How Coeur Mining, Inc. Makes Most of Its Money

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Coeur Mining (NYSE: CDE) is a diversified gold and silver producer that operates five mines across North and South America. However, while the company expects those mines to produce between 37.8 million to 40.7 million silver equivalent ounces this year, gold will make up 58% of that output, while silver accounts for the other 42%. Given that split, gold is where the company makes most of its money, even though it still reports many metrics in silver equivalents. Here's a closer look at why that's the case -- and if gold will continue to shine for Coeur in the future.

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Digging into Coeur's gold business

Last quarter, gold accounted for 60% of Coeur's revenue, which was down from 62% during the first quarter due to lower production. One of the reasons gold is the company's biggest money maker is that four out of its five mines produce that precious metal, two of which do so exclusively.

Its largest gold mine is in Kensington, Alaska, which contributed 22% of its revenue last year. While production was down 18% last quarter to 26,424 ounces due to lower ore grades, that was still good for 32% of Coeur's total gold output. Meanwhile, the company expects grades and production to be higher in the second half of the year.

Another major contributor is the Palmarejo mine in Mexico, which supplied 21% of revenue last year, though that's down from the mid-40s a few years ago. Overall, the mine produces slightly less gold than Kensington, with output hitting 24,292 ounces last quarter, though it's the company's largest silver producer. One thing worth noting about this mine is that it's under a stream agreement with Franco-Nevada (NYSE: FNV) for a portion of the gold output. As a result of that deal, Coeur Mining expects 40% to 45% of Palmarejo's gold sales this year to be sold to Franco-Nevada at $800 an ounce, which is well below the current market price. While that deal results in the company collecting less revenue and cash flow from the gold output of this mine, it's a significant improvement to a previous agreement with Franco-Nevada that was for just $416 per ounce. 

Next up is the Wharf Mine in South Dakota, which produced 21,314 ounces last quarter. While only its third largest gold producer, this mine is the primary reason gold is now Coeur's biggest moneymaker instead of silver. That's because it's the most recent entrant to the company's portfolio after it was acquired from Goldcorp (NYSE: GG) two years ago for $99 million. 

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Finally, the company also produces gold from its Rochester, Nevada mine, which contributed 10,745 ounces last quarter.

Gold doesn't appear likely to lose its luster

Given the current makeup of the company's portfolio, gold will likely remain Coeur's biggest moneymaker for the foreseeable future. That is unless, of course, there is a significant spike in silver prices, or it completes a silver-focused acquisition. Driving this view is the fact that the bulk of the company's near-term organic growth initiatives are at its gold-focused mines.

First up is the ramp-up of underground operations from the Guadalupe and Independencia deposits at Palmarejo, which Coeur expects will drive a 50% year-over-year boost in production from that mine. Incidentally, one of the drivers of that growth is the new Franco-Nevada agreement, which helped fund development of the Guadalupe deposit. That said, it's worth noting that production from the Independencia Este deposit isn't subject to the gold stream, which means it'll provide a bigger boost to the company's revenue and cash flow. Meanwhile, the company expects to finish construction of its Stage IV leach pad expansion at Rochester later this year while delivering initial production from its Jualin deposit at Kensington by year-end. Since those mines all produce gold, these projects will help keep that precious metal on top. 

Looking further ahead, the company does have one potential new mine in development that could shift the balance back to silver. That mine, La Preciosa in Mexico, holds an estimated 115.4 million ounces of measured and inferred silver resources, which represents more than 50% of the company's total. That said, Coeur has yet to sanction its development, so it would be several years before it would ever contribute to results.

Going for the gold

Just a few short years ago, Coeur Mining was primarily a silver producer, which was how it made most of its money. However, thanks to several organic growth initiatives and the acquisition of Wharf from Goldcorp, that balance has shifted toward gold. That's important for investors to note because they might want to consider another option if they're seeking exposure to silver since Coeur has more upside to gold these days.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.