Hecla Mining Company (NYSE: HL): Founded in 1891, Hecla Mining Company (NYSE: HL) is a leading low-cost U.S. silver producer with operating mines in Alaska, Idaho, and Mexico and is a growing gold producer with operating mines in Quebec, Canada and in Nevada. The Company also has exploration and pre-development properties in eight world-class silver and gold mining districts in the U.S., Canada, and Mexico.
On November 8th, the company reported its third quarter financial and operating results.
- Net loss applicable to common shareholders of $23.3 million, or $0.05 per share on lower prices of all four metals.
- Cost of sales and other direct production costs and depreciation, depletion and amortization (“cost of sales”) of $137.1 million.
- Gross profit of $6.6 million and adjusted EBITDA of $40.3 million.
- Silver production of 2.5 million ounces at cash cost, after by-product credits, of $4.12 per ounce.
- Gold production of 72,995 ounces, up 16%, mainly due to additional ounces from Nevada.
- Casa Berardi All in Sustaining Costs (“AISC”), after by-product credits, reduced to $896 per gold ounce, on higher throughput and lower stripping costs.
- Aggressive $12 million exploration spending was highest in Company history (see exploration press release issued November 6, 2018).
- Strong financial position: Cash and cash equivalents of $60.9 million at September 30, 2018. The revolving line of credit undrawn at quarter end. Credit limit increased to $250 million on November 1, 2018.
- Estimates for annual Company-wide silver and gold production and costs are refined.
As per management – Our strategy is working. The EBITDA we generated despite low metals prices is a result of the improvements we made in our mines. A case in point is Casa Berardi, which is generating strong cash flow, with lower costs, higher mine throughput, and extended mine life,” said Phillips S. Baker, Jr., President, and CEO. “The Nevada operations are on the same path as Casa Berardi and Greens Creek, with the development and processes which should increase throughput and make the mines more efficient. In the meantime, the higher costs in Nevada are short-term and a function of electing to produce less to avoid sterilizing newly discovered mineralization.”
Roadmap for Further Growth and Value Creation: Hecla has an industry-leading platform of operating assets and a robust pipeline of future growth prospects
Overall, the company maintained a diversified revenue stream with gold at 55%, silver at 25% and lead and zinc that declined 20%. Greens Creek continues to be the dominant source of revenue. In summary, HL had an excellent quarter. The company generated good EBITDA despite low metal prices. Furthermore, Hecla invested in its growing businesses and expect this investment will drive cash flows up in the coming quarters.
Considering all this, the company’ business and marketing profile are in a critical inflection point. Thus, value investors should consider exposure in this sector as the backdrop remains favorable. Per www.marketbeat.com, Their average twelve-month price target is $4.6250, suggesting that the stock has a possible upside of 81.37%. The high price target for HL is $7.00, and the low-price target for HL is $3.00. There are currently three hold ratings, and 5 buy ratings for the stock, resulting in a consensus rating of “Buy.”
Below are the excerpts of recent ratings and price targets by brokerage house:
Hecla’s Track Record of Adding Value:
- Revenue: Sales of $143.6 million were impacted by lower silver and gold production at San Sebastian and Greens Creek, offset by the addition of Nevada sales in the third quarter of 2018.
- The average realized silver price in the third quarter 2018 was $14.68 per ounce, 14% lower than the $17.01 price realized in the third quarter of 2017. The average realized gold price in the third quarter was $1,205 per ounce, 6% lower than the prior year period. Realized lead and zinc prices decreased by 13%, and 22% respectively, from the third quarter of 2017.
- Profitability: Adjusted EBITDA was $40.3 million compared to $60.5 million in the third quarter of 2017, with the decrease mainly due to lower base metals prices, higher exploration expense due to the addition of Hecla Nevada, and acquisition costs recorded in the third quarter 2018.
- Liquidity: The company ended the quarter with $60 million in cash and its debt unchanged from previous quarters to $534 million.
Furthermore, the company already completed the purchase of the Klondex assets and its liquidity is at comparable basis before the transaction with the same amount of debt outstanding with enhanced opportunities to generate an increase in cash flows in time from the Nevada operations.
- Dividend: The company declared a quarterly cash dividend of $0.0025 per share of common stock, payable on or about December 3, 2018, to stockholders of record on November 20, 2018. The realized silver price was $14.68 in the third quarter and therefore did not satisfy the criteria for a larger dividend under the Company’s dividend policy.
The Board of Directors also declared the regular quarterly dividend of $0.875 per share on the 157,816 outstanding shares of Series B Cumulative Convertible Preferred Stock. This represents a total amount to be paid of approximately $138,000. The cash dividend is payable on or about January 2, 2019, to shareholders of record on December 14, 2018.
Key risk factors:
- The company needs the capital to expand, achieve revenue targets. Therefore, management’ ability to improve HL’s cash flow profile as the company goes forward would continue to remain a critical stock sensitivity factor.
- Company’ ability to increase production while reducing development and overall equipment requirements thereby extending the mine life would be one of the major catalysts over the medium to longer term.
- The company’ business risk profile is exposed to regulatory risk. Legal challenges could prevent the Rock Creek or Montanore projects from being developed.
- The company’ business risk profile would continue to remain exposed to risk related to competition.
- On Monday, November 26th, 2018, HL was at $2.52, on volume of 1.3 million shares exchanging hands. Market capitalization is $1.225 billion. Current RSI is 47.79
- In the past 52 weeks, shares of HL have traded as low as $2.17 and as high as $4.63
- At $2.52, shares of HL are trading below its 50-day moving average (MA) at $2.71 and below its 200 days moving average at $3.33
- The present support and resistance levels for the stock are at $2.40 & $2.68 respectively.