Hecla Mining Co. (NYSE: HL)

Hecla Mining Company (HL) is a provider of precious and base metals to the United States economy and worldwide. The Company acquires, develops, produces and markets silver, gold, lead and zinc. HL produces lead, zinc and bulk concentrates, which it sells to custom smelters, and unrefined gold bullion bars (dore), which may be sold as dore or further refined before sale to precious metals traders.

The Company currently is organized and managed into two segments, which represent its operating units and exploration interests: The Greens Creek unit and The Lucky Friday unit. Greens Creek is an underground mine, which produces approximately 2,100 tons of ore per day. During the year ended December 31, 2008, ore was processed at an average rate of approximately 2,008 tons per day. During 2008, mill recovery totaled approximately 73% silver, 87% zinc, 78% lead and 64% gold. Lucky Friday unit is a deep underground silver, lead and zinc mine. In 2008, ore was processed at an average rate of approximately 875 tons per day. During 2008, mill recovery totaled approximately 93% silver, 93% lead and 83% zinc. In 2008, the Greens Creek mine produced 5.8 million ounces of silver for Hecla’s account and the Lucky Friday mine produced 2.9 million ounces.

Hecla was incorporated in 1891 and its common stock has been traded on the New York Stock Exchange for more than 40 years.

Source: Reuters.com, SEC Filings.

The Company’s net sales increased by 10.5% to $74.6 million for the second quarter of 2009, as compared to the net sales of $67.5 million for the second quarter of 2008. Second-quarter financial results showed a loss applicable to common shareholders of $0.9 million, or nil per common share, compared with a net loss of $44.4 million, or 35 cents per common share a year ago. Excluding dividends to holders of its preferred shares, HL reported net income of $2.5 million for the second quarter of 2009 compared to a net loss of $41.0 million for the second quarter of 2008.

At the end of the second quarter of 2009, HL had $57.4 million in cash and equivalents and $44.7 million in working capital. Debt outstanding at June 30, 2009, was $38.3 million and is due in 2010. Cash provided by operating activities in the first half of 2009 has increased, compared to the same 2008 period, primarily due to higher income.

During second quarter 2009, HL completed a private placement of common shares and warrants and received net proceeds of approximately $57.4 million. The offering consisted of 17.4 million shares of common stock and warrants to purchase 12.2 million shares of common stock. The securities were issued in the form of Units consisting of one common share and one-half common share purchase warrant. The Units were sold at a price of $3.45 per Unit. The strike price for the share purchase warrants is $3.68 per share. Proceeds from the private placement were used to prepay a portion of the term loan in early June.

Source: Yahoo! Finance, SEC Filings.

Analysts polled by Thomson Reuters consider the “Hold” strategy for HL, with one analyst recommending the stock a “Buy,” up from 0 analysts three months ago; three analysts rating the stock with “Hold,” the same number as three months ago; two analyst expecting the stock to “Underperform,”
the same number as three months ago; and one analyst recommending the stock a “Sell,” up from 0 analysts three months ago. According to Reuters Estimates, analysts are expecting the Company to report revenue of $241.4 million and a net loss of $0.07 per share for the fiscal year 2009; revenue of $252.6 million; and a net loss of $0.01 per share for the fiscal year 2010.

With 118 years of production, HL is the oldest precious metals miner in North America. In 2008 HL acquired 100% ownership of the sixth largest silver mine in the world – the Greens Creek joint venture in Alaska. The Greens Creek transaction increased silver reserves and resources to 325 million ounces or more than 2.5 times where they were in 2003. Currently, HL is by far the largest U.S. sliver producer and the second largest zinc and third largest lead producer. This transaction has also increased HL’s annual silver production in 2009, while maintaining a low cash cost per ounce of silver, relative to its peers.

HL is one of the lowest-cost primary silver producers in North America, producing 8.7 million ounces of silver at an average total cash cost of $4.20 per ounce in 2008. Second-quarter 2009 cash cost-per-ounce declined to $3.38 per ounce compared with $3.43 per ounce in the prior year’s comparable period in spite of lower lead and zinc prices which impact by-product credit. This also represents a significant improvement over first-quarter 2009 cash costs of $4.67 per ounce. The improvement was mainly due to greater prices for by-product credits, increased productivity and lower consumable costs.

