Coeur’s revamp

Idaho-based silver producer Coeur d’Alene Mines (CDM-T, CDE-N) is charting a new course to thrive in the changing and turbulent market by optimizing assets and trimming costs, while still keeping an eye out for growth.

“We are committed to succeeding in this new world of capital discipline, execution, cost reduction, returns and a better management of the risks inherent in our industry,” Coeur CEO Mitchell Krebs said on a conference call with analysts following the company’s first-quarter results.

“Success requires building a team of technical and financial talent that can become a true competitive advantage for our company, and that is exactly what we have been doing,” he said. “I’m really excited about the people that have recently joined Coeur.”

These individuals include: Peter Mitchell, who will start as chief financial officer on June 3; Bill Holder, vice-president of health and safety; Bruce Kennedy, general manager for the recently acquired La Preciosa project in Mexico; and Joe Phillips, chief development officer, who will be responsible for developing La Preciosa and other capital projects.

The largest U.S.-based primary silver producer has also added several other positions to better manage and support its operations, which include the Palmarejo silver-gold mine in Mexico, the San Bartolome silver mine in Bolivia, the Rochester silver-gold mine in Nevada and the Kensington gold mine in Alaska.  

“What we have undertaken is essentially a complete overhaul of this company,” Krebs said on the call. “We are serious about making Coeur a true leader in the precious metals industry. But being a leader doesn’t necessarily mean being the biggest — that is a lesson that the industry has learned the hard way over the past decade.” 

As part of the restructuring efforts, Coeur will continue the cost-reduction program that it started late last year, which includes a top-to-bottom review of all its planned capital expenditures to ensure its free cash flow is deployed, Krebs said.

But the miner is still evaluating acquisition opportunities in jurisdictions where it’s operating, in case it can pick up attractive projects on the cheap.

“Although we are focused on our existing operations, we will continue to be opportunistic towards external growth,” Krebs said. “We see a lot of dislocation in the market — especially within the late-stage exploration company sector — that we will selectively pursue.”   

Meanwhile, Coeur is pushing forward with its US$100-million share repurchase program, which the board approved last June.  It has repurchased US$32.5-million worth of shares so far.

The firm plans to relocate its corporate headquarters to Chicago, and, pending shareholder approval, change its name to Coeur Mining.

Asked what message the company is hoping to send with the changes, Krebs said that Coeur is “serious about following a different path than the one that has been followed by the industry over the past twenty years — that playbook has not scored a lot of touchdowns.”

Coeur reported first-quarter net income of US$12.3 million, or US14¢ per share, compared to US$4 million, or US4¢ per share, thanks to a non-cash, fair market value adjustment of US$17.8 million, which in the year-earlier period was negative US$23.1 million.

But excluding one-time items, adjusted earnings were US$6.8 million, or US8¢ per share, which is an 84% decline from US$41.5 million, or US46¢ per share a year ago. The adjusted earnings were also below the consensus average of US14¢ per share.

Coeur attributes the lower earnings to a US$32.8-million drop in metal sales and a US$6.4-million boost in general and administrative expenses, as well as other rising costs.

Metal sales for the quarter were down 16% to US$171.8 million due to lower metal prices and a 28% decline in silver ounces sold during the period, which was offset by more gold ounces sold.

“We produced 3.8 million oz. silver and almost 57,000 oz. gold in the quarter, but only sold 3.1 million oz. silver and 52,000 oz. gold due to timing, which gave rise to a US$39-million lag in metal sales,” Krebs said, noting that this amount was realized in the current quarter.

Averaged realized silver and gold prices were US$30.30 per oz. and US$1,630 per oz., slipping 7% and 4% from the first quarter of 2012.

The company-wide cash costs were US$8.73 per oz. silver and US$1,055 per oz. gold, compared to US$6.29 per oz. silver and US$2,709 per oz. gold a year earlier. 

Coeur has maintained its 2013 full-year guidance of 18-19.5 million oz. silver and 250,000- 265,000 oz. gold.

But it has increased its 2013 cash-operating cost guidance for silver to US$9.50-$10.50 per oz., from US$8-$9 per oz. previously. The cash-operating costs forecasted for gold remain US$900- US$950 per oz.

The company ended the quarter with cash, equivalents and short-term investments of US$332.8 million. 

BMO Capital Markets analyst Andrew Kaip has a US$16.50 target price and a “market perform” rating.