Since gold prices breached the US$2000 per ounce threshold in early August, gold mining companies are enjoying rising investor support and interest for their shares.
There is no better example of this than that of the legendary investor, Warren Buffet. After many years of deriding the investment value of the precious metal, Buffet has adapted to the changing landscape and joined the gold bugs.
In mid-August it was revealed Berkshire Hathaway has bought 21 million shares of Barrick Gold, investing about US$563 million.
Another US company that is on the receiving end of the renewed interest for the yellow metal is Coeur Mining, Inc (NYSE: CDE) – a precious metals mining company with an exploration history that dates back in 1928.
About Coeur Mining
Headquartered in Chicago, Illinois, Coeur Mining operates most of its mines in North America.
The company’s mining assets include:
- Palmarejo silver-gold complex in Mexico
- Rochester silver-gold mine in Nevada
- Kensington gold mine in Alaska
- Wharf gold mine in South Dakota
- Silvertip silver-zinc-lead mine in British Columbia.
Healthy numbers despite COVID-19 impact
Despite the closure of one of its major gold mines (due to the COVID-19 lockdowns), the company reported some glowing numbers that attracted investors and analysts alike.
- Revenue of US$154.2 million with an EBITDA gain of US$34.89 million and cash flow from operating activities of US$9.95 million.
- Earnings are forecast to grow 46% per year
- 1 Year return 56.5%
- Produced 78,229 ounces of gold (second quarter)
- Produced 1.6 million ounces of silver (second quarter)
- Net loss from operations of US$1.2 million, which is lower than market expectations
In his statement during the company’s most recent financial report, Coeur Mining president and CEO Mitchell Krebs said: “Like most companies, we felt the impact of COVID-19 in the second-quarter results.”
“But with Palmarejo now back in production and our major mine sites benefitting from the tailwind of rising gold and silver prices, we look forward to a strong second half [of 2020]. And I foresee the momentum continuing into 2021,” he said.
A look at Coeur’s price movement
In terms of the share price movement, Coeur’s chart has shown encouraging gains since the pullback low around US$2 in March this year. Since that time several phases of advancement then consolidation have seen the stock rise to highs in the US$9 region.
These are the highest levels seen for Coeur in more than two years.
Over the past 14 months, there has been a notable increase in trading volume in Coeur. This increased interest in the stock coupled with recent consolidation at 28-month highs keeps the bias in favour of further gains in the share price.
No doubt the recent revelations that Warren Buffet has entered the gold market will also provide an element of support.
What analysts are saying about Coeur Mining
A mining analyst covering CDE recently commented: “Coeur could be an interesting stock for investors not only for its decent short-term momentum but also because we’re seeing solid activity on the earnings estimates and outlook.”
As CDE revised its future earnings estimates upwards, analysts have also become optimistic about the company’s production and earnings forecast. Many analysts covering CDE have revised their consensus estimates over the past few weeks.
Another mining analyst also commented on the increasing number of institutional investors buying into CDE. While he says private or individual investors need not base their decision on what the institutions are buying, the rising number of institutional investors could indicate the potential for the company and its share price.
Healthy production pipeline
While the financial side of the business is heading the right direction (losses getting smaller), the exploration and mining teams at CDE are also keeping busy building up their pipeline.
Hans Rasmussen, Coeur’s senior vice president of exploration said: “It’s been an exciting year for our exploration programs, and we have one of the best first halves of drilling results in the company’s history.”
Over the past few years, he said the company has identified several sites to build their inventory of drill-ready targets.
He also said the company now has “a solid balance of near, medium and long-term, high-return organic growth opportunities”.
Another important number that may be of interest to investors is the level of their exploration budget.
According to Rasmussen: “Over 70% of our exploration budget this year is focused on near-mine resource growth and new discoveries. These are at the core of our efforts to add to our resource base and represent an opportunity to increase the size of our reserves over the next few years.”
Outlook for gold
Despite the recent pullback in gold prices from its recent highs, the long-term outlook remains healthy for a number of reasons such as:
- The ongoing and anticipated flow of stimulus packages from central banks and governments across the globe are expected to boost the demand and price of the shiny metal
- Gold is seen as a hedge against inflation. Though inflation remains low, the expectation is that it will turn higher once the economic activities have picked up. Again, this is also positive for gold in the long-term.
- Gold is still considered a safe haven asset particularly in volatile markets. And with lingering uncertainties around COVID-19 (lockdowns and hot spots), upcoming US elections and the US-China trade talks, investors tend to seek the security of gold.
Given its recent price movement plus the company’s solid exploration and mining pipeline and the long-term outlook and demand for gold and silver, we consider CDE a buy.
Alex Douglas is the managing director of Monex Securities Australia (AFSL 363 972), and is responsible for the overall growth of Monex in this region. He has held senior executive positions with numerous financial services companies both in Australia and Asia over the past three decades. Early roles in the industry included being a foreign exchange voice broker, a trader on the floor of the Sydney Futures Exchange and a senior analyst with Standard & Poor’s in Singapore. Alex is a Certified Financial Technician (CFTe) and former board member of the International Federation of Technical Analysts (IFTA) as well as a sought-after author, speaker and market commentator.