Coeur Mining (NYSE: CDE) took a step back in 2017. After rocketing 266.5% in 2016, the silver and gold mining stock shed 21% of its value through mid-December. Making that loss even more disappointing is the fact that the prices of silver and gold have risen 3% and 9%, respectively, this year while the broader stock market has been scorching hot, with the S&P 500 rising more than 19%.
Here's a look at what went wrong, and if the company can reverse that trend in 2018.
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Record production, but profits remained elusive
Coeur Mining is on pace to produce a record 38.7 million ounces of silver equivalent this year, which would be 6.6% higher than last year's record. That said, despite the higher output, its all-in sustaining cost (AISC) is on pace to rise from $14.09 per ounce last year to $15 per ounce this year. Those higher expenses have eaten into the company's profitability. In fact, even though revenue has risen 9.6% to $555.5 million through the third quarter, Coeur reported a net loss of $8.9 million, reversing a year-ago profit of $63.6 million. That said, Coeur's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) through the third quarter came in at $172.1 million, which was about 15% less than it pulled in during the first three quarters of 2016.
Several issues hurt profitability this year. In the third quarter, for example, Coeur Mining noted that it experienced higher costs at its San Bartolome mine in Bolivia due in part to ongoing drought conditions in the region, while lower-than-expected gold grades impacted results at its Kensington, Alaska mine. Further, the company experienced significantly higher income and mining tax expenses this year, due mainly to changes in deferred tax estimates.
Those issues forced the company to make some changes. For example, given the high costs and short mine life at San Bartolome, Coeur plans to evaluate several alternatives for that operation and has already reduced its workforce by 23% to cut costs. Meanwhile, ore grades at Kensington should start improving as the company accelerates mining activities in two zones with higher grades.
Better days might be just around the bend
The planned improvements at both San Bartolome and Kensington should help boost Coeur Mining's bottom line in the coming quarters. In addition, the company recently completed the acquisition of the Silvertip mine in British Columbia, Canada for an upfront fee of $200 million. Silvertip should boost the company's silver equivalent production by 22% in the near term once it finishes up the work needed to recommission the mine. Further, the mine should have an AISC of just $11 per ounce, which should help pull down Coeur Mining's companywide AISC. Those factors position the company to deliver significant production and cash flow growth in the coming years.
The company also made progress on several long-term growth projects across three of its mines this year. For example, it finally finished a project at its Rochester, Nevada mine after three years of permitting and 10 months of construction. As a result, the company expects production and cash flow to rise in the coming quarters. Meanwhile, it has ramped up exploration investment this year, with its focus near existing mines in hopes of finding additional resources that can drive near-term growth.
Setting the stage for a comeback
Coeur Mining's profits and stock price stumbled backward this year due to higher production costs. However, the company appears poised for a bounce-back in 2018 thanks to the addition of Silvertip and improvements to its legacy mines, which should drive down production costs and push profits higher, as long as precious metal prices hold up. That near-term upside makes Coeur Mining's stock worth considering for 2018.
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