Shares of Hecla Mining
How it got here
Hecla Mining's woes can predominantly be summed up by a decision made by the Mine Safety and Health Administration in January, which ordered the closure of the Lucky Friday mine due to the unsafe buildup of sand and concrete material in the main shaft of the mine. Hecla doesn't anticipate being able to bring the mine back to code any faster than a year from the shutdown date. Lucky Friday accounted for 3 million of the 9.5 million ounces of silver that Hecla mined in fiscal 2011.
Despite these woes, Hecla ended the year with proven and probable reserves (148 million silver ounces) as well as inferred reserves (281 million silver ounces) at record highs. It also reported a 33% increase in gold reserves, as well as 21% and 26% increases in its lead and zinc reserves, respectively. These "icing on the cake" minerals drove Hecla's mining costs down to just $1.15 per silver-equivalent ounce versus its realized silver selling price of $35.30 per ounce -- up 56% from the year-ago period.
How it stacks up
Let's see how Hecla Mining stacks up next to its peers.
Poor Hecla is the low stock on the totem pole among its peers. Let's take a closer look to see how it compares on a valuation basis.
|
Company |
Price/ Book |
Price / Cash Flow |
Forward P/E |
Proven and Probable Resources |
|---|---|---|---|---|
| Hecla Mining | 1.1 | 18.2 | 7.3 | 148 million silver ounces / 0.7 million gold ounces |
|
Silver Wheaton |
4.1 | 17.6 | 12.8 | 798 million silver ounces / 0.2 million gold ounces |
|
Endeavour Silver |
4.0 | 16.1 | 10.3 | 16.8 million silver ounces / 0.1 million gold ounces |
|
Pan American Silver |
2 | 6.1 | 8.7 | 235.3 million silver ounces / 0.6 million gold ounces |
|
Coeur D'Alene |
0.9 | 4.8 | 6.7 | 216.3 million silver ounces / 2.3 million gold ounces |
Sources: Morningstar, Yahoo! Finance, company releases.
Although it may not appear so based on the facts above, Hecla offers the second-best gross margin, at 55.5% based on the most recently filed full-year earnings report. Silver Wheaton offers far and away the strongest reserve totals, but Hecla's by-products actually allow it a lower silver-equivalent cost basis. Similarly, Endeavour may not appear cheap on a book basis, but it has considerably more silver in inferred reserves than its proven reserves would indicate. In short, the entire sector looks like a screaming value with many of them sitting on a year's worth of proven reserves and trading for just fractions of their book value and forward earnings, as is the case with Coeur D'Alene and Pan American Silver.
What's next
Now for the real question: What's next for Hecla Mining? The answer really depends on whether investors will continue to crucify the company for the inactivity at its Lucky Friday mine, which I feel is presently more than priced in.
Our very own CAPS community gives the company a three-star rating (out of five), with 95% of members who've rated it expecting it to outperform. I count myself among those 95% who have made a CAPScall of outperform on Hecla. To me, it seems that investors are ignoring the 161 million inferred ounces of silver at the Lucky Friday mine at these levels. Plus, even though it's minimal, Hecla introduced a $0.01 yearly dividend that it tied to the price of silver. Hecla wouldn't have introduced the dividend if it wasn't confident in its long-term outlook. All I can say is, "Hi-ho silver, away!"
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