HL produced 3 million ounces of silver in the second quarter of 2009, a 24% increase compared to the same prior year period. The increase in production was primarily due to higher tonnage throughput at the Greens Creek mine and significantly higher silver grades at the Lucky Friday mine. Year-over-year silver production was also higher since HL consolidated 100% ownership in the Greens Creek mine in mid-April 2008; prior to that period, HL had a 29.73% ownership interest in the mine. Overall, the Greens Creek mine in Alaska produced 2.1 million ounces of silver or 70% of total during the second quarter of 2009 at an average total cash cost per ounce of $2.14.

Recently, the Company restarted the deep development analysis at Lucky Friday Mine, with a goal of a feasibility study for development and associated infrastructure in the first quarter of 2010. The project has the potential to deliver higher metal production at lower costs, due to the higher grades and wider vein widths. This potential was supported by the highest density of drilling the mine has ever achieved in advance of development and production. Preliminary evaluation indicates grades for all metals are significantly higher than those in HL’s current mine plan in the key 6,600 to 7,500 levels.

HL had arranged $380 million in credit facilities in 2008 to help fund the $750 million acquisition of the Greens Creek mine in Alaska from its larger rival, Australia’s Rio Tinto. As of June 2009, the Company had repaid approximately $341.7 million of the $380 million drawn on the facilities. During the second quarter of 2009, HL made prepayments totaling $75.3 million against term loan reducing total debt to $38.3 million from $113.6 million at March 31, 2009, and from $161.7 million at December 31, 2008.

Prices of both precious and industrial metals continued to climb during the second quarter. In the second quarter of 2009, the average prices of silver, zinc and lead all were lower than their levels from the same periods last year, with average prices for gold being higher in the 2009 periods. However, prices for all four metals improved during the first half of 2009 from their levels at December 31, 2008. The average market price for silver in the second quarter was $13.73 per ounce or 20% lower compared to the same period a year ago, while the average price for gold increased 3% to $922 per ounce. Compared to first quarter 2009, silver was $1.12 per ounce higher in price, and gold was $13 per ounce lower in price.

As economic indicators increasingly point that the worldwide economy is pulling out of recession, investors shift from safe-haven-seeking mode to a recovery-minded approach. According to Barclays Capital, precious metals pulled in the most commodity-related investments during the year’s first quarter, but inflows to precious metal exchange-traded products were only $800 million during the second quarter. Hopes for an improvement in the economy and fears regarding the emergence of inflation are leading to higher commodity prices. As a precious metal, silver continues to attract safe haven flows as a cheap proxy for gold. An economic rebound may keep up the prices of silver, which has more industrial uses than gold.

Source: http://stockcharts.com/h-sc/ui

HL is trading above its 13-day moving average. While this is normally considered to be a bullish sign, the moving average is downward sloping, which means that investors have been liquidating shares during this time period and tempers the bullishness of the signal.

The Company’s MACD is indicating a weak bearish signal. Although the indicator is above the critical level of 0, which implies that the underlying moving averages are bullish, the MACD has crossed below its 9-day moving average or signal line. This suggests that positive momentum has begun to slow.

Hecla has been relatively stable recently. This is evidenced by the width of its Bollinger Bands, which are tighter than normal. Additionally, the Company is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

Hecla is traded with discount to peer P/S multiples. The Company has accelerated exploration and capital expenditure programs as a first step towards growing the reserves and production. The acquisition of Greens Creek mine has significantly increased Hecla’s silver production in 2009. The Company’s estimate for 2009 silver production is between 10 million and 11 million ounces. According to analysts, due to current economic conditions, the inflation is unavoidable. As a consequence, in the next few years precious metals are expected to soar, mining companies magnifying the gains.

Source: Thomson Financial, Yahoo! Finance, Analyst estimates.

Net Share Purchase Activity

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