Coeur’s 2014 production guidance causes concern

Coeur Mining (TSX: CDM; NYSE: CDE) has missed its 2013 silver production guidance, but delivered more gold than expected, helping it meet its silver-equivalent target. But some analysts are grumbling over the company’s lower-than-anticipated 2014 guidance and estimated US$770-million in impairment charges.  

In 2013, the Chicago-based firm delivered 17 million oz. silver compared to its forecast of 18 million to 19.1 million oz., but made up for that by churning out 262,200 oz. gold, beating its 250,000 to 258,000 oz. guidance. This put Coeur’s silver-equivalent output at 32.7 million oz., within the low-end of its target.

The largest U.S.-based primary silver producer says it missed its 2013 silver forecast mainly because of slower leach recoveries at its Rochester silver–gold mine in Nevada. But it pointed to the strong fourth quarter at its Kensington gold mine in Alaska, which saw higher gold production.

During the last three months of 2013, Coeur generated 80,780 oz. gold and 4.3 million oz. silver, marking a 27% and 3% increase over the previous quarter. Compared to 2012, full-year gold production jumped 16%, while silver output dipped 6%. 

The company is set to publish its fourth-quarter and full-year financials on Feb. 19. It predicts full-year cash-operating costs of US$9.87 per oz. silver and US$949 per oz. gold, which are fairly in line with its guidance.

It anticipates that a US$770-million non-cash impairment charge from 2013 will reduce the carrying values of its Palmarejo gold–silver mine in Mexico and the Kensington mine, mainly due to the drop in gold and silver prices. 

BMO analyst Andrew Kaip says the impairment charge will likely be “a precursor to reserve writedowns in March.”

But what’s more concerning for the analyst is the company’s conservative 2014 guidance of 17 million to 18.2 million oz. silver and 220,000 to 238,000 oz. gold.

Kaip argues that this year’s forecast is below BMO Research’s expectations of 19.6 million oz. silver and 240,000 oz. gold, and will likely impact estimated 2014 earnings and cash flow. He has a $10 price target and an “underperform” rating on the stock.

Raymond James analyst Chris Thompson echoes Kaip’s concerns. Because of the lower 2014 guidance, Thompson says, he reduced his estimated 2014 cash flow per share to $1.67 from $2.07, and cut his $17 price target to $14. He maintains an “outperform” rating.

But Coeur’s CEO Mitchell J. Krebs says the production guidance reflects the company’s focus on quality of production ounces compared to quantity of production ounces. As a result, Coeur deferred development and production from Palmarejo’s Guadalupe deposit in late 2013. “We expect to replace these ounces with higher-margin, lower-cost ore sources during the year,” Krebs said in a release. He adds that this year’s guidance also takes into account the slower ramp-up in ounces recovered from the expanded leach pad at the Rochester mine.

Coeur ended 2013 with US$207 million in cash and equivalents, and plans to spend US$80 million in capital expenditures on its operations in 2014.

Along with operating the Palmarejo, Kensington and Rochester mines, Coeur owns the San Bartolome silver mine in Bolivia, and has a non-operating interest in the Endeavor mine in Australia.