What happened

Shares of Hecla Mining Company (NYSE:HL) dropped 11% in February according to data provided by S&P Global Market Intelligence. That was anything but a smooth ride. The stock started the month drifting slowly lower before spiking higher for a week or so and then eventually losing all of those gains and more to end the month down double digits. That drop, meanwhile, left the stock off nearly 3% through the first two months of 2019.

So what

The price of precious metals miner Hecla was driven by news in February. The swift jump came after the company announced that it ended 2018 with record reserves of silver and gold. That clearly boosted investor hopes for a good quarterly earnings report later in the month. However, when the company reported earnings roughly a week later, the news wasn't quite as positive as investors had hoped.

A hammer on a pile of gold nuggets.

Image source: Getty Images.

The top line was down around 2% year over year in 2018, with earnings "improving" from a loss of $0.07 a share to a loss of $0.06 a share. Clearly, losing money wasn't exactly what investors were hoping to see. Part of the problem here is that the company's efforts to enhance its reserves came at a cost: high expenses. Hecla's all-in sustaining cost per ounce of silver (a measure of production and investment costs) was $11.44. Although that's lower than the $15 per ounce or so that silver has been trading at recently, it doesn't leave a whole lot of room for error in a commodity prone to dramatic price swings.

And while all-in sustaining costs are expected to drop slightly in 2019, with production projected to increase a little, Hecla remains a relatively high-cost miner. This shows up most notably on the gold side, which has been of increasing importance in recent years as the miner attempts to shift its production mix more toward the yellow metal. All-in sustaining costs per gold ounce are projected to be $1,250 in 2019 -- at the high end of the industry, where less than $1,000 per ounce is the norm for stronger miners. Gold, for reference, is trading around $1,285 an ounce -- leaving very little margin for error.

Now add in a notable dip in the price of both silver and gold toward the end of February and you can see why investors weren't all that jazzed by Hecla's shares following its earnings release. High costs and weakening precious metals prices are not a good mix for this -- or any -- miner.

Now what

Hecla Mining probably isn't the best option for most investors seeking precious metals exposure for diversification purposes. Streaming and royalty companies, which take an entirely different approach to the precious metals space, would be a better bet. However, for investors with a strong feeling about silver and gold prices, Hecla's high costs mean that commodity price swings will tend to have a big impact on its shares (a small commodity move can mean the difference between making money or losing it). Although that can be good when gold and silver are rising, the drop in February shows that it can be painful when commodity prices are in decline. Tread carefully if you choose to invest here.