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What happened
Actions of Heart mine (NYSE: CDE) lost 12.8% in September, according to data provided by S&P Global Market Intelligence. This is the second biggest drop the stock has suffered this year, after falling sharply during the stock market crash in March. One factor, which essentially determines the income and profits of Coeur Mining, is the cause of the fall of the stock in September: the prices of silver.
So what
Silver had a bumper year in 2020, with prices hitting multi-year highs until September, when it quickly reversed course. During the month, silver prices fell nearly 19% after hitting an almost seven-year high of around $ 30 an ounce in August.
Image source: Getty Images.
Unsurprisingly, Coeur Mining stock plummeted alongside silver prices. Gold prices further exacerbated the stock’s fall: just like silver, the price of gold also fell in September due to a stronger US dollar and weak demand for jewelry from major consuming countries, among other factors. Coeur is a fairly diverse miner that processes both precious metals: in 2019, Coeur generated 69% revenue in silver and 27% in gold, with the rest split between zinc and lead.
Silver, however, has historically been found to be a volatile metal in part because silver primarily has industrial uses unlike gold which is primarily used for end consumer purposes such as jewelry. This could explain why silver prices lost much more ground than gold last month, pushing down most silver stocks, not just Heart Mining.
Now what
Speculation is ripe that gold prices could reach record highs this year, supported by favorable economic and geopolitical catalysts. It could also fuel another rally in silver prices, which should bode well for Coeur Mining.
In July, Coeur reported a 16% increase in gold sales for its second quarter, but a 42% drop in silver sales due to the suspension of production at a key mine, Palmarejo in Mexico, in the aftermath of the COVID-19 pandemic. With the mine back on stream, the company expects firm precious metal prices to end 2020 on a positive note. Now, if the prices of gold and silver turn out to be a tailwind or a headwind in the future, Heart investors should keep an eye out.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
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