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Hecla Mining: Expect More Upside

Summary

HL’s latest results indicate that there is more upside to be had as the discovery of higher-grade intersections will lead to lower costs and improve cash margins.

HL’s drill intersections have revealed grades of 1.54 ounce/ton of gold and 288.6 ounce/ton of silver at San Sebastian, where costs are already low and IRR is expected at 400%.

Higher grades will allow HL to access more gold ore with less digging, leading to lower waste material and higher extraction, thereby enhancing its margins due to lower costs.

HL has also added a new site at Casa Berardi that’s expected to further improve its cost profile and production at the same time due to high-grade mineralization.

It looks like Hecla Mining's (NYSE:HL) strong run on the stock market is set to continue. Having already gained more than 260% this year, Hecla's latest results indicate that there is more upside to be had. A couple of weeks ago, when Hecla released its second-quarter results, it posted a whopping 64% increase in the revenue, while earnings beat the consensus forecast by a penny.

After the results were released, JP Morgan decided to upgrade Hecla to Overweight from Neutral, giving the stock a $8 price target. JP Morgan cited Hecla's strong asset base as a key reason behind the upgrade. According to me, Hecla's strong second-quarter results were not at all surprising, since I had expected the company to deliver strong gains on both the top and bottom lines.

After the latest results and the guidance, I believe that Hecla is in for better times ahead since it will be able to further increase production and lower costs to take advantage of stronger precious metals pricing. Let's see why.

Focus on high grade mines is the right thing to do

Hecla Mining is expected to produce 15.75 million ounces of silver this year, up significantly from its initial guidance of 13 to 14 million ounces of silver. The important thing is that this increase in silver production will be achieved at a lower cost base. In fact, Hecla expects its cash costs for silver...


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