Shares of Hecla Mining (NYSE: [stock_market_widget type=”inline” template=”generic” color=”default” assets=”HL” markup=”{symbol} {currency_symbol}{price} ({change_pct})” api=”yf”]) were down in the double digits after the company’s top and bottom lines turned out to be worse than expected on account of weak metal pricing and rising costs. The Idaho-based company’s revenue and earnings fell substantially during the fourth quarter, and the guidance wasn’t solid enough to turn investor sentiment in its favour.
Hecla’s Price, Production and Cost All Disappoint
Hecla Mining produced 2.71 million ounces of silver during the fourth quarter and 10.37 million ounces for the full year. Both these numbers were lower than the year-ago period’s fourth quarter and full year production of 2.98 million and 12.48 million ounces.
Gold production, however, increased on a year over year basis. Hecla produced 70,987 ounces of gold during the fourth quarter as compared to 60,964 ounces during the year-ago period. For the full year, gold production came in at 262,103 ounces as compared to 232,684 ounces in 2017. As it turns out, the situation isn’t expected to improve drastically this year as Hecla expects to deliver 10 million ounces of silver and 290,000 ounces of gold.
The bigger problem, however, lies elsewhere. Hecla’s average realized price of silver for the fourth quarter and for the full year of 2018 came in at $14.58 and $15.63 per ounce, respectively. That’s down from the fourth quarter and full year 2017 prices of $16.87 and $17.23, respectively. Meanwhile, Hecla also saw a massive drop of 21% in both the price of lead and the price of zinc during the fourth quarter as compared to the prior-year period.
Along with the weak prices, Hecla’s cost profile was another problem for the company. Its all-in sustaining cost per ounce of gold rose 4% during the year to $1,226, while all-in sustaining costs per silver ounce increased a massive 45% year over year to $11.44.
The higher costs, weak production, and lower prices meant that Hecla posted an operating loss of $24.4 million for the quarter as compared to a profit of nearly $23 million in the prior-year period. In all, nothing went Hecla’s way last quarter thanks to the several headwinds listed above, though there might be some respite for the company on account of improving precious metal prices.
Improving Precious Metal Prices a Potential Tailwind
Silver prices have gathered solid momentum in the last three months, rising nearly 13% to $16.00 an ounce. Looking ahead, it is estimated that the price of silver could rise to $18 an ounce, which would mark a big improvement over the prior-year period’s prices. That would help Hecla offset the slight drop in its full-year silver production to some extent.
Meanwhile, gold prices are trading close to $1,330 an ounce, higher than the $1,265 an ounce recorded by Hecla in 2018. Assuming that Hecla manages to increase its production, its gold-related revenue should increase substantially.
However, investors should note that Hecla’s all-in sustaining cost per ounce of gold is expected at $1,250 an ounce this year, up from the prior-year period. On the other hand, the all-in sustaining costs of silver are expected to go down to $11.00 an ounce.
In all, Hecla is trying to keep a handle on its cost base this year, which could prove to be a tailwind considering that the prices of gold and silver have been on the rise. Additionally, the company expects its long-term gold and silver production profile to improve thanks to the record-setting reserves that it reported recently.
But investors should brace themselves for a mixed year ahead if precious metal prices go the wrong way, as that would weigh on Hecla’s potential turnaround.
