the Wharf mine.
With Coeur having reduced its debt by more than 50% on a year-over-year basis, to $211 million, and Wall Street anticipating $1.57 in cash flow per share by 2018, I'm inclined to think this dip is a very attractive buying opportunity for precious-metal investors.
