Coeur d'Alene Mines CDE
January 29, 2003 - 2:55pm EST by
2003 2004
Price: 1.80 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 179 P/FCF
Net Debt (in $M): 0 EBIT 0 0

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Coeur d’Alene mines is the U.S’s largest silver (4.87 per oz.) producer with annual production of 15 mln oz 2002. I have been following the price of this company since 1998. During that time, the stock has fallen from $7 to $1.80 recently, but ultimately reached a low of 83 cents.

There are three important things going on at this company, which make it an attractive investment opportunity.

1) Gold price:

Silver trades with gold and gold has been going up from $280 per oz. in Dec 01 to $360 per oz. recently; a trend which I expect to continue for the simple fact that the US dollar and all other major currencies, save SWISS francs and currencies of that type, will become devalued in purchasing power because of worldwide weak economies and stated policies by central banks throughout the world to “print” money to avoid deflation.

Precious metals mining companies have a beta of 3x versus the base metal so unless you can trade futures this is a leveraged play on silver.

It’s a common misconception that silver’s only use is photography and as such its major source of demand is disappearing. Industrial applications account for 38.5%, Photography 23.8% fairly evenly split between commercial photography and radiography (Xrays), Jewelry and silverware 32.6%, coins and medals 3%.

2) New Significant Production:

Regardless of whether the price of silver moves up or not, Coeur’s newest major mine, Cerro Bayo in Chile, is expected to double production from Q3 to Q4 2002 to 1.6 mln oz quarterly. and grow thereafter as the mine finally comes “online.” This mine has a cash cost of 91 cents presently, but as production ramps up, cash costs are expected to decline to 65 cents. On an annualized basis, the full year operation of this mine will contribute 30% more oz. to Coeur’s production.

3) Debt Restructuring:

Finally, and most importantly, the company has begun to take care of its debt problems, which have plagued it for more than a decade. Through a series of negotiated transactions, the company has begun to exchange all of its debt for common shares. Most recently, the company exchanged 32 mln in convertible debt, leaving it with 54 mln in debt outstanding; an amount that needs to be further reduced in order for the company to begin to operate with a reasonable amount of leverage. Conversion is required because the company cannot amortize its debt assuming present profitability.


Assuming conversion of all the bonds ($54 mln) at $1.50 per share, which would result in the issue of 36 mln additional shares or 41% more capital. Furthermore, assuming average Q4 2002 silver prices, the company could achieve EPS of 33 cents in 2003 giving the company a forward multiple of 6 times making Coeur an attractive stock on an absolute and relative basis.


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