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Buy, Sell or Hold: Hecla Mining Co.'s (NYSE:HL) Silver Moment

Shares of Hecla Mining Co. (NYSE:HL) have been beaten up during what should be extremely bullish conditions for the largest silver miner in the United States.

I think that presents some value for investors willing to take a contrarian view.

As I write this, Hecla Mining is down 50% in the past 52 weeks. I honestly find this situation a headscratcher − especially in light of where silver prices may be headed.

What's more, the company is sitting on a horde of cash and carries no net debt. This means the company is stable and able to function without access to capital markets.

As an investor, I consider this situation nearly bulletproof.

Notice that I said "nearly" ­− not completely.

There is one thing that can severely damage a company with a solid balance sheet. It is called lawsuits.

Unfortunately for Hecla, they had a bad 2011 in that regard.

The company had two fatal accidents at a producing mine with an additional third event that injured seven more workers.

These events caused the Mine Safety and Health Administration ( MSHA) to close the shaft in question and require the removal of built-up material before Hecla can resume operations.

Known as the Lucky Friday mine, it may be shut down throughout 2012.

In the aftermath, a specific group of investors became so angry with management's disclosures relating to these fatal accidents that they filed suit.

This bad luck streak in the mines and in the courtrooms has hammered the stock price to a point I now find cheap, even considering the potentially damaging lawsuits.

In short, when I look at Hecla Mining today, I see value investing is at its best.

I love to find an out-of-favor stock where the fundamentals are still strong and the company is already profitable.

It's time to "Buy" Hecla Mining Co. (**) – before the market sees the silver lining in the fundamentals.

Hecla Mining's Silver Lining

You see, Hecla Mining Co.:

  • Has Record Revenue
  • Has Record Production
  • Pays a Silver-based Dividend
  • Is the Largest U.S. Producer of Silver
  • Has Low Price-to-Earnings

Hecla announced record results in its latest earnings report. Revenue in 2011 was $477.6 million with gross profits of $265 million.

The company produced 9.5 million ounces of silver with a cash cost to produce, after adding in byproduct credits, of $1.15 per ounce.

Hecla also pays a dividend based on the price of silver. It's an unusual feature and another reason why I like the stock.

From their most recent release:

"Our Board's action to declare the silver-linked dividend and introduce a minimum quarterly dividend, reiterates Hecla's excellent operating margin and strong financial position," said Hecla's President and Chief Executive Officer, Phillips S. Baker, Jr. "In addition to increased cash returns, our shareholders will also have an opportunity to benefit from higher silver prices."

Hecla is also the largest silver producer in the United States and is reaching that volume from just two total producing mines.

While the S&P 500 has an average price-to-earnings ratio of 13, Hecla has a price-to-earnings ratio of 9 with analyst expectations of that dropping to 8 in the next year.

Key Points on Hecla Mining

Founded in 1891, Hecla is based in Coeur d'Alene, ID. It employed just over 700 at its last reporting.

The company has a $1.36 billion market capitalization. Its enterprise value, which takes net cash and debt levels into consideration, is $1.16 billion. The difference in this case is the surplus cash the company has on its balance sheet

Action to Take: "Buy" Hecla Mining Co. (NYSE: HL) (**)

Hecla has historic revenue and gross profits, and has paid off its long-lasting lawsuit. While shareholders have started a new fight with management, it is my opinion that Hecla appears cheap at current market prices.

While others hate the stock, I see value on the table. You rarely get a chance to buy a stock that is debt free, has ample cash and no dilutive financing needs, is throwing off profits, and is the largest producer of its commodity sector in the United States.

If you don't have exposure in Hecla, consider being a contrarian and picking up a small tracking position now while we watch the company turn around.

Let's look to pick up 50% of our position via limit orders around the current market price.

We can then put in a limit buy order 5-10% lower to see if we get a lower cost basis on the position.

(**) Special Note of Disclosure : Jack Barnes has no interest in Hecla Mining Co. (NYSE:HL).

About the Writer: Columnist Jack Barnes started his career at Franklin Templeton in 1997. He started out in the company's fund-information department – just as the Asian contagion infected the Asian tiger countries.

Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.

Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning on Mondays. In his BSH column last week, Barnes analyzed Augme Technologies Inc. (OTC:AUGT).

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  1. bill kandravi | March 16, 2012

    My only thought Jack is that you did mention the lawsuits that you said where taken care of an the cash flush no debt great buy even though you mentioned and I quote (while others hate the stock) AND THAT YOU SEE VALUE ON THE TABLE , why would you not bring up the class action lawsuit which alleges violations of federal securities laws, Section 10(b) and 20(a) and rule 10b-5 including allegations of issuing a series of material or false misrepresentations to the market which had the effect of artificially inflating the market price during the Class Period, which is Oct 26 2010 through Jan 11 2012 that was filed in the United States District Court for the District of Idaho against Hecla Mining Company (NYSL; HL) or is this a different HL because I have not heard back from my attorney which who ever was involved has to April 2 2012 to get in the suit or they can file there own, so maybe you could fill me in if this class action suit has allegedly been taken care of so I can call my attorney or Judge and ask what the outcome was, the attorney firm is Federman& Sherwood and I would appreciate your input and maybe I might put a limit order of 5-10% lower to get a lower cost basis on this position. I will wait for your response just in case I am missing some thing. Thanks for the update but I am curious that my due diligence might be incorrect and would be interested in case I misunderstood you and,Thanks Again because

  2. bill kandravi | March 16, 2012

    What about the class action lawsuit filed in the US District Court for the District of Idaho against Hecla Mining (NYSC: HL) for the laws of Section 10(b) and 20(a) and the rule 10b-5 against HL or are you talking about a different lawsuit because my attorney said it would be a while for this case to run it's coarse if not I might put a limit buy order 5-10% lower to get a better cost basis on this position and get some of the money that would be nice and I would not have to deal with an attorney which would make it even better. Find out if you can I am sure I am not the only one interested in your reporting. Thanks!

  3. Harish | March 19, 2012

    Likes article.
    nicely put up'
    Thank You.

  4. SIBABALWE1602@GMAIL.CO.ZA | March 28, 2012


  5. eric taylor | March 31, 2012

    Mr. Barnes, I have to say that I haven't found a company that claims to mine for so low a cost
    per ounce as Hecla mining, unless you want to speculate on a hoarder like Mag Silver,
    but Value Line investment service pegs Pan American Silver with a very strong potential
    five year projected price appreciation, in spite of the fact they have a lower consensus
    silver price projection than the gold and silver bugs. Even Jim Rodgers said if someone
    were to hold a gun to his head he would pick silver for best potential commodity investment.
    I guess the metals bug is affecting us all.

  6. Michael Popkin | September 8, 2012

    9-8-12 Mr. Barnes … Within the last month or so Hecla bought the Monte Carlo Property in Nevada and bought 19.9 % of Dolly Varden stock in British Columbia , Canada … Would be interested in your comments on theses recent developments … The Monte Carlo property purchase was barely mentioned in a short press release… Of what I read in the Dlly Varden website , there seems to be no hydroelectric connections to that mine at this time , therefore no mining in the near future…
    thank you for any present analysis at this time as I am a follower and owner of HL stock…
    Michael Popkin

  7. Leslie Odierno | January 6, 2013

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