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Friday August 06, 2010
Coeur d' Alene (CDE): 'Big winner' in silver
by Ian Wyatt, editor The 100K Portfolio  In our view, golden days lie ahead for silver and investors who get exposure to this commodity and stocks in the sector.And one of the most promising small-cap silver mining companies is Coeur d' Alene Mines (CDE), which has the potential for 40 percent or more upside. While the company takes it's name from the Idaho town in which it is headquartered, this is a mining company with a global presence. With mines in geographically stable areas including Argentina, Alaska, Australia, Bolivia, Chile, Mexico and Nevada, the operations are wide reaching. The company is one of the largest silver companies in the world, and also has substantial gold production. Three quarters of the company's revenues come from silver, with the remainder coming from gold. 
In late June, production began ahead of schedule at the company's Kensington Gold Mine in Alaska. This year they're expecting to produce 50,000 ounces of gold (worth $60 million in today's market prices). In 2011 and for each year of the 12.5 year expected life of the mine, Coeur d' Alene expects to produce 125,000 ounces of gold (worth $150 million annually). With cash costs of $490 per ounce, and gold currently valued at $1,200 an ounce, the company will be banking big profits from this Alaska gold mine. In 2009, Coeur d' Alene produced 17.7 million ounces of silver (+47 percent) and 72,112 ounces of gold (+56 percent). The increased production, and rising prices for gold and silver contributed to a banner year for the company. Sales surged 76 percent to $300 million. The six analysts who follow Coeur d' Alene expect the company to grow sales by another 55 percent in 2010, with EPS of $0.37. The company is on pace to deliver a very healthy cash flow (EBITDA) of $100 million this year. With the company's Alaska gold mine coming into full production in 2011, sales are expected to continue to rise to over $650 million, with EPS of $1.16. At the end of last year, Coeur d' Alene reserves included 269 million ounces of silver and 2.87 million ounces of gold, valued at $8.4 billion. The company's $1.3 billion market cap represents just 15 percent of the value of the reserves in the ground. The company's share price has been one of the worst performing silver stocks over the last six years. The last two years have been a bit of a roller coaster ride (similar to many stocks). And shares currently trade well below the high price of recent years. I expect shares will rise to $21 within the next year, as the higher price of gold and silver generate fatter profits for Coeur d' Alene. My target price is based on a forward PE of 18-times 2011 EPS estimates of $1.16. If the stock were to rise to $21, the company's market cap relative to the value of mineral deposits would increase to just 20 percent - which is a steep discount to the value of the assets in the ground. This projection also assumes no increase in proven and probable reserves - which I believe is improbable, given the ongoing investment in exploration. Coeur d' Alene looks to be a potential big winner. Learn more about this financial newsletter at Ian Wyatt's The 100K Portfolio. |
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