What happened
Shares of Hecla Mining (HL 4.77%) fell as much as 10.6% today after the company reported fourth-quarter and full-year 2018 operating results. The struggling precious metals miner delivered slightly lower revenue compared to 2017, but saw operating income swing $100 million into the red.
Management is optimistic that healthy gold prices, coupled with recently acquired assets that helped to push gold production to a record level last year, will reverse that trend in the year ahead. Wall Street analysts and investors don't appear nearly as confident after reviewing the numbers.
As of 12:45pm EST, the stock had settled to an 8.2% loss.
Image source: Getty Images.
So what
Hecla Mining turned in a sour performance in 2018 compared to the prior year. Multiple metrics providing a glimpse into the health of operations deteriorated, notably all-in sustaining costs (AISC) per ounce after by-product credits and operating expenses. Here are the highlights:
|
Metric |
2018 |
2017 |
Year-Over-Year Difference |
|---|---|---|---|
|
Revenue |
$567.1 million |
$577.8 million |
(2%) |
|
AISC per gold ounce |
$1,226 |
$1,174 |
4% |
|
AISC per silver ounce |
$11.44 |
$7.86 |
45% |
|
Gross profit |
$79.1 million |
$152.5 million |
(48%) |
|
Operating expenses |
$118.2 million |
$92.3 million |
28% |
|
Operating income |
($39.1 million) |
$60.1 million |
N/A |
|
Earnings before income taxes |
($33.2 million) |
($7.6 million) |
N/A |
|
Operating cash flow |
$94.2 million |
$115.9 million |
(19%) |
Source: Hecla Mining press release.
The results clearly show Hecla Mining is not very efficient at generating income from operating activities. While net income was roughly the same in 2018 as in 2017, that's only because of one-time benefits realized last year. The business saw positive swings of $60 million for derivative contracts, $20 million for foreign currency impacts, and $28 million for income taxes. That essentially canceled out the negative swing of nearly $100 million in operating income, but that's unlikely to happen again in 2019.
Check out the latest Hecla Mining earnings call transcript.
Now what
Hecla Mining touted the increased reserves and resources at two mines, Greens Creek and Casa Berardi, as "surfacing additional value" to the business. But increasing the tally of ore in the ground isn't very useful to shareholders in the here and now, especially if the precious metals can't be extracted at favorable costs in the future. While the business suffered from deteriorating selling prices in 2018 compared to 2017, and selling prices are trekking higher two months into 2019, the company doesn't appear to have an answer for rising operating expenses. That should be a red flag for investors eyeing today's drop as a buying opportunity.
