Dilution is Cancer

Masterclass Part 4: Dilution is Cancer Take a look at the stock price chart below for one of the "leaders" of the silver sector, Coeur Mining (CDE). In 1995 the stock price was $200 per share. Now it trades for $2.75…a massive decline of 99%. Investors in this company have lost almost all their capital. Coeur is one of those miners that run at breakeven. Coeur Mining has maintained consistent production from many stock based acquisitions over the years. The company carries a debt load of about $500 million vs a market cap of only $859 mil. Quarter after quarter the company mines away at breakeven. Management salaries and bankers get paid, while shareholders suffer because there is nothing left over for them. You see, since the company only generates enough revenue to cover costs, management salaries and interest need to be covered by endless share sales. As more shares are sold, economics on a per-share basis (the only thing that drives stock price performance) declines. Shareholders are left with a smaller and smaller share of the pie. See the chart below. Shares outstanding were about 1.5 mil in 1995. Share outstanding now measures 382 mil! Growth of 254X. If the company made $1.5 mil in profits in 1995, each share was worth $1 mil per share in earnings. Now, let's assume Couer made $100 mil profit in 2023. Each share is only worth $0.26 per share in earnings. This is a decrease of 74% and the share price would follow lower. In reality, the dilution was much, much worse, and the stock paid the ultimate price. Historic share outstanding data is hard to come by. It's not listed on google or yahoo. As a professional mining analyst for over 15 years, I'm lucky to have access to a Bloomberg Terminal which contains that data. I'm able to assess economics on a per share basis which is the only thing that matters. Growth in production, profits, FCF, OCF, revenue etc is meaningless unless you evaluate it on a per share basis. Coeur is probably the worst abuser of share sales over the years, but many other miners are not too far behind. I can show you a better way. As you know, there is a small sector of the precious metals space with no exposure to rising costs. Their margins rise with no end. Many of their deals rely upon a small amount of initial investment that is covered by cash on hand. These companies can be run by a small team of professionals, so overhead is minimal, and profits are large. Share sales are not necessary… And I cover 15 of these companies in my new Golden Portfolio research service - where I'll teach you what I consider the absolute best way to play gold. In tomorrow's email, I'll show you where value is created in the mining industry, and how to capitalize upon it. Best, Garrett Goggin, CFA Founder, Golden Portfolio unsubscribe