Calculating The Fair Value Of Coeur Mining, Inc. (NYSE:CDE)

Coeur Mining, Inc. +1.12%
 Coeur Mining, Inc. CDE 5.44 +1.12%

### Key Insights

• Coeur Mining's estimated fair value is US\$5.03 based on 2 Stage Free Cash Flow to Equity
• Current share price of US\$5.59 suggests Coeur Mining is potentially trading close to its fair value
• Analyst price target for CDE is US\$5.93, which is 18% above our fair value estimate

Today we will run through one way of estimating the intrinsic value of Coeur Mining, Inc. (NYSE:CDE) by taking the expected future cash flows and discounting them to their present value. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. Don't get put off by the jargon, the math behind it is actually quite straightforward.

Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model.

## Step By Step Through The Calculation

We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value:

#### 10-year free cash flow (FCF) forecast

 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Levered FCF (\$, Millions) -US\$44.1m US\$164.1m US\$153.5m US\$148.1m US\$145.4m US\$144.7m US\$145.2m US\$146.6m US\$148.6m US\$151.1m Growth Rate Estimate Source Analyst x4 Analyst x5 Analyst x3 Est @ -3.56% Est @ -1.78% Est @ -0.53% Est @ 0.34% Est @ 0.95% Est @ 1.38% Est @ 1.68% Present Value (\$, Millions) Discounted @ 8.3% -US\$40.8 US\$140 US\$121 US\$108 US\$97.8 US\$89.9 US\$83.3 US\$77.7 US\$72.7 US\$68.3

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US\$818m

The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.4%. We discount the terminal cash flows to today's value at a cost of equity of 8.3%.

Terminal Value (TV)= FCF2033 × (1 + g) ÷ (r – g) = US\$151m× (1 + 2.4%) ÷ (8.3%– 2.4%) = US\$2.6b

Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US\$2.6b÷ ( 1 + 8.3%)10= US\$1.2b

The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is US\$2.0b. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of US\$5.6, the company appears around fair value at the time of writing. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent.

## The Assumptions

We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Coeur Mining as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 8.3%, which is based on a levered beta of 1.278. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

### SWOT Analysis for Coeur Mining

Strength
• No major strengths identified for CDE.
Weakness
• Expensive based on P/S ratio and estimated fair value.
• Shareholders have been diluted in the past year.
Opportunity
• Expected to breakeven next year.
Threat
• Debt is not well covered by operating cash flow.
• Has less than 3 years of cash runway based on current free cash flow.