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Why Hecla Mining Is a Buy

An ounce of gold traded at $1,563.30 on the London bullion market and at $1,565.10 on the Comex gold futures market at close on Thursday, Feb. 6, marking an increase of about 2.4% to 2.8% so far this year.

Gold is trending and projected to hit $1,650 as heightened economic uncertainty due to a lack of momentum in the global economy persuades investors to purchase gold and other safe-haven assets in order to protect the value of their wealth.

Investors who also seek to make a considerable gain out of a rally in the price of gold might consider adding shares of publicly traded producers in their portfolio, as these stocks usually perform much better than the U.S. market when the underlying commodity is climbing.

In the past year through Feb. 6, when gold rose almost 20%, the VanEck Vectors Gold Miners exchange-traded funds (GDX) increased by nearly 30%, beating the S&P 500 index, which increased by about 24%. The VanEck Vectors Gold Miners exchange-traded funds index is used as a benchmark for the gold mining industry, while the S&P 500 index represents the U.S. stock market.

With gold projected to add another 6% to its current price before mid-2020, I recommend shares of those stocks have outclassed the rest of the industry over the past 52 weeks, when the precious metal rose 6.5% and averaged $1,512 per troy ounce.

Hecla Mining Company

Thus, investors may want to consider buying shares of Hecla Mining Company (NYSE:HL), as this gold and silver operator with mineral assets in North America and Mexico grew 105% in the observed period.

Besides the next gold bull market, the share price of Hecla Mining will benefit from a further improvement in the throughput to process at Casa Berardi in Quebec, and from the higher grade of developed mineral to mine at Fire Creek in Nevada throughout the first part of the current year.

The company will also produce silver at one of the industry's lowest costs from its mineral reserves that are located in the United States and Mexico.

Currently, gold makes 55-60% of total sales, which in 2019 came in at $673.3 million (the highest ever reached by the company), while silver adds 25-30% to total sales.

In 2019, Hecla hit an output record with 272,873 ounces of gold produced (up 4.1% year over year). The company increased silver production by 21.2% to 12.6 million ounces (up from 10.4 million ounces in 2018).

Hecla Mining also produces lead and zinc which together account for the remaining 15% of total sales.

Looking ahead to full-year 2020, Hecla Mining guides for silver output of 11.1 million to 12.1 million ounces and for gold output of 212,000 to 225,000 ounces at an all-in sustain cost of $1,150 - $1,250 per ounce of gold equivalent and after by-product credits. Funds allocated to capital, exploration and pre-development expenditures are anticipated at around $132.5 million.

Its exploration team currently studies more efficient mining activities and engages in the pre-development of mineral resources that are located in eight of the most prolific mineral areas of North America and Mexico.

The stock has eleven Wall Street sell-side analysts recommendation ratings as of February: three buys, four holds, one underweight and three sell ratings. The average target price the stock is foreseen to hit within a year is $3.33 per share.

Shares of Hecla Mining Company traded at a price of $3.43 per unit at close on Thursday for a market cap of $1.74 billion. The share price has grown 30% so far this year to above the 200-, 100- and 50-day simple moving average lines, signaling that the current price is not cheap.

The price-book ratio is 1.03 versus the industry median of 1.5 and the enterprise value-adjusted EBITDA ratio is about 13.06 compared to the industry median of 8.82. Also, Thursday's closing price was 42% above the middle point of the 52-week range of $1.21 to $3.51.

Investors may want to wait for significant weakness in the share price before adding Hecla Mining to any position.

The 14-day relative strength indicator of 63 suggests that the stock is neither overbought nor oversold.

Disclosure: I have no position in any security mentioned.

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This article first appeared on GuruFocus.