Driven by encouraging data on the U.S. economy, policymakers who took part in the U.S. Federal Reserve’s monetary policy meeting at the end of January decided to leave the federal funds rate target unaltered at 2.25-2.5% after four hikes in 2018. The minutes of the meeting, which were disclosed on Feb. 20, showed that the policymakers are unable to predict a restart of the tightening monetary policy for the current year.
The postponement of the U.S. Federal Reserve’s target to increase the federal funds rate up to 3% has brushed up investors’ preference for precious metals as bonds are less appealing when interest rates stay unchanged for a protracted period of time. This is because consensus for a higher inflation, which determines a lower real yield environment, inevitably increases.
As a matter of fact, the price of gold is growing on the London market where a troy ounce of the yellow metal closed at $1,311.95 Friday, up 2.3% from the beginning of 2019. On the COMEX, gold futures jumped 1.2% over the same period to $1.299.20 per troy ounce on Friday.
In the short-run another boost in the price of the commodity could come from the trade agreement that should come on a positive conclusion to the summit between Donald Trump and Xi Jinping, Bloomberg wrote, on March 27. Under the agreement, Beijing would lower its tariffs on certain American goods, including agriculture, chemicals and cars, while Washington would remove most, if not all, of the tariffs applied so far on several Chinese products.
Investors who want to benefit from the next rise in the price of gold can do so by holding shares of publicly traded producers. Amid the stocks that may rally following a boost in the price of the commodity is Coeur Mining Inc. (CDE, Financial).
Most recent patterns in the share price of Coeur Mining show that the stock possesses this possibility.
On Feb. 20, when bullion reached $1,343.75 an ounce on the London market, the highest price over the previous 10 months, Coeur Mining’s share price hit $5.60, marking a stock appreciation of 27% from the beginning of 2019. It was also 47% higher than the 52-week low of $3.80 of mid-December 2018.
The 52-week high is $8.89 per share, reflecting 87.6% upside from the share price of $4.74 at close Friday. From the 52-week low, the share price of $4.74 is 24.7% higher. This together with a price book ratio of 1.11x, suggests that the stock is not expensive, though not cheap either. The industry median for the price-book ratio is significantly higher at 1.62x, but the industry median for EV-Ebitda ratio is much lower at 7.19x than the ratio of Coeur Mining, which stands at 15.49x.
In addition, the share price is substantially below the 200-day simple moving average line, still underneath the 50-day SMA line and only slightly above the 100-day SMA line.
The 14-day Relative Strength indicator suggests the stock is much closer to oversold than overbought levels.
Wall Street issued an overweight recommendation rating, indicating the stock is predicted to outperform either the industry or the market within the next 52 weeks.
The average target price of $7.03 reflects a 48.3% upside from the share price at close Friday.
Following a 40% decline for the 52 weeks through March 1, in which the gold stock has underperformed the VanEck Vectors Gold Miners ETF (GDX) by the same pace, Coeur Mining now has a market capitalization of approximately $964 million.
Coeur Mining is a Chicago-based mineral explorer and producer of gold and silver concentrates. The company produces the metal from the Palmarejo complex in Mexico, the Silvertip mine in British Columbia, the Rochester mine in Nevada, the Kensington gold mine in Alaska and the Wharf mine in South Dakota. Coeur Mining is also a developer of the mineral assets that it acquires. The mining company is conducting explorations on several mineral properties in the U.S. and Canada for gold, silver, zinc and lead.
Coeur Mining has 2.8 million ounces in proven and probable gold reserves and 171.3 million ounces in proven and probable silver reserves as for year-end 2018. Based on these reserves, the mining company targeted production of 334,000 to 372,000 ounces of gold and 12.2 million to 14.7 million ounces of silver in 2019.
From the share price of Feb. 21, the market value of Coeur Mining has gone heavily down by 15.4%. The depreciation followed a 33% year-over-year decline in total revenues to $143.8 million in full-year 2018, missing forecasts by $9 million. The market overreacted to the news, as the revenue slump was caused by a fact that was external to Coeur Mining rather than a problem with the miner’s operations. The company reported that the financial results of the final quarter and full year fiscal 2018 were hurt by the November bankruptcy filing of the refiner Republic Metals. The event affected a volume of roughly 6,500 ounces of gold and about 400,000 ounces of silver of Coeur Mining’s production, meaning it couldn’t recognize corresponding revenues. Thus, the company posted write-downs of $6.5 million.
In 2018, Coeur Mining produced 359,500 ounces of gold, down 6% from 2017, and 12.8 million ounces of silver, up 6% year-over-year.
Palmarejo, Rochester and Kensington mines should drive the production of the company in 2019. A contribution is expected to come from the Silvertip mine where throughput rates keep improving. The output from the Wharf mine will likely be higher this year because 2018 production was influenced by exceptional third-quarter weather conditions.
Disclosure: I have no positions in any security mentioned.
