What happened
Extending the 6% rise they experienced in July, shares of Coeur Mining (CDE 5.93%), a diversified precious metals producer, soared 19% last month, according to data from S&P Global Market Intelligence. In addition to the company's reporting of a strong second quarter, investors responded to the overall uptick in the prices of gold and silver in the month.
So what
Coeur Mining reported impressive quarter-over-quarter improvements at Silvertip, where silver, zinc, and lead production increased 44%, 43%, and 62%, respectively. But a look at the company's overall performance might have given some investors pause, for the company reported year-over-year declines of 7.9% and 4.4% in gold production and silver production. Turning to the cash flow statement, however, investors found causes for celebration.
Image source: Getty Images.
Whereas Coeur Mining reported operational cash flow of negative $1.3 million in Q2 2018, it reported $26.4 million in cash from operations for Q2 2019. According to management, the primary reason for the year-over-year increase was the receipt of a $25 million prepayment for concentrate deliveries from Kensington, the company's gold mine located in Alaska. The improved profitability of Palmarejo and Rochester represented additional factors. This rise in operational cash flow, paired with lower capital expenditures, translated to Q2 free cash flow of $5.7 million -- a notable turnaround from the negative $42.5 million in free cash flow the company reported in Q2 2018.
The company's success in generating green from the production of gold and silver helped it to improve its financial well-being in the second quarter as it reduced its total debt by $49.7 million. Illustrating a more secure financial position, Coeur Mining ended Q2 2019 with a total debt-to-adjusted-EBITDA ratio of 3.2, a drop from the 3.4 ratio it had at the end of Q1 2019.
While the glittering parts of the Q2 earnings report might have inspired some investors to pick up shares, others may have been moved by the rise in the price of commodities. Gold sales and silver sales account for about 68% and 28%, respectively, so the 7% rise in the price of gold and the 9% gain in the price of silver seem like probable reasons for investors to act.
Now what
As Coeur Mining heads into the second half of 2019, I'll be interested to see if the company achieves its gold production forecast of 334,000 ounces to 372,000 ounces as well as whether the company can continue to report operational success at Silvertip. More than this, though, I'm curious to see how the company does in achieving its goals of generating positive free cash flow and further deleveraging its balance sheet.
