Hecla Mining Has Some Serious Problems to Overcome

Hecla Mining stock dropped after the company’s latest set of results turned out to be a mixed bag. The company’s revenue was better than Wall Street’s estimates, but its loss was double of what analysts were expecting.

Not surprisingly, Hecla stock dropped in the double digits after the results were released. Let’s take a closer look at what went wrong for Hecla last quarter and if it is capable of making a comeback going forward.

The Positives First

Hecla’s gold and silver production increased during the first quarter. The company delivered 2.92 million ounces of silver as compared to the prior-year period’s production of 2.53 million ounces. More importantly, the company was able to place nearly 2.9 million ounces of silver on sale during the quarter as compared to 2.09 million ounces during the prior year period.

Thanks to an increase in ounces sold, Hecla delivered revenue of $152.6 million during the quarter. By comparison, the company’s revenue in the prior-year period stood at $139.7 million.

The Big Problem

The increase in revenue wasn’t enough to save Hecla’s bottom line from crashing. Hecla delivered a net loss of $25.5 million during the quarter as compared to a profit of $8 million in the prior-year period.

Hecla’s Nevada operations were a major driver of its losses during the quarter. The company incurred a loss of $13.8 million in this area on account of higher costs, which were driven by weak grades and lower recoveries.

Also, Hecla’s operations at Casa Berardi were impacted by mill maintenance and planned lower grades, hurting sales from this mine. In all, Hecla witnessed a massive increase in costs last quarter and this dented its bottom line.

So even if the company manages to increase its production in the future, it will have to keep a handle on its costs. Now, Hecla can keep its costs in check only if it manages to improve its grade profile. The good news is that the company has taken steps to improve the same.

The Silver Linings

Hecla Mining recently reported that it has witnessed successful drilling results at the Casa Berardi, San Sebastian, Greens Creek, and Nevada mines.

The company was operating a total of 20 drills across these five mines. The good news is that Hecla is now witnessing potential higher grades at these mines.

Analysts expect Hecla to reduce its loss to $0.07 per share this year as compared to $0.11 in 2018, with more reduction in the cards in 2020.

At Casa Berardi, Hecla has managed to tap into a couple of high-grade extensions that have the potential to turn into new underground mining areas. Meanwhile, at San Sebastian, Hecla is now witnessing the potential for a longer mine life. Similarly, the company now has access to a few more high-grade areas across the other mines, which should allow it to increase its production profitably in the future.

This is probably why analysts expect Hecla to reduce its loss to $0.07 per share this year as compared to $0.11 in 2018, with more reduction in the cards in 2020. But investors should wait for concrete results to arrive before taking a call as Hecla Mining has to ensure that its positive developments translate into profitable production growth.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan
Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects.

Leave a Reply

avatar
  Subscribe  
Notify of