What: Coeur Mining's (NYSE:CDE) stock price advanced an almost unbelievable 76% last month. And that came on the heels of an 11% gain the month before. The reason for the move is fairly obvious, but there's a little something you need to understand about it, anyway.
So what: Coeur is a precious-metals miner. The prices of silver and gold have been in an uptrend lately because of concerns about global political turmoil and broad-based economic uncertainty. Essentially, investors have been looking for safe-haven investments, and precious metals are tailor-made for such an environment. So as gold and silver have moved up in price, Coeur has followed along for the ride.
But why on earth is Coeur up 76% in one month? After all, Barrick Gold (NYSE:GOLD) is one of the largest precious-metals miners in the world, and its shares "only" advanced around 35% in February. The difference breaks down to costs.
Barrick, for example, has been able to mine gold at an all-in sustaining cost -- an industry metric of how much it costs to pull an ounce of gold out of the ground -- of less than $900 an ounce. Gold is currently trading hands at around $1,230 an ounce, up from $1,127 at the start of February. So you can see that Barrick is making much more per ounce than it was before, but it was doing OK even without the price gain.
Coeur, on the other hand, is facing all-in sustaining costs per ounce of silver equivalent (which mixes gold and silver together) of around $15.50. Silver started February at around $14.30 an ounce and now trades hands at about $14.90. It reached a high of nearly $15.80 an ounce during the month. The problem Coeur is facing should be pretty apparent. It's a marginal miner, and it really needs higher prices if it's going to make money. If silver prices keep moving higher, it's possible that Coeur's profits could grow dramatically -- at least in percentage terms. But on the whole, it's pretty much struggling through this downturn with the hope that higher prices will come along to save the day.
Now what: Conservative investors looking at the precious-metals space should probably stick to larger and better-situated miners like Barrick. Coeur is a marginal player that needs higher silver and gold prices to turn a profit. It isn't that Coeur is a bad company per se. There's just a lot more risk involved. Sure, the upside potential is obviously huge in a rising precious-metals market as the company goes from red ink to black, but if these often-volatile commodities should turn lower again, the downside for Coeur shareholders could be equally as painful. Only aggressive types should be looking here.