Hecla Mining Company explores for and produces silver, gold, lead, and zinc. Its main silver mines are in Idaho and Alaska. In 2009, Hecla Mining Company acquired full ownership of the Greens Creek mine in Alaska from Rio Tinto – previously, Hecla had owned a 29% share. This acquisition doubled Hecla’s silver production. Shares of Hecla Mining Company trade on the New York Stock Exchange under the ticker symbol HL.
This is the fourth in a series of 2012 silver stock reviews. In our first, we explained various stock-trading terms, such as price-to-earnings ratio (P/E ratio), how earnings are measured on a year-over-year basis, etc. For a review of these concepts see our earlier review of Silver Wheaton. Otherwise, carry on.
Valuation
Hecla Mining Company has a trailing P/E ratio of 11.1, compared to an industry average of 14.1, and Hecla’s own five-year average of 27.6. Hecla’s price-to-book ratio of 1.1 means that its shares are currently trading at just a 10% mark-up to their net-asset value, compared to an industry average of a 100% mark-up, and Hecla’s own five-year average of an 80% mark-up. Hecla’s price-to-sales ratio of 3.1 is also below the industry and its five-year averages, which are 5.1 and 4.4, respectively. Only in terms of price-to-cash flow ratio is Hecla given a premium multiple of 26.5, compared to an industry average of 11.2 and a five-year average of 16.6 – but this is explained by the cash expense of Hecla’s acquisitions, which are amortized over a greater period, thus having less of an impact on earnings than cash flow.
On a forward basis, Hecla Mining Company has a P/E of 8.7, which translates into an ultra-low PEG of 0.3. With sub-industry and sub-historical multiples across the board, except for the easily explained price-to-cash flow, Hecla Mining does look like a great buy in terms of its valuation metrics. But there’s more to consider…
Financials
In 2012, Hecla Mining Company reported net income of $150.6 million. This was up in a big way from 2011’s result of $35.35 million in net income. In 2009, Hecla earned $54.19 million, and in 2008, it posted a net loss of $68.1 million. Thus, it is safe to say that Hecla Mining is inconsistent with its earnings.
In terms of sales, Hecla is a bit more predictable. It posted revenue of $477.6 million in 2011, up from $418.8 million in 2010, $313.5 million in 2009, and $192.7 million in 2008. Two-thousand-eight sales were down from 2007’s $222.6 million, though.
In the more recent past, Hecla’s results haven’t been as strong. Last quarter, the firm beat earnings expectations by 20%, but still saw EPS fall by 54%, year over year. Worse yet, estimates for the current quarter – the results of which will be announced on August 8 – were revised down to -54%, year over year. Sales were down 33% last quarter, too. For the year, Hecla is expected to see its bottom line fall by 42.85%, which should definitely give investors pause.
Technicals
Hecla Mining Company is a penny stock. This does not mean the stock trades for less than a penny, or less than a dollar, but less than $5. As of May 25, 2012, Hecla closed at $4.50. Over the past year, it has traded as low as $3.70 and as high as $8.65.
On May 24, Hecla surged from a previous close of $4.31 to $4.48. This put the stock above its upper Bollinger band. May 25’s close at $4.50 confirmed that breaking of resistance. If Hecla is able to stay above that level on Tuesday, May 29, it could be a real breakout candidate. If it cannot, then it is probably better to pass on the stock and wait for a better entry point.