During the month of October, shares of Freeport-McMoRan (NYSE:FCX), Tahoe Resources (NYSE:TAHO), and Hecla Mining (NYSE:HL) fell by 16%, 15%, and 14%, respectively, according to data from S&P Global Market Intelligence.
All have varying levels of exposure to gold, which investors rushed to amid last month's market volatility, driving the price up about 2.3%. The issue, however, was that their fortunes also are tied to the values of other precious metals. Freeport-McMoRan, for example, derives the majority of its revenue from copper sales, while Tahoe Resources and Hecla Mining both have strong interests in silver production. And copper and silver prices sank 3.6% and 2.5, respectively, during the period, triggering the sell-off in shares of the miners.
Beyond the downward trend in the price of copper, investors responded unfavorably to Freeport-McMoRan's third-quarter earnings; shares fell 8.6% on the day it reported them. Although the company remained on track to achieve its copper, gold, and molybdenum production guidance for the year, investors shuddered at management's apparent confusion regarding the state of the market. On the conference call, President and CEO Richard C. Adkerson characterized the copper market as a "paradox," and said: "When you look at the fundamentals, and you look at this drop in global copper exchange stocks, and to see the copper price in that slide parallel each other is very unusual in our industry." This lack of certitude, compounded with the bearish sentiment about the stock that has prevailed for most of 2018, sent shares further south.
The drop in the price of silver was primarily responsible for the downward movement of Tahoe Resources' shares in October, as investors disregarded the somewhat positive news that came in the middle of the month regarding its efforts to resume its Guatemalan operations at Escobal, the world's third-largest silver mine -- a topic which shook investors' confidence in September. Indicating his optimism, President and CEO Jim Voorheessaid, "We are pleased that the Constitutional Court has responded to the requests for clarifications and that the resolution is now final so that the formal ILO 169 consultation process can begin." Adopted by the United Nations International Labour Organization (ILO) in 1989, Convention 169 requires governments to consult with indigenous peoples with the goal of obtaining their agreement prior to beginning any mining operations on their lands.
In addition to the dip in the price of silver, there were two other drivers for the sell-off in shares of Hecla Mining in October. As reported by Thefly.com, an analyst at Canaccord downgraded the stock from hold to sell, and reduced the price target from $3.25 to $2.50 based on an updated analysis of the stock and the company's "implied returns." That came just a month after analysts at Roth Capital initiated coverage of the stock, assigning it a buy rating and a $5 price target. But the larger catalyst for the stock's decline was the Oct. 23 announcement of preliminary results for the third quarter. Up until that date, the share price had risen 4% for the month, but investors started unloading Hecla upon learning that its silver production in Q3 was down 24% compared to the same period last year; the company continues to struggle due to the ongoing strike at the Lucky Friday mine in Idaho.
As of this writing, the S&P 500 is up just shy of 1% in November, following the wild swings it experienced in October. Shares of Freeport-McMoRan, Tahoe Resources, and Hecla Mining, by contrast, have dropped another 3.6%, 4.6%, and 2.1%, respectively, through the first two weeks of this month. Despite those declines, none of these mining stocks currently represent screaming buys. Investors interested in gaining exposure to the copper and silver markets would be well served to be patient, and evaluate the companies further before considering opening positions.