Mining isn’t a great business to be in right now. Hecla Mining (HL) continued the downtrend of mining stocks with second-quarter earnings that showed declining revenue and a net loss, sending HL down 2% on Thursday as a result.
Gross revenue for the Q2 came in at $104.2 million, down from $117.5 million the prior-year quarter. Net loss was $26.67 million, worse than the net loss of $14.4 million reported the prior-year quarter.
As you can probably guess, the falling price of precious metals is the main reason for the unimpressive figures. That said, it would be unfair to judge HL stock by revenue and earnings in the same way the market has.
Instead, we have to look a little deeper to find the true value of Hecla Mining.
Cash Cost King
Hecla has been doing a good job keeping its cash cost in check within the precious metal landscape.
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You know how companies tend to become loose on spending once they begin to earn more? Yeah, that’s not Hecla Mining.
In 2011, when the price of silver peaked at $42.7 per ounce, Hecla was so disciplined that it reported a cash cost on silver of $1.15 per ounce. By comparison, competitor Silver Wheaton (SLW) reported a cash-cost of $3.99 per ounce of silver that same year.
Hecla’s production was affected by mine rehabilitation and severe winter, shooting cash costs up to $6.84 in 2013. By 2014, however, HL again reduced cash cost by 29.7%, and increased production by 30%. This helped HL realize an average silver price of $16.32, greater than the $16.07 price during the second quarter during the same time last year.
Unlike many other mining companies, that like to get their hands dirty with other mining businesses, Hecla Mining focuses specifically on silver production. In the second quarter, HL produced 2.5 million ounces of silver compared to gold production of 44,692 ounces. Other precious metals are mostly regarded as by-products.
The meaning of this is that Hecla’s management is thrifty. And you also want to note that its cash cost per ounce is well below the silver spot price.
Making the Right Acquisitions
Hecla Mines only seeks to acquire assets which guarantee good return on investment. And in 2013, Hecla Mining acquired Aurizon Mines, which made it the new owner of Azurion’s sole mine (Casa Berardi). In the second quarter, Azurion Mines produced gold at an all-in cost of $832, which is impressive compared to gold producer Barrick’s (ABX) $895 per ounce.
Here’s more proof if you’re not yet convinced: Hecla’s Green Creek mine recovered at a rate of 5.6% year-over-year to 75.4% in the most recent quarter. That’s not accidental growth, either; Hecla consciously directed its efforts in that direction by implementing changes to on-site flotation.
Hecla claims it still has the ability to reduce costs if metal prices continue to trend lower. Given Hecla’s history with cost-reductions, such a bold statement can be taken at face value.
Verdict
I believe precious metal prices won’t remain down forever, since the demand and supply dynamics are, well, dynamic. When prices do go up, investors can expect Hecla Mining to be more profitable and HL stock a long-term hold.
Sure, there’s nothing new and sexy about HL, but with Hecla’s high-grade assets, I wouldn’t be surprised if Hecla Mining becomes an acquisition target.
As of this writing, Craig Adeyanju did not hold a position in any of the aforementioned securities.
