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Here's Why Hecla Mining Dropped Today

By Maxx Chatsko – May 9, 2019 at 12:45PM

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Efforts to develop the company's Nevada mines are proving costly.

What happened

Shares of Hecla Mining (HL 10.14%) fell over 13% today after the mining company reported first-quarter 2019 operating results. The business topped Wall Street estimates for revenue but reported a loss of $0.04 per share, double expectations from analysts, according to numbers compiled by Yahoo! Finance

More importantly, Hecla Mining only managed to deliver relatively solid results thanks to higher-than-expected gold and silver grades and recoveries at the Greens Creek mine. The business reported that two mining complexes delivered less cash flow than expected internally. The performance from the recently acquired Nevada mines was so poor that management suspended its annual estimates for production and costs from the assets.

As of 1:18 p.m. EDT, the stock had settled to a 12.2% loss.

A declining chart on a chalkboard.

Image source: Getty Images.

So what

Hecla Mining generated revenue of $152.6 million in the first quarter, marking a 9% increase year over year. However, gross profit fell 91% in that span as operations moved into lower-grade sections of the Casa Berardi mine and development at the company's Nevada operations ramped up.

The Nevada mines in question were acquired in mid-2018. As CEO Phillips Baker, Jr. noted at the time:

With this acquisition, Hecla now has three high-grade mines in Nevada, one of the best mining districts in the world. These assets immediately add production and cash flow, and because they are a good fit with Hecla's expertise, we believe there is significant opportunity for improvement in the mines' productivity and consistency.

Things haven't worked out as smoothly as initially hoped. Baker said the Nevada mines delivered "unacceptable" levels of operating costs, ore grades, and negative cash flow in the first quarter. As a result, Hecla Mining is conducting a review to determine the best path forward. The conclusion is expected in the second quarter of this year.

Now what

Given the importance of the Nevada operations to the long-term growth potential of Hecla Mining, cost overruns aren't something investors are willing to tolerate. The bad news is compounded by recent permitting issues for a mine in Montana that was widely expected to usher in the next wave of growth projects for the business. For now, all investors can do is wait for more updates and hope for the best.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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