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Can Coeur Mining Significantly Lower Its Costs?

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Cost containment

Coeur Mining (CDE) has traditionally been a high-cost producer compared to its peers (SIL). As a result, it has suffered huge losses, and investor confidence in the stock has eroded.

However, since 2015, cost discipline has been returning to Coeur Mining. It’s been achieving lower costs across all its operations. Its AISC (all-in sustaining cost) for 4Q16 was $16.08 per ounce. It was $15.88 per ounce for 2016. That’s based on a 60:1 equivalent basis (gold-silver ratio). It’s within the company’s guidance of $15.75–$16.25 per ounce. AISC guidance for 2017 on a 60:1 equivalent basis is $15.75–$16.25 per ounce.

Its G&A (general and administrative) expenses have also been trending downward over the past few years. G&A expenses were $29.4 million in 2016, a fall of 10.4% year-over-year, and have fallen 47.0% since 2013.

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Cost expectations

Production levels at Coeur Mining’s Palmarejo mine have fallen as planned, and costs have reached record lows. Mitchell Krebs, Coeur’s CEO (chief executive officer), said in the 4Q16 earnings call that this trend is expected to continue in 2017. Mining rates at Guadalupe and Independencia should rise throughout the year, leading to higher production and lower per-unit costs.

The company expects its unit costs to trend higher for its Wharf mine in 2017 compared to 2016. Higher expected costs are mainly due to completing the mining of higher-grade deposits in the summer. That will lead to lower production overall in the year as well as higher unit costs.

Coeur’s peers

CDE’s peers Hecla Mining (HL), Silver Standard Resources (SSRI), Pan American Silver (PAAS), Newmont Mining (NEM), and Barrick Gold (ABX) are all working to reduce their costs to manage volatility in the prices of precious metals.

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