Is Hecla Mining’s Recent Stock Rally Sustainable?

Hecla Mining stock has made a remarkable comeback in June, rising as much as 37% thanks to the recent rally in precious metal prices and the company’s course correction in Nevada. But will Hecla Mining be able to sustain this recent rally for long given the problems it is facing? Let’s find out.

What Has Propped Up Hecla Stock?

Hecla Mining’s Nevada operations have proven to be a sore point for the company. The company had delivered a net loss of $25.5 million in the first quarter of 2019, and Nevada accounted for $13.8 million of those losses.

Hecla blames weak grades and recoveries at Nevada for its problems, which have eventually led to higher costs. As a result, the company has decided that it will reduce its spending on this asset. According to CEO Phillips Baker:

However, the Nevada operations have not generated the cash flow we had hoped for so we are curtailing most development and reducing the workforce with the goal of the operation generating positive cash flow in the second half of the year. We still see lots of opportunities to improve costs, manage water, improve recoveries and explore but only plan to do it within cash flow.

So Hecla has decided to turn its focus towards reducing its costs as it tries to bring Nevada into a cash-flow positive state. The company plans to execute a company-wide capital expenditure cut of $25 million, and that will involve laying-off a quarter of the Nevada workforce.

Hecla now estimates that it will produce 60,000 ounces at Nevada. The production will be achieved at cash costs of $1,200 an ounce, while all-in sustaining costs are expected at $1,700 an ounce.

So the mine will continue to incur high costs this year, and this could keep Hecla from taking advantage of an increase in gold and silver prices.

Hecla Is Showing Signs of a Turnaround

Analysts are expecting an upbeat performance from Hecla this year, especially a turnaround in the second half.

Hecla’s course correction in Nevada comes at a time when the company is already showing signs that its business is turning around.

In the first quarter of 2019, the company delivered an increase in gold and silver production. It clocked silver production of 2.92 million ounces, up from 2.53 million ounces a year ago. Higher production and sales meant that Hecla’s revenue increased from $139.7 million a year ago to $152.6 million in the first quarter.

More importantly, analysts are expecting an upbeat performance from Hecla this year, especially a turnaround in the second half. The company is expected to deliver a 10.5% increase in revenue in 2019, and keep its loss at a level of $0.11 per share, in line with last year’s levels.

So if Hecla manages to bring about an improvement in its operating profile by getting Nevada in good shape, it could do well in the second half of the year. In such a scenario, the stock could keep getting better and sustain its recent rally.

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