Commodities & Metals

Analyst Expects Coeur to Double, Silver and Gold Value

Coeur Mining Inc. (NYSE: CDE) is not alone in the endless numbers of heavily sold silver and gold mining related stocks. What is different is that a research report out Tuesday is calling the stock grossly undervalued — it could be a double! While Coeur is a small-cap stock worth just under $1 billion, this represents a severe potential value play among silver and gold mining stocks.

Sterne Agee’s Michael Dudas and Satyadeep Jain have discussed Coeur’s upside by reiterating their Buy rating and $18 price target. The current share price on the stock is $8.82, so this represents more than a double if the call turns out to be right. Be advised that Sterne Agee’s $18 price target is the highest of all nine analysts following the stock.

The analysts were discussing a royalty amendment and that the Guadalupe project development is a positive signal for a realization of Palmarejo’s long-term potential.

Franco Nevada has agreed to revise terms of agreement for its Palmarejo royalty, which has been a huge drag on Coeur, and this should put the operation back at profitability rather than breakeven, based on current commodity prices.

Another driver is that Coeur has now decided to complete development of the Guadalupe deposit based on a selective, high-grade mine plan. Dudas and Jain said in the report that the mine plan for Guadalupe has an expected net present value of $25 million at 10% discount rate after giving effect to the new Franco Nevada royalty.

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Dudas and Jain believe that Coeur’s shares continue to reflect an underpriced equity. Their $18 price target is based on an 11-times multiple on Sterne Agee’s 2015 cash flow estimate and roughly one times net asset value. The team said:

We believe the new royalty agreement should improve Palmarejo economics. This, together with the decision to place Guadalupe into production, should result in extended mine life and significantly higher asset value for Palmarejo. We believe management has now allayed concerns regarding long-term profile for Palmarejo. Coeur remains our favorite silver-oriented equity… Guadalupe contains nearly three-fourths of Palmarejo’s underground reserve tons and 37% of its underground measured and indicated resource tons. Guadalupe also contains 99% of underground inferred resources at the Palmarejo operation with average grades of 5.26 oz/t silver and 0.12 oz/t gold. With new mine development and improved economics, we expect management to now focus on exploration at this higher-grade, underground mineralization in 2014.

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One caveat here is that Coeur shares have bounced even more than the group’s 24% recovery against competitors and an 8.5% recovery for silver. Still, trading at $8.80, it has a 52-week range of $6.62 to $16.95. There is also a consensus price target objective for Coeur from Thomson Reuters of $10.39.

Again, keep in mind that Sterne Agee is the most bullish of all analysts covering Coeur. That means that if you don’t agree with their outlook then there is almost no way you will be anywhere close to as bullish as they are. A move of 100% is often questionable — or outrageous. The expected move up to the consensus price target would still represent close to 18% implied upside, assuming the stock rises.

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