oust inv : sell coeur : something not right

Outstanding Investments
May 16, 2007

Another OI “Sell” and Precious Metals Update

In the following article, we will look at four of the companies on our Outstanding Investments Precious Metals list. Just to save time, however, here is the summary version of what we are doing today:

Hold/Accumulate - American Century Global Gold fund (BGEIX)

Sell - Coeur d’Alene Mines Corp. (CDE: NYSE)

Hold/Accumulate - Goldcorp Inc. (GG: NYSE)

Hold - Newmont Mining Corp. of Canada (NMC: TSX)


Dear Outstanding Investments Subscriber:

In last week’s update, I told you that this month I am going to go through all of the stock recommendations in the Outstanding Investments portfolio. We are going to review each stock recommendation, catch up on any developments and decide if we still want to own it in our portfolio. There were quite a few favorable responses to last week’s posting, which reviewed the companies that fall under the heading of Infrastructure and Logistics. So the indication back at the editorial office in Baltimore was that you think it is helpful for us to scrub the list. (If you missed last week’s posting, click here ).

Your Investments Are a Serious Matter

Before we begin this next phase of the review, please let me note a couple of things. At Agora Financial, we understand that your investments are a serious matter. So we strive to provide you with accurate and timely information that will assist you with your investment planning. As I mentioned last week, the stocks in the Outstanding Investments portfolio are a collection of recommendations that date back over several years. And as with all stock market investments, sometimes the price of a share goes up, and sometimes the price goes down. The good news for us is that over the past few years, the market tide in the energy and natural resources sector has been lifting our boat. As a result, almost every stock recommendation in the Outstanding Investments portfolio has gained, and many have gained handsomely.

What does the future hold? Well, as I say often and loudly, there are no hard and fast promises on that score. Will the U.S. Federal Reserve raise interest rates? Will the red-hot Chinese stock market pull back? Will an oil tanker mysteriously explode in the Strait of Hormuz? Any of these things, and innumerable more, could affect the value of your portfolio. I don’t have a copy of next week’s newspaper, and nobody else does, either. If you do not like taking market risk, then you should not have your funds invested in the market.

At Outstanding Investments, we look for opportunities in companies that hold resources and reserves in the ground, or some unique skill set to recover those reserves, or to capture value from handling or processing energy and other natural resources. Our stock picks also focus on companies with excellent management and strategic vision. We work to understand a particular company’s business, get a feel for its management, look at the trends in that business or industry segment and make the most educated estimates.

But that is enough discussion of investment philosophy. Let’s dive in and take a look at another part of the Outstanding Investments portfolio. Today, we will look at four firms with different business models in Precious Metals category. Here is the list:


I Only included review of Coeur due to relevence to BSG

Coeur d’Alene Mines Corp. (CDE: NYSE) has been part of the Outstanding Investments portfolio since October 2002. Coeur d'Alene, through its subsidiaries, engages in the exploration and development of mineral properties principally in the United States, South America, Australia and Africa. The company primarily explores for silver, and also digs for gold, lead and zinc deposits.

Coeur d’Alene has a market capitalization of about $1 billion, earns about 30 cents per share and pays no dividend. The stock has given us a reasonably good gain over several years, but has performed poorly as of late. CDE's price is currently around $3.68, which is near the 52-week low and far down from its high last year of $6.40. On May 8, 2007, Coeur d’Alene Mines reported first-quarter earnings of 5 cents per share. This result missed the 8-cents-per-share consensus expectations of the analysts following the company, and was the same as last year's first-quarter results. So in recent days, Coeur has received quite a bit of negative analysis in the financial press.

This set of circumstances is not a harbinger of future good fortune for the stock. But on the more positive side, silver prices are as high as they have been in more than 25 years, and mining companies are riding a boom in demand for the white metal. Silver is used in computers, cell phones and other electronics, plus jewelry and photography, and is one of the hottest commodities in the world. There have been spot shortages of silver for industrial use. The worldwide price for silver is more than $13 an ounce, the highest since the metal reached $20 in 1980. Before last year, silver hadn't been in double digits since 1983. So the pricing environment is good.

Earlier this spring, Coeur d'Alene Mines announced a deal that will make it the largest primary silver producer in the world. Coeur is acquiring 100% of the shares of Bolnisi Gold NL of Australia and Palmarejo Silver and Gold Corp. of Montreal, in a transaction valued at about $1.1 billion. The deal permits Coeur to expand into Mexico, the world’s second-largest silver producer. Dennis E. Wheeler, Coeur's chairman, president and chief executive officer, stated that his intent is “establishing Coeur as the clear leader in the silver mining industry.”

So we are faced with a company with a great “silver story” but not so great financial results. And despite the story, it is difficult to feel good about Coeur d’Alene Mines at this stage. The market for its primary silver product is booming, yet the company is having difficulty meeting its earnings targets in its historical business niche and a strong pricing environment. So if you are a cautious investor, and you have any gains in Coeur, it is time to sell the stock and take your money off the table. If you have any losses, it is probably better just to cut them and move the funds to another investment opportunity, of which there are many.

If you just love the “silver story” and think that owning stock in companies that mine silver is a moonshot waiting to happen, then you should only consider buying Coeur as a contrarian play, with money you can afford to lose if the stock tanks further. Yes, the stock has been beaten down to a yearly low level. But it could go down even further. So in my view, as an investment, Coeur is a company in need of a dramatic turnaround. Or if you care to speculate, you might buy some shares on the rank hope of Coeur getting taken over by another mining company. This might very well happen, but it is speculation, and not investing. So we wish Coeur d’Alene Mines well, but it is time to part company.

Action to take: Sell Coeur d’Alene Mines Corp. (CDE: NYSE). I am sorry to have to say this, because Coeur is a great old name in the mining business. But there is just something wrong with this company.


Best wishes to all of you.

Until we meet again…

Byron W. King




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