Hecla Mining: Lucky Friday Is The Silver Key by Fun Trading

in syndication •  6 months ago 

Summary

  • Hecla Mining announced its third-quarter results recently, and they were not impressive. The stock initially sold off on the news.
  • However, a tentative agreement between Hecla Mining and the USW has been reached and is about to be ratified.
  • The future looks brighter with the resolution of the labor dispute at Lucky Friday. One strategy is to take profit from a third of your position.

(Source: Hecla Mining - Greens Creek polymetallic mine, Alaska, USA)

Investment Thesis

The Idaho-based Hecla Mining (HL) is considered a "silver" stock. Unfortunately, silver has been late at the party, and up until recently, the metal was not moving in correlation with the gold price. Finally, it did get a boost, but it did not last. However, silver has found support around $17.

The investment thesis is not as simple as it seems. While it is difficult to consider the miner as a long-term investment, the recent developments could indicate that the stock is about to go much higher. Thus, starting to accumulate a position for the midterm makes sense. I still recommend trading about one-third of your position to take advantage of the volatility.

If we look deeper, Hecla Mining is more a "gold" stock than a "silver" stock now. The metal production is strongly skewed to gold, which represents ~50% of the output, while silver represents only ~30%, and lead, and zinc are serving ~20%. Please look at the chart below:

The price of silver could be partly blamed for the poor performance of the stock. But, it is not the central issue that has influenced the company stock so negatively of late. The main problem is more attached to the intrinsic quality of the company producing assets than a meager price of silver.

I will comment more in detail later, but the troubles at Lucky Friday mine, Casa Berardi mine, and, more importantly, at its three high-grade gold mines in Nevada, especially at Fire Creek (e.g., Fire Creek, Midas, and Hollister) - purchased from Klondex Mines in July 2018 for $413.9 million - constitute a significant matter for the company balance sheet.


Data by YCharts

The CEO, Phil Baker, said it quite simply on the conference call:

We're glad there is a tentative agreement between the union's negotiating committee and the company that can be put before the membership for a vote. While neither side got all that it wanted, we think this agreement is consistent with agreements at other North American mines, unionized or not, and puts the Lucky Friday on a path towards long-term success. We don't know when or even if this will be brought to a vote by the membership, but we hope it's soon. Lucky Friday being fully operational will be good for our workforce or shareholders in the Silver Valley community. It's just a good thing for everyone.

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I like the momentum to the upside, look for a first target at the weekly supply at $3.65.