I have commented on the value available at Hecla Mining Company (NYSE:HL) before, previously noting that the company’s age and experience will help it ride out the tough times currently hitting the mining industry.
Indeed, the company recently released its second quarter results, which proved my point, showing that the combination of experienced management, strategic operations and low cost mining operations have kept the company growing and well positioned to reward investors well into the future.
Hecla showed a loss during the past two quarters
Having said that, the company has made a loss during the past two quarters. However, these losses have been the results of the company’s acquisitions and temporary loss of production from its Lucky Friday mine, which was closed to carry out work designed to extend the mine’s life. Nonetheless, Lucky Friday’s return to full production has been costly for the company. During the second quarter, the Lucky Friday mine produced 217,096 ounces of silver, at a total cash cost per ounce of $32.19 – the company realized an average selling price of $16.27 per ounce for silver during the quarter.
In comparison, the company’s Greens Creek mine produces silver for a cash cost of $2.71 per ounce. However, production at the Lucky Friday mine is expected to ramp up to 1.3 million ounces for the second half of the year, which should push production costs down enough to return the mine to profitability.
What’s more, the company remains proactive at its other mines. Hecla’s Greens Creek mine increased year-on-year silver production by 48% and the production cost per ounce fell by 54% from the first quarter of this year.
Still, the biggest development for Hecla Mining Company (NYSE:HL) of the last quarter has been the acquisition and integration of the Casa Berardi gold mine. This is the first quarter where investors have been able to see how profitable this asset is actually going to be for the company in the long term.
Hecla produced 6,740 ounces of gold from the mine
Hecla Mining Company (NYSE:HL) produced 6,740 ounces of gold from the mine during its first month under the company’s wing, at a cash cost of $1,152 per ounce. However, the company is expecting to cut this cost down by 22% during the second half of the year, to $900 per ounce, and produce 60,000 ounces of gold during the half – the company expects production to ramp up to between 125,000-150,000 ounces of gold per year over the next few years.
Hecla’s management have been cost cutting elsewhere too. Exploration and pre-development budgets have been cut by 28% and 35% respectively.
Hecla still looks to be good value play
So what does this all mean for Hecla? Well, the company is still under pressure from falling precious metals prices but with aggressive cost cutting programs underway, the company is set to maintain its low cost of production and should keep profit margins and cash flows high. Furthermore, with CAPEX falling and development projects reaching inflection point, the company’s capital spending should start to fall over the next few quarters. This should lead to Hecla Mining Company (NYSE:HL) becoming cash flow positive. From EBITDA of $31.5 million during Q2, the company spent $34.5 million on CAPEX and $10.7 on exploration and development, other outflows totaling $36.1 million were acquisition related and are non- recurring. With CAPEX and costs falling, development costs being slashed by 30% over the next quarter, Q3 should see Hecla become cash flow positive, or at least break even.
With net debt to assets at only 10%, a current ratio of 2.5 and a book value of $3.9, Hecla Mining Company (NYSE:HL) still looks to be good value play with plenty of potential for a future re-rating.