Shares of precious metals miner Hecla Mining (HL 1.34%) were lower by as much as 12% at one point this week according to data from S&P Global Market Intelligence. That's not a shock given that silver has been in a downtrend recently. At the start of trading on Friday, Jan. 28, the shares were still sitting at the week's lows.
Hecla Mining lays claim to being one of the largest silver miners in North America, producing 40% of the precious metal that gets mined in the United States. It has even tied its dividend to the price of silver, increasing the quarterly payment as silver prices rise. Precious metals miners are generally leveraged to the price of the commodities they produce. Once they cover their mining costs, further increases in the price of silver and gold fall pretty quickly to the bottom line. Add in the silver-linked dividend here and Hecla is, perhaps, even more leveraged than most.
The problem is that this leverage works in both directions. So when silver prices fall, so do profits and, at least for Hecla, potentially dividend payments as well. Silver took a nosedive on Jan. 27, but has generally been in a downtrend since Jan. 20. Notably, silver tends to be more volatile than gold and that has been on clear display with silver's price falling more than twice as hard as gold on Jan. 27. Since there was no particular news out of Hecla this week it is most likely the price move of silver that was the driving force behind this week's stock decline.
Silver and gold are not for the faint of heart, particularly if you plan to buy a company like Hecla that is on the small side with just a $2.5 billion market cap. You shouldn't pay too much attention to a day or a week of price action in this space, instead looking at an investment in this space as a diversifying asset. Even then, most investors would probably be better off with streaming and royalty companies like Royal Gold or Wheaton Precious Metals, which take a different approach to the sector and generally have more consistent margins.