Thursday September 29, 2011
by Jack Barnes, contributing editor Money Morning
As ugly as the recent decline in silver has been - and even if it carries further - this will prove to just be temporary.
And once it's over, silver prices will head for much higher highs. As such, we would buy Coeur d'Alene Mines (CDE) while it is on sale.
Weak European banks are driving the current metals price pull back. The European Union (EU) reported that 16 "fragile" European banks need more capital. They're facing margin calls, much like the U.S. banks were in the fall of 2008.
But someone will come to the banks' rescue. And when that money is released into the system and the extra liquidity is sloshing around, silver will soar to new all-time highs.
If you avoid the silver market now, you'll miss out on these significant gains, like the ones headed for Coeur d'Alene Mines Corp., the largest U.S.-based silver producer.
Idaho-based Coeur d'Alene Mines Corp., founded in 1928, engages in the ownership, operation, exploration, and development of silver and gold-mining properties located primarily in the United States, South America, Mexico and Australia.
What's key about this silver play compared to others is that Coeur d'Alene's development expectations are a great example of massive organic growth -- that magic sweet spot where assets are growing quicker than the rate at which the market values it.
And that's where this company stands. You see, Coeur d'Alene Mines:
* Boasts record silver and gold production,
* Is increasing its cash and cash equivalents,
* Is reducing capital expenditures,
* And is keeping the number of shares outstanding steady.
Coeur d'Alene expects to produce a record 19.5 million to 20.5 million ounces of silver this year, and 240,000 to 250,000 ounces of gold. This would generate a company record $1 billion in metal sales with $500 million in operating cash flow.
Increased production has boosted cash and cash equivalents. The company reported a total of $106.8 million by the end of 2011's second quarter, up 159% from $41.2 million in 2010's second quarter.
What's even better about this revenue and cash holdings growth is it's paired with the benefit of reduced expenses.
The company's capital expenditures fell 40% from $365 million in 2008 to $218 million in 2009, then another 28% to $156 million in 2010 - and are estimated to decline another 13.5% this year to $130 million to $140 million.
This means Coeur d'Alene Mines has already spent most of the money it needs to investment in increasing production, and we are only waiting on the results.
Another sign of a great investment is a company issuing shares at a low rate. There's nothing worse than being in an investment and watching your ownership become diluted by a print-happy management.
In the case of Coeur d'Alene Mines, the total number of shares has stayed nearly constant with a total of 89.3 million in the second quarter of 2010 and 89.5 million in the second quarter of 2011.
The company has a market cap of $2.6 billion with an enterprise value of $2.7 billion once you take into consideration net cash and debt levels.
You see, this mining giant is about to bring online some of the largest silver mines in the world. The higher silver prices soar, the more money this miner rakes in.
Simply put, Coeur d'Alene Mines shows all the signs of becoming a future silver king, and is a "Buy" before silver prices take off again.
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