•Hecla is well diversified. They mine Gold, Zinc & Lead along with their Silver. Cash costs are low and production is up in a difficult mining environment.
•They are expanding all three of their producing mines, most notably their Lucky Friday mine where they have invested over $200 million.
•They have made the final payment for the Coeur d’Alene Basin Environmental Settlement. They can now focus on using their cash for exploration and mine development.
Hecla Mining Company (NYSE:HL) announced earnings recently and the share price rallied due to their earnings meeting expectations. The stock is presently trading at $2.16 a share (way down from its $10 price a few short years ago) and has been downgraded by quite a few analysts recently to a sell rating. When a stock is hated by wall street, it usually means the stock has been plummeting so I always go in and have a look at the fundamentals to see if the negativity is warranted. After my research, I believe this stock has a lot to offer and may be better equipped to deal with lower future Silver prices than other Silver mining companies. Lets go through in detail why I believe this is the case.
Firstly this company has not been drastically cutting costs (laying off staff and cutting exploration funding) like other Silver mining companies. The main reason for this is that they also mine Gold, Lead & Zinc with their Silver ( Breakdown is 37% Gold, 31% Silver, 20% Zinc and 12% Lead). This really eliminates a lot of risk for the company (diversification) as the spot prices of Lead and zinc have not been effected as Silver has been this year. For example, First Majestic Silver (NYSE:AG) has had to lay off many workers and spin off their exploration assets into another company because the company solely mines Silver and Silver’s price has been hit very hard this year. Moreover Hecla are hedging a portion of their zinc and lead production which again protects the company in times of high price volatility. Therefore with Silver prices hovering around $15 an ounce, the company seems to be coping very well. The main reasons being their production is increasing across their 3 mines (and 4 metals) and their mining metal costs are decreasing. Moreover the company is fundamentally sound with $220 million in cash or cash equivalents on their balance sheet and has a P/B ratio of 0.8 illustrating the stock’s current value is less than its book value (All assets – All liabilities). I like the set up here because they are diversified, increasing production and reducing the mining costs of their metals. Let’s take a look at their 3 assets to see if they can ensure Hecla can ride out this storm with minimum problems.
Their cornerstone asset is definitely the Greens Creek Silver mine in Alaska(50% revenue coming from this mine). Hecla now have their silver cash costs down to $3.75 an ounce here which is definitely on the lower scale in the industry. The mine produced 1.9 million ounces of Silver last quarter (up 12% from last quarter) and Hecla are also awaiting permits in order to access other areas of this project so no worries about lack of available metal at their cornerstone mine. Their lucky Friday mine (Provides 21% of revenue) produced 972,994 ounces of Silver last quarter which is up 19% from the previous quarter. This mine was closed for a period of time but reopened last year as they have installed a shaft in order to reach richer ore at depth. This investment cost the company well over $215 million and again showed investors the long term view this company is adopting. This long term project should be completed within 2 years (currently 73% completed) so I expect significantly higher levels of silver mining production coupled with lower mining costs. Currently the silver cash costs at lucky Friday is $8.71 so expect this to come down significantly. Their final producing mine is the Casa Berardi Gold mine (Provided 29% of revenue last quarter) in Quebec. Their gold cash cost here is $898 an ounce and they produced almost 29,000 ounces of Gold on last quarter. They acquired this mine last year and are in the process of mining different areas in order to increase tonnage and recoveries. Finally the company is very bullish on their San Sebastian project in Mexico. Hecla believe this could turn into a mine that could easily produce 100 million ounces of Silver so consequently the exploration budget has been increased from $750,000 to $3.1 million in order to add more occurrences to this project. Who is saying miners are not currently exploring?
Therefore when I look at the company, I see a company that has taken a very long term view of its business. The work that is ongoing at the Lucky Friday could pay big dividends down the road when that shaft is completed. The share price was definitely hit when Hecla closed the mine but with that $215 million decision, the company has stated clearly that this mine is a long term project. Also the company finally paid the last instalment of $41.3 million in relation to the Coeur d’Alene Basin Environmental Settlement. This settlement was $263 million in total and was bad press for the company and didn’t help the share price either. This episode is now finally behind the company so all things being equal, the company will be in a healthier financial position going forward.
To sum up, Hecla is diversified, has low cash costs and is comfortable with Silver at these levels. Considering the work they are doing at their mines, continuing to develop San Sebastian and now with this settlement debacle over, Hecla is a buy for me. A rise in the price of Silver will move this companies share price but when Lucky Friday gains traction, this stock could explode to the upside. When you think the bottom in Silver is in, go long
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.