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Hecla Mining: Well Positioned to Profit From Rising Metal Prices

- By Alberto Abaterusso

Hecla Mining Co. (HL) is a precious metal miner headquartered in Coeur d'Alene, Idaho. It is listed on the New York Stock Exchange with a market capitalization of $1.84 billion as of the last closing price.

The company has a total of 395.44 million shares outstanding. Company insiders hold 1.08% of the stock and institutions hold 53.40%.

Hecla Mining is not only engaged in the production and sale of silver, gold and other precious metals, but also seeks to enhance shareholders' long-term value through acquisitions of mineral resources and other mining related activities. Hecla Mining has reserves of 2.1 million ounces of gold and 175 million ounces of silver as of Dec. 31, 2016.

Hecla's reserves are defined according to the lowest gold and silver prices per ounce. The price of gold and silver taken as assumption for the determination of the company's reserves is $1,200 per ounce and $14.50 per ounce.

Hecla produces silver from its mines in Alaska (Greens Creek), Idaho (Lucky Friday) and Mexico (San Sebastian). It produces gold at Casa Berardi in Quebec, Canada. The company's asset portfolio also includes "exploration properties and pre-development projects in seven world-class silver and gold mining districts in North America."

According to the company's website, the wholly-owned Greens Creek mine "is one of the largest and lowest-cost primary silver mines in the world." Hecla says the mine is its cash-generating engine.

The company has grown silver production at Greens Creek over the last six years, from 6.5 million ounces of silver in 2011 to 9.25 million ounces in 2016. The all-in sustaining cost per ounce of silver was $9.42 at Greens Creek.

At Lucky Friday, silver is mined through underground activities. The company has extended the life of the mine for an additional 34 years due to the successful completion of its shaft project. In 2016, the company produced 3,596,010 ounces of silver at an AISC of $20.66 per ounce. The yearly production of silver grew more than 20% over the last six years.

Casa Berardi is an underground mine where the company produced 145,975 ounces of gold at an AISC of $1,244 per ounce.

San Sebastian is a gold and silver producing mine. It is a new acquisition. The company began production at the end of 2015. In 2016, Hecla produced 4,294,123 ounces of silver and 34,042 ounces of gold at an AISC of $1.99.

Thanks to its highly productive assets, Hecla Mining achieved record production in 2016. The company produced 17.2 million ounces of silver, a 48% increase on a year-over-year basis, and 233,900 ounces of gold, a 24% increase on a year-over-year basis.

From the sale of one ounce of silver and gold, the company realized $17.76, a 10% increase on a year-over-year basis, and $1,245, an 8% increase.

Due to higher production and precious metal prices, Hecla produced a profit of $69 million (18 cents per share) in 2016, up from a loss of $87.5 million (or 23 cents) in 2015.

The profit adjusted to one time charges was $60.7 million or 16 cents per share.

In 2017, the company expects to produce between 14 million ounces and 15.5 million ounces of silver and between 230,000 ounces and 250,000 ounces of gold. Silver-equivalent output is forecasted to range between 46.5 million and 49.4 million ounces, which would represent a 4% increase - on average - from the output of 2016.

Hecla Mining closed 2016 with $169,777 in cash on hand and total long-term debt of $500,979.

The cash flow generated from operations was $225.3 million, a 111% increase from 2015. During the year, the company spent $180.8 million in capital expenditure. Therefore, the free cash flow was $44.5 million, a 243% increase on a year-over-year basis.

The stock is trading with a price-sales ratio of 3.1 and a price-book ratio of 1.34.

The EV/EBITDA is 9.8 and the forward price-earnings ratio is 14.6.

Disclosure: I have no position in Hecla Mining Co.

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This article first appeared on GuruFocus.