Despite Coeur Mining (TSX: CDE) reporting June-quarter production and costs mainly in line with Bay Street estimates, at least one analyst has downgraded the issuer while flagging concern over perceived balance sheet risk over the coming 12 months.
Canaccord Genuity Capital Markets analyst Dalton Baretto has downgraded the issuer to HOLD from BUY and is modestly reducing his target price to $3.50 per share from $3.75.
The downgrade is underpinned by the limited implied return to his target price and the heightened technical and financial risks surrounding the company over the next 12 months through the completion of POA11 development at the Rochester mine in Nevada and the Silvertip asset in British Columbia continuing to languish on care and maintenance, despite some encouraging recent exploration results.
The miner on August 3 reported its operating and financial results for the second quarter, posting a loss of $77.4 million after reporting a profit in the same period a year earlier. The Chicago-based company said it had a loss of 28¢ per share. On an adjusted per-share basis removing the non-recurring costs, the headline loss amounted to 5¢ per share.
As of June 30, Coeur had total liquidity of about $$435 million. Baretto’s estimates indicate that the company will need to draw down its entire credit facility and source external funding of $105 million, thought likely via liquidation of its equity stakes in Victoria Gold Corp. (TSX: VGCX), amongst others.
The analyst notes that this assumes a $1,790 per share gold price over the next 12 months; and as such, Coeur’s balance sheet remains vulnerable to a downturn in precious metal pricing.
In the release of its results, Coeur indicated the POA11 development was at peak activity levels and reiterated the completion date of mid-2023.
As part of the project risk management process, an assessment of the remaining spending (particularly on the pre-screens) is underway. Management said they would not be surprised to see the $600 million capex estimate increase by 5%, noted Baretto.