With inflation pushing real interest rates back into negative territory, analysts are expecting a solid recovery in the gold price to occur sometime in the second part of the year.
At $1,252.11 per troy ounce, the bullion is now trading cheaply. Most U.S. publicly-traded gold mining companies also are listed at compelling prices. Current valuations, in fact, are creating good entry points for investors who may want to get exposure to the metal through its producers.
One of these stocks is Hecla Mining Co. (HL, Financial) The market is indicating a convenient entry point at $3.46 per share. The value is below the 200, 100 and 50-SMA line. The 52-week range of $3.25 to $5.58 per share indicates the current market value is far from the high.
The stock is also cheap because the price-book ratio of 0.93 times and the EV-to-Ebitda ratio of 9.9 times. These two ratios, which I consider most when screening for gold mining stocks, are either far below or on par with the industry. The industry has an average price-book ratio of 2.06 times.
Hecla Mining Co. has a recommendation rating of 2.5 out of 5. The value is a mean result of 11 recommendations by analysts. Three analysts are for a Buy approach and seven are for a Hold approach. Only one analyst foresees an underperforming stock within the 52-weeks of trading.
The average analyst predicts Hecla Mining will hit $4.96 per share. That is a mean of 10 estimates that range from $3.60 to $7.50 per share. The average target price is a 43.4% growth from the current share price.
The upside can be substantial if we acquire the stock at today’s valuations and have the patience to wait for the next bullish gold market.
The balance sheet of Hecla Mining Co. emerged from second-quarter operations stronger at $245 million. That is not bad for a small precious metal producer. The amount of cash on hand is the real catalyst to watch. The company is expected to use that cash in order to acquire Klondex Mines (KLDX) in a deal expected to close next month.
The cash on hand grew $33 million from the previous quarter, thanks to improved results on production. In the second quarter, the company produced 2.6 million ounces of silver and 60,313 ounces of gold for equivalent outputs of silver of 10.5 million ounces and gold of 133,158 ounces.
Higher grades resulted in a 14.7% year-over-year increase in the production of gold, which offset a 7.5% decline in the production of the grey metal.
The miner also produces base metals. The production of lead was 5,522 tons and zinc was 14,299 tons.
(Disclosure: I have no positions in any security mentioned in this article.)
