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Here's Why Shares of Coeur Mining Soared 37% in May

By Scott Levine – Jun 7, 2020 at 3:27PM

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With this company's operations set to resume in Mexico, investors found shares a lot more alluring.

What happened

Reversing course from the 48% decline they had experienced through the first four months of 2020, shares of Coeur Mining (CDE 3.89%) rose 37% in May, according to data from S&P Global Market Intelligence. While news that the company intended to resume operations at one of its major assets, Palmarejo, represented the main catalyst for the stock's gain, investors also responded to the rising prices of commodities in May.

So what

It comes as little surprise that investors responded so enthusiastically to news that Coeur Mining was working toward resuming operations and exploration activities at Palmarejo. Upon learning in April that Coeur was suspending activities at Palmarejo in accordance with the Mexican government decree related to COVID-19, investors sold off their positions, and the stock closed 8% lower than where it had closed the day before.

Gold bars and silver ingots.

Image source: Getty Images.

What's so significant about the Mexican asset? For one, it was the best-performing asset in Coeur's portfolio last year in terms of cash flow, generating free cash flow of $67 million. Moreover, during the company's fourth quarter 2019 earnings presentation, management indicated that it expected Palmarejo to be equally alluring in 2020. Of the four operating assets in the company's portfolio, management forecast Palmarejo would generate the highest margins for gold and silver production.

The rising prices of gold and silver in May represented additional factors contributing to the stock's rise since there's a high correlation between the movements of mining companies and the related prices of the metals in which they deal. Although the company has an interest in zinc and lead production, it's gold and silver that is the main focus, accounting for the lion's share of the company's revenue in 2019: 69% and 27%, respectively. With the price of gold rising 2% and the price of silver rising 8%, therefore, it's clear why shares of Coeur bounced higher.

Now what

With Palmarejo on its way to resuming operations, investors should certainly feel some relief; however, it remains to be seen how the suspension of operations will affect the company's cost profile. This is merely one of many questions that exist regarding Coeur Mining. For investors who want to add some luster to their portfolios with the addition of mining stocks, there are certainly better places to look

Scott Levine owns shares of Coeur Mining. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Coeur Mining, Inc. Stock Quote
Coeur Mining, Inc.
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