sydney morning herald buy rec 23rd jan

http://www.smh.com.au/news/portfolio/hot-stock-coeur-dalene/2008/01/21/1200764169157.html

Hot stock: Coeur d'Alene
Email Printer friendly version Normal font Large font Greg Canavan
January 23, 2008


What's new? Given the market's early year battering, the only "hot stocks" around are those that have suffered selling friction. This raises the question of whether 2008 will be the year of the bear market. While there is a strong likelihood that the financial sector is entering a prolonged period of underperformance, there is a silver lining to this impending bear market.

US silver producer Coeur d'Alene listed on the Australian Stock Exchange last month following the takeover of Bolnisi Gold, which has an attractive suite of silver assets in Mexico.

Like gold, silver has a solid future. Although silver has performed strongly over the past few years, its price has lagged behind the performance of base metals such as copper, zinc and lead as well as gold.

Today, the gold-to-silver ratio (that is, the number of ounces of silver needed to buy an ounce of gold) is about 55. This reflects silver's "de-monetisation" and its perceived utility as an industrial metal only. When gold and silver were both considered currency (only gold is today), this ratio averaged about 15. This ratio should improve in silver's favour over the next couple of years as investors brush up on their monetary history.

The outlook Coeur's outlook rests on the successful execution of a number of development projects this year.

The crown jewel in the Bolnisi acquisition was the Palmarejo silver and gold project, one of the highest-quality primary silver projects in the world. Operations are due to begin in early 2009 when the mine will add 10.4 million ounces of silver and 115,000 ounces of gold to Coeur's production.

As soon as next month, it plans to begin operations at the San Bartolome silver mine in Bolivia. These two new projects along with existing operations mean that by 2009, if all goes to plan, Coeur will be the world's largest silver producer. At nearly 30 million ounces a year, this will almost triple current output. Coeur's other producing mines are in Australia, Argentina and Chile.

Stable production and two large projects, due to begin contributing within 12 months, mean the operational front looks good for Coeur.

Putting it in the context of rising silver (and gold) prices, neither of which the company has hedged, the earnings potential for Coeur is very encouraging.

Price Given the Australian listing's very short price history, we've used the US listing to show past performance. After trading below $US3.50 during the mid-year correction, investors have focused on the emerging projects and the stock has made strong gains in a choppy market. Rising silver prices have obviously helped. The stock currently trades at about $US4.70, or about $5.20 locally.

Worth buying? If you can put up with the volatility, Coeur should prove to be a good long-term bet. With the US and quite possibly the global economy sinking, authorities will go all out to add stimulus, both monetary and fiscal. This will be bullish for precious metals, including silver. That, in turn, will be bullish for Coeur d'Alene.

Greg Canavan is the head of Australasian funds research for Fat Prophets.