Hecla has been another of our absolute favorites, and it has already made us a lot of money. As I type this, I’m ahead by 137% in Hecla in only 4 months. I received intelligence on 5 of our miners yesterday and published an excerpt on Silver Wheaton (SLW) then. Today, I want to put up the intelligence I received on HL…
“Hecla Mining (NYSE: HL)
Hecla Mining is the largest silver producer in the U.S. This year, the firm is celebrating its 125th anniversary. That makes it the oldest precious metals mining company listed on the New York Stock Exchange.
The company has a current market cap around $2.3 billion. Last year, it generated about $450 million in revenue. That number should increase significantly this year as both production and metal prices rise. Around 41% of the company’s revenue in 2015 came from gold sales. Silver generated 31% of revenue, followed by zinc and lead ore mining at 17% and 11%, respectively.
Hecla has four operating mines – all located in mining-friendly jurisdictions in North America. Hecla outperformed its expectations in 2015, setting records of producing nearly 12 million ounces of silver and 190,000 ounces of gold. Forecasts for this year estimate production to ramp up to 15 million ounces of silver and more than 200,000 ounces of gold. Total proven and probable reserves across the four mines include more than 175 million ounces of silver and 2 million ounces of gold.
We recently sat down with Phil Baker, Hecla’s president and chief executive officer, in his Coeur d’Alene, Idaho office. Baker took over the CEO role in 2003 after a stint as both the company’s chief financial officer and chief operating officer.
Hecla’s Greens Creek mine in Alaska is one of the largest and lowest-cost primary silver mines in the world. Baker said that if all of Hecla’s other projects were to somehow fold, this asset alone could keep the company afloat. The project has generated free cash flow of nearly $1 billion over its 26-year history. The mine has a current life of nine years. But as Baker explained, the mine had a nine-year life back in 1989. Since then, it has produced about 200 million ounces of silver and 1.5 million ounces of gold. Production forecasts for 2016 estimate 2.5 million ounces of silver and 52,000 ounces of gold.
Hecla’s Lucky Friday mine in Mullan, Idaho began operating in 1942. Last May, the company finished sinking the deepest shaft in the U.S. at the Lucky Friday mine. The No. 4 shaft reaches a final depth of 9,587 feet (nearly two miles) below the surface. The remaining infrastructure in the shaft will be finished this year, giving Hecla access to new resources that will extend the life of the mine for 20 years or longer.
The San Sebastian mine in Durango, Mexico is Hecla’s newest operating mine. Production began in the fourth quarter of 2015. This high-grade, low-cost silver resource has a short lifespan of 18 to 24 months, but the capital costs to start production were very low. Hecla is renting a third-party mill to process the ore and contracting outside miners to do the work. The project should generate strong cash flow, with an expected internal rate of return exceeding more than 400%. The project has great exploration potential, as well.
Hecla acquired the Casa Berardi mine in Quebec in 2013 to gain more exposure to gold. This project accounts for more than half of the company’s gold production, with 2016 estimates of 135,000 ounces.
The Rock Creek development project in Montana is Hecla’s newest acquisition, and the company expects to close on the nearby Montanore project later this year. Both projects offer solid long-term growth opportunities. Hecla is moving toward permitting the mines, but the company expects it to be at least 10 to 15 years before production begins.
Hecla also has several exploration projects throughout Canada and the U.S. It sticks with projects in safe jurisdictions that involve little political risk.
With a comfortable portfolio of producing assets and several more projects in its pipeline, Hecla is focused on cutting costs. Its team travels the globe, searching for new technology and techniques that could save the company money. By installing Wi-Fi in its Greens Creek mine, Hecla can now move personnel around the mine faster, increasing productivity. It also uses battery-powered autonomous vehicles in its Lucky Friday mine.
During bull markets in precious metals, we often see management teams of mining companies making poor decisions with capital. As prices soar, companies tend to overpay for new acquisitions in an effort to spur growth and appease investors. Then, as the cycle turns and prices fall, assets are written down or sold for a loss.
Hecla doesn’t make those mistakes. After the last boom, it was the only company among its closest peers that took zero write-offs. Despite pressure from analysts and investors, Hecla stuck to its conservative strategy and refused to overpay for new acquisitions.
Earlier this month, Hecla released its production results for the second quarter, and they were impressive. Silver production climbed 71% and gold production increased 41% compared with the same quarter last year. This led to increased estimates for total 2016 production.
In summary, Hecla is a strong company with decades’ worth of proven reserves. Its seasoned management team does not take big risks, and the company has survived the Great Depression, two World Wars, and several boom-and-bust cycles.”
By relying upon my stock analyzer, I was able to identify HL as one of the best of the nearly 100 issues in that industry group back on Friday, April 8. It has certainly proven to be a good choice, and I have every confidence we shall be able to stick with it, and make many more $ in it in the future… it’s a Bull Market ya know!
Here’s to your accumulation of real wealth!
Harold F Crowell