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While it may be fair to criticize the company's missed opportunity to remain a dominant force among the world's leading primary silver producers as this silver bull market first gathered steam, I believe that investors who fail to comprehend the company's enormous growth potential run the risk of missing a major opportunity of their own.
Hecla reported a roughly break-even third quarter that essentially reflects lower by-product credits for lead and zinc from the Greens Creek mine, as well as expenditures relating to: pre-development work at the miner's trio of phenomenal prospective mines, increased exploration activity that continues to generate substantial shareholder value, and a little more than $6 million in costs relating to the nearly lifted suspension of mining activity at the Lucky Friday mine. Because I continue to observe well-crafted investment in the company's astonishing organic growth potential, I take this break-even quarter in stride with a disciplined long-term outlook. In any event, it was a better-looking quarter than that posted by larger rival Coeur d'Alene Mines (NYSE: CDE )
At Greens Creek, Hecla mined ores that were higher in precious-metal content, but lower in the by-product content of lead and zinc that has rendered Greens Creek among the lowest-cost silver mines in the world. Combined with lower realized prices for both of those metals, the result was a fairly sizable swing from a negative cash cost of ($2.98) per ounce for the prior-year period, to a cost of $3.52 per ounce. Meanwhile, while increased throughput eased per-ton milling costs by 19%, the cost to mine for a ton of ore rose 23% to $61.33 as a result of increasing use of contract miners. That's not cause for alarm quite yet, in my opinion, but I wouldn't like to see that figure continue much higher.
Meanwhile, Hecla's brownfield exploration team at Greens Creek drilled "very high-grade mineralization over exceptional widths" during the quarter, lending support to the outlook that I discussed with CEO Phillips Baker Jr. back in January for substantial extensions of mine life to remain a lasting characteristic of this legendary mine.
In fact, continued exploration success at Hecla remains an outstanding source of value creation that the market appears quite sluggish to recognize. The market's gaze may well be fixed on the important resumption of production from the Lucky Friday mine beginning in the first quarter of 2013, but my longer-term interest remains honed upon the exciting prospects for organic production growth through development and exploration initiatives at San Sebastian in Mexico, the Star mine in Idaho, and the exciting San Juan project in Colorado (where Hecla begins with a historical silver resource of 37 million ounces!). At San Sebastian, exploration work has "defined mineralization for over 3,000 feet of strike and from surface to at least 1,000 feet in depth." I discussed each of these powerful prospects with Hecla's CEO last January, and I encourage readers to invest their time reviewing the resulting series of in-depth feature articles:
- Anatomy of a Silver Legend: Hecla's Greens Creek Mine
- Anatomy of a Silver Legend: Hecla's Dominance in Idaho's Silver Valley
- Anatomy of a Silver Legend: 2 Roads to Long-Term Growth
- Anatomy of a Silver Legend: The Next 120 Years for Hecla Mining
With Lucky Friday poised to bring good fortune back to the shares of Hecla Mining, and a powerful continuum of growth catalysts steadily developing within one of the silver industry's premier asset portfolios, I believe that a long-term holding in Hecla's shares will deliver a strong silver lining in time. Smaller competitors Alexco Resource (NYSEMKT: AXU ) and Fortuna Silver Mines (NYSE: FSM ) may prove faster out of the gate as they each look to bounce back from some trailing operational challenges, but Hecla may prove the tortoise that wins the ultimate race.
Looking for more precious investment ideas? Goldcorp may have a heart of gold, but the company also produced more silver in the third quarter of 2011 than Hecla will produce in the entire year! The Motley Fool has made available my just-completed premium report on Goldcorp, and I encourage you to dig deep into this outstanding growth story to explore whether Goldcorp deserves a spot in your stock portfolio. Access the report by clicking here!