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Consider Coeur Mining as Gold Prices Rise

- By Alberto Abaterusso

Gold is trading higher amid ongoing global trade worries.

The bullion closed at $1,317.10 per troy ounce on Monday, 2.6% above the average of $1,283.95 for May and 1.6% higher than the cumulative average of $1,296.64 per ounce so far this year.

Many investors are concerned the global economy will be hurt by U.S. trade tensions with China and Mexico, driving up demand for safe-haven assets.

Shares of several publicly traded gold miners will gain as commodity prices increase. Coeur Mining Inc. (CDE) is strongly positioned to benefit from this trend for several reasons.

First, Senior Vice President and Chief Financial Officer Thomas S. Whelan purchased 25,000 ordinary shares of the company for an average price of $2.84 per share on Friday, bringing his total direct ownership of Coeur Mining up to 183,464 shares. This kind of insider trading usually means management anticipates a rise in the share price of the stock.

Second, Wall Street issued a buy recommendation rating with an average target price of $5.67 per share, reflecting 84% upside from the closing price of $3.08 on Monday.

Finally, the company has some catalysts that will boost the share price in the coming weeks. These consist of higher production expected from the Rochester silver-gold mine in Nevada compared to the first quarter of 2019, whose operations were impacted by abnormally high snowfall levels. Traditionally, the first quarter is the toughest period of the year from a mining standpoint as operators cope with unfavourable weather conditions along with a shorter production schedule.

Higher grades and recovery rates are also expected to increase production levels at the Palmarejo gold-silver complex mine in Mexico. Improved plant performance and higher grades at the Silvertip mine in Canada should also boost the free cash flow as silver usually shows positive correlation with gold.

Besides gold and silver, Coeur Mining also produces lead and zinc. Its two other wholly-owned operations are the Kensington gold mine in Alaska and the Wharf gold mine in South Dakota. The company also has exploration projects in North America.

In the first quarter of 2019, the company produced 78,336 ounces of gold, down 8% year over year, and 2.5 million ounces of silver, reflecting a 22% drop from the prior-year quarter. Coeur Mining posted a non-GAAP loss of 11 cents per share, an improvement of 1 cent year over year, but missed consensus estimates by 2 cents. Revenue decreased 5.1% to $154.9 million, which fell $1.47 million short of expectations.

Today, these catalysts can be purchased at a price that is fairly reasonable.

The share price at close on Monday was below the 200-, 100- and 50-day simple moving average lines, just 8% off the 52-week low of $2.78 and 185% from the 52-week high of $8.55. The stock has declined 61% over the 52 weeks through June 3.

Further, the stock has a market capitalization of $615.3 million, a price-book ratio of 0.73 versus the industry median of 1.62 and an enterprise value-Ebitda ratio of 20.06 versus the industry median of 8.71.

The 14-day relative strength index of 39 suggests the stock has not yet reached oversold levels.

Disclosure: I have no positions in any securities mentioned.

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This article first appeared on GuruFocus.