Coeur d’Alene Mines Corporation Analysis

Posted on September 19, 2007 , filed under Stocks | Print This Post

I wrote below that the effect of a Fed rate cut should produce a short squeeze on a number of PM stocks. If a short squeeze does occur there is one stock that should stand out from the crowd, Coeur d’Alene Mines Corporation [[CDE]]. I’ve written detailed analysis on CDE in the past and I believe given the future position of the company as a silver miner, a fair value for shares should be in the $5-$8 range.

If we look at the chart, MACD is in positive territory and the last time there was a bullish centerline crossover we had a nice smooth uptrend from $3.60 to $4.25. We won’t be able to draw much in terms of a current trend line for CDE until we get further into the month.

The fundamental growth picture looks great. CDE expects to be producing silver at a negative cash cost of 0.41 due to gold by-product credits. The figure was calculated using a price of $550 per ounce for gold and $10 per ounce for silver. With gold now above $720 and silver above $12.90 the cash cost to produce silver for CDE should only improve.

There has been a lot of talk about Dennis Wheeler’s failure to run Couer smoothly and I tend to disagree with most of it. Dennis is doing exactly what he should be doing, anything and everything possible to grow the companies profits. If Dennis is guilty of anything, it’s a failure to deliver shareholder value. Dennis has built CDE’s success by issuing a huge number of outstanding shares which I believe has led to a large amount of short manipulation.

As a long-term investor in CDE this is of little concern to me since I see strong fundamental value behind the company. I expect that as institutions recognize the profit potential of the company, that they will slowly start acquiring a long stake in CDE, reducing the likelihood of short manipulation. For now I see little downside risk for CDE. Investors, at the very least, should expect shares to follow the current uptrend with PM stocks.

*Disclaimer: The author holds positions in CDE stock and options.

I wrote a previous article with my top 3 silver picks if you are interested in investing in silver stocks.

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