Shares of gold and silver miner Hecla Mining (NYSE:HL) rose roughly 11% in the first hour of trading on Dec. 17. Coeur Mining (NYSE:CDE) was right there with it, also up about 11%. And topping the list was Endeavour Silver (NYSE:EXK), which rose just north of 12%. There wasn't any earth-shattering news out of any of these precious metals miners today. The price gains were really more of a fundamental nature.
Hecla, Coeur, and Endeavour Silver mine commodity products that trade based on supply and demand. That said, very short-term movements in the price of silver and gold are often driven by investor sentiment. And while these miners can control their operating costs, to some degree, they simply can't do anything about the price of the commodities they produce. Today, silver, and to a lesser extent gold, were in rally mode in early trading.
Not shockingly, this trio of miners saw their stock prices rise. Although all three have a mix of metals in their portfolios, as most precious metals miners do, they each have a relatively heavy exposure to silver. For example, through the first nine months of 2020, silver made up around 25% of Coeur's sales. That figure was roughly 36% at Hecla Mining while Endeavour's ratio of gold to silver was closer to 50/50. Put simply, moves in the price of silver tend to have a notable impact on these miners for a good reason.
That said, there was some recent news out of Hecla Mining on Dec. 16, just one day ago, that's worth noting. It announced plans to expand its Rochester silver and gold mine in Nevada. Its investments in this asset have increased the size of its silver and gold reserves by 58% and 65%, respectively. It believes that further exploratory drilling could increase that and further extend the mine's expected production life (which is currently at 18 years), as well. Management outlined a nearly $400 million construction plan that it expects to achieve returns of 30% or more as it looks to unlock the value of the mine. Hecla believes this could become its cornerstone asset and lead to a material improvement in the company's cash flow profile. That's all great news, and probably helped the stock along today, but it was more likely rising silver and gold prices that were behind the big stock pop at the open.
The problem with today's stock price gain is that gold and silver are historically volatile commodities, prone to swift and often dramatic swings. So today's advance could quite easily turn into a decline tomorrow. Keeping that in mind, it's worth noting that precious metals have been rallying in 2020, pushing the shares of Coeur up some 40% this year. Endeavour and Helca have done even better, each up more than 80%. That's not meant to suggest that these stocks can't rise further, but rather that a lot of positives are currently priced into the precious metals mining space at this point. Investors looking at these miners today should probably tread with at least a little bit of caution.
The volatile precious metal space can be exciting, but trying to time the moves of commodities can be a dangerous game. It's probably best to look at miners and precious metals as diversifying assets that fit into a broader allocation plan. For most long-term investors the risks easily outweigh the reward of trying to time individual market sectors, particularly after they've already had a big run-up.