Coeur Mining (NYSE: CDE) shareholders may have missed a series of under-the-radar actions that pose additional massive risk to their investment.
Coeur netted $367 million in losses last year and reported half-a-billion in debt. Nevertheless, the junior miner managed to dig its way into stock portfolios of everyone from the next-door-neighbor to teachers' funds to retirement funds.
This Chicago-based silver and gold miner and its peers have risen over the last few months in concert with improved metal prices.
But let's step back in time to about an hour after the closing bell rang on Friday, May 13th. Most traders had just loosened their ties and begun enjoying their weekends when ...
Bam! At 5:11 p.m., Coeur filed a surprise ATM document with the Securities and Exchange Commission.
*The Late-Hour Stock Offering Notice
We knew they needed capital but it came even earlier than we had anticipated. Indeed, that after-market notification cleared the way for Coeur to sell up to $75 million worth of stock using the at-the-market filing.
What the ATM filing (here) means is this: Coeur and BMO have joined hands to raise cash through stock sales.
The more stock that hits the market each time the ATM is tapped, the more dilution to the stock already in shareholders' hands.
And that $75 million offering? Unless the stock price falls out of bed and disrupts Coeur's plan ... it's likely just the beginning of the dilution coming at shareholders.
Coeur is like the hungry gorilla you try to feed just one banana. The beast pounds his chest and shrieks for more ... and more ... and more.
So the cash-hungry miner will demand far more, we believe, to stay in the game after the entire $75 million-worth of stock sales is shot.
The company will probably require about three times more for current operations and expansion (two recent acquisitions cost ~$480 million).
Coeur will likely go on diluting stock until investors fall out of love with the story.
*Analysts Downgrade; Major Institutional Investor Sells
Analysts and a major institutional investor have recently signaled negative sentiment toward Coeur stock.
Two analysts have downgraded Coeur in the last few months.
(Source: Yahoo Finance)Just last Friday, analyst Erin Gibbs warned investors that junior miners' run in the sun is over.
"When you look at valuations, these things are incredibly over-valued," Ms. Gibbs, with S&P Capital IQ, said May 13th on CNBC.
"I would say stay away. I think it's done...
"The run has happened. It's over."
And just six weeks ago, major long-time Coeur investor Donald Smith & Co. Inc. jumped up and sold off a stunning 3 million-plus shares of CDE.
*Odd Timing; Curious Upgrade
Yet last Wednesday, May 11, BMO Capital suddenly raised its Coeur price target to $11.
Two days later, Friday the 13th, Coeur filed notification of its new at-the-market stock offering that will be handled by none other than BMO.
BMO's interestingly timed price target increase is huge. The chart below comes from the firm's report:
(Source: BMO Capital)
Investors can see that BMO issued a $2.82 price target on Coeur on Feb. 11.
Now three months later, BMO targets a 290% jump to $11?
Sure, silver prices had increased but that gigantic leap looks crazy to us.
That price target would imply that everything's great with Coeur.
There has been the metal price improvement, which some believe has peaked, and there's the $99 million Wharf acquisition. While the acquisition helped the company last quarter, it also helped push Coeur's cash down ... and added to the mountain of debt teetering at half-a-billion bucks.
Indeed, the company is one of the mining sector's most aggressive in the use of debt to fund operations:
The company has tried to relieve some pressure by divesting some of the easiest properties to get rid of ... but that has barely dented the massive debt mountain.
*After Three Years: Acquisition Still Disappoints
And we can't overlook Coeur's dogged inability to say no to extremely risky, expensive deals. In 2013, Coeur wanted Orko Silver's core "La Preciosa" undeveloped silver property in politically risky Mexico.
Orko/La Preciosa had been rejected twice by two other miners.
First, its joint venture partner, Pan American Silver, backed out when its three-year option ended. Pan American's CEO warned, "...we have come to the unfortunate conclusion that our continued participation in the La Preciosa project is unlikely to generate a rate of return," sufficient to take the risk.
Second, Orko/La Preciosa was rejected again in 2013 by First Majestic Silver Corp. during a "bidding war" in which the winner, Coeur, submitted the lowest bid.
Majestic CEO Keith Neumeyer fired a warning shot about the economics of the project: "... by increasing the offer beyond our previous bid, the economics of the La Preciosa project drop below our minimum requirements for a rate of return and financial payback to our shareholders..."
Coeur shareholders ultimately learned after the fact that the board approved the massive cash and stock acquisition of Orko/LaPreciosa for about $343 million (~$350 million Canadian).
Coeur and Orko leaders cheered their deal's "significant exploration upside" and "significant upside potential of the combined entity."
But those cheers turned into "Umm, never mind" after feasibility studies came in the next year.
Coeur suddenly "deferred activities until expected returns improve."
Three years after Coeur's takeover, La Preciosa still remains undeveloped... the little mine going nowhere.
*Stock Priced To Perfection: Ready To Drop
Likewise, analysts' consensus price target suggests they believe Coeur stock is going nowhere. Or at least not upward.
We agree with the implication that the stock is priced to perfection ... for serious decline.
The stock currently trades near the consensus price target of $8-plus per share:
(Source: Yahoo Finance)
So that means most analysts' firms - other than BMO - think Coeur has no upside left: Invest now and get prepared for what may be a jaw-dropping ride back down to reality.
* Shareholder Value: Massive Decline
The dropping purple line - highlighted in yellow - below shows what happened to the share price of those shareholders who bought Coeur and its little nowhere mine in 2013:
(Source: Company SEC filing, page 33 )
Through most of 2013 and all of 2014 and 2015, a Coeur investment performed worse than its peers and far worse than the S&P 500.
Indeed, investors who paid $40 per share in 2013 found that two years later, their stock was worth about $9.
So Coeur's stock plunged 77%.
That brings us to independent firm Verus Research's analysis of Coeur and peers. A snapshot of the peer analysis chart dated May 11, 2016 is shown below.
(Source: Thomson Reuters)
As shown, Coeur is projected to generate the most disappointing Long Term Growth (LTG) - a retraction of almost 55%.
*You're Welcome, Investors: Miserable Earnings
Investors have watched Coeur consistently turn in losses over the past 12 quarters.
Most analysts anticipate losses will continue well into 2018:
The whole mining sector is extremely risky and overvalued. But Coeur appears to be one of the riskiest as analysts, a major institutional investor and even a fleeing vice president say, "No!"
As shown by its "little mine going nowhere," Coeur makes terrible acquisition decisions. Leaders and friends hype those decisions, support them by diluting shareholders and, when they don't magically work out, hope the mistakes go away beneath a fresh barrage of promotional reports.
Coeur does not come close to deserving its outrageous $1.3 billion market cap and is perfectly priced to go down a deep, dark hole.
So we're kicking Coeur into one of its deepest mines and expect shares to follow along, declining about 45% in the near term.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in CDE and stand to profit on any future declines in the stock price.
* Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to [email protected].