In times of turbulence in any market, there are two things that always help pull you through – age and experience.
Hecla Mining Company (NYSE:HL) has both of these and it is for this reason that the company has the ability to outlast the current volatility in the mining sector. Indeed, Hecla is no stranger to volatile silver prices. Founded in 1890, Hecla arrived on the scene when silver was trading at an inflation-adjusted $20 per ounce. The price of silver then crashed to below $5 per ounce in 1925, before trending slowly higher and then rocketing to more than $100 an ounce in 1980, crashing down to $5 per ounce in 2000 and then pushing to the 2011 higher over the rest of the decade. Still, even after nearly touching $50 per ounce back in 2011, silver is cheaper than it was back in 1980.
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Hecla Mining Company (NYSE:HL) has survived silver’s volatile nature since 1890 and it is entirely possible that the company will continue to operate profitably far into the future. Financial data only goes back so far, but right now Hecla shares are trading at a price not seen since the price of silver fell to $5 per ounce back in 2000. (The stock actually traded lower in 2008, however, the whole market was trading at rock bottom prices.) This means by historical standards, Hecla is trading at the lowest valuation in 35 years!
Hecla Mining Company (NYSE:HL) is not alone—the whole industry has been lumped with low valuations. However, Hecla is well capitalized and unlike its peers, the company has not been spending heavily to rapidly drive earnings higher in the past few years. Instead, the company has been biding its time, waiting for the commodity boom to end. Now the boom is over the company is making gains, recently swooping on Aurizon Mines, owner and operator of two gold mines in Canada, paying CAD$4.75 per share for a total consideration of CAD$796 million, almost 40 percent less than the company’s CAD$1.3 billion valuation placed on it at the height of the gold boom in 2011. Hecla Mining Company (NYSE:HL) has also brought into two exploration stage companies, Brixton Metals Corp (CVE:BBB) and Typhoon Exploration Inc (CVE:TYP) for rock bottom prices, all this activity has occurred in the last six months alone. Additionally, the company also invested heavily in peers that were trading at rock bottom prices last year.
Furthermore, Hecla’s acquisitions have not been funded by a debt binge or secondary issue. The company’s only debt is a $500 million offering used to acquire Aurizon Mines Ltd. (NYSEMKT:AZK) (TSE:ARZ). Indeed, the company initially planned a $400 million issuance, but demand was so strong it upped the size of the issue. At the end of the first quarter, Hecla Mining Company (NYSE:HL) had a cash position of $168 million and total debt of $22 million, in fact, current assets outweighed total liabilities by 1.1 times. That said, after factoring in the company’s acquisitions and new debt I believe gearing could move up to around 40 percent—lower than that of larger peers such as Barrick Gold Corporation (NYSE:ABX) but more than the average level of gearing for the company’s closest peers in the silver miners sector.
Still, Aurizon is a relatively low cost gold producer, with an all in cost of $1,147 per ounce, below the $1,200 – $1,300 all in cost range that most miners work with. It is true that the falling price of gold will hit Aurizon Mines Ltd. (NYSEMKT:AZK) (TSE:ARZ)’s and Hecla’s profitability but even in the worst case, Hecla’s net income is set to nearly double after the acquisition. In addition, the exploration projects that Hecla Mining Company (NYSE:HL) has been buying up at rock bottom prices should add to the company’s future potential for sale, even if they are left undeveloped, when the gold price moves back to record highs.