Hecla Mining Co. HL tumbled 9.5% to $2.48 per share on Tuesday on the New York Stock Exchange following the release of production results for 2018.
The stock price fell because despite a 13% year-over-year increase in gold production to 262,103 ounces in 2018, which was a company-record output, gold equivalent production decreased 2.6% to 540,174 ounces.
Silver equivalent production increased 6.6% year-over-year to 43.6 million ounces in 2018.
Gold production increased thanks to a strongly performing Casa Berardi mine in Quebec, which is one of the two largest precious metals deposits of the company. The second largest deposit of Hecla is Greens Creek in Alaska. Compared to 2017, the yellow metal also performed better on the London bullion market in 2018, closing the year with an average price of $1,268.49 per ounce.
What has then impinged on the calculation of gold equivalent production was a lower-than-expected average price of silver and a reduction in the production of the grey metal.
Hecla Mining predicted a price of $17.25 per ounce of silver for 2018 while the precious metal has averaged $15.71 per ounce. Hecla’s ongoing focus on increasing the development rate of operations rather than production in Nevada, plus lower output from the San Sebastian mine in Mexico, resulted in a 17% decline in the production of silver to 10,369,502 ounces.
Gold represents about 50% of the company's total revenues, but it is evident that the improved performance of bullion on the London market and gold operations of the company weren’t enough for the market to welcome Hecla’s production results.
Silver accounts for 33.5-40% of total sales and the rest comes from the sale of lead and zinc.
After the decline, the stock is cheaper than it was a few days ago. The share price of $2.48 at close Tuesday is almost on par with the 50-day simple moving average line, well below the 100- and 200-SMA lines and falls in the 52-week range of $2.17 to $4.50. The market capitalization is about $1.2 billion following a 43% reduction for the 52 weeks through Jan. 15.
For Wall Street, Hecla Mining is a hold because the recommendation mean rating, which is an average of 11 estimates, is 2.5 out of 5. As of January, there are 11 recommendations on Hecla Mining Co., of which one is for a strong buy, two are for a buy, seven are for a hold and one is for an underperforming stock.
The average target price is $3.77 resulting from 11 estimates which range between a low of $2.5 and a high of $7. The average target price reflects a 52% growth from the share price at close Tuesday.
Gold is up trending. The yellow metal has a cumulative average of $1,288.85 per ounce so far this year, which is 1.6% up from the cumulative average of 2018. But I don’t think that rising metal alone is enough to drive the current share price of Hecla all the way up to the mean target before mid-February. This is because around mid-February, the company will release the financial results for the last trimester of 2018. Since the commodities performed worse than the corresponding period of 2017, Hecla Mining is highly expected to disappoint in terms of a negative bottom line with consequences for the market value, even in the case of slightly increased revenues.
Gold lost 3.7% to $1,228.09 an ounce and silver fell 13% to $14.55 an ounce in the fourth quarter of 2018 compared to the same quarter of 2017.
The Enterprise Value-Ebitda ratio of 8.88 is lower than the industry median of 9.3, signaling a cheap stock, but the ratio could be higher with fourth-quarter financials incorporated.
Therefore, it is best to wait before buying. Hecla’s catalysts consist of higher throughput expected from Greens Creek and Casa Berardi, even though the price-book ratio of 0.67 versus the industry median of 1.74 is a further indication of a cheap stock.
The 14-day Relative Strength Indicator of 47.44 suggests that the stock is neither overbought nor oversold.
Disclosure: I have no positions in any securities mentioned.
