Tom Szabo

Hecla Mining Company Q2 2008 Earnings Call Transcript

It is hard to believe that increases in transportation and smelting costs have added $3 per oz. to production costs at Lucky Friday and $5 per oz. at Greens Creek. That is just massive and pretty much wipes out whatever gains silver has had in the past year. It seems to me the higher lead-zinc production at Lucky Friday may have substantially reduced the silver grade of the concentrates, leading to higher transportation and smelting costs simply by virtue of greater units (weight and volume) involved. If so, someone made a pretty big blunder in financial planning and I can understand Hecla not being too eager to talk about it.

'Big Silver' Sees 'Little Silver' Targets

SVM has a poison pill at $8.33 and I doubt anybody would pay what Rui Feng would hold out for (probably $15). I also doubt the stock got crushed because of a dumb analyst. Rather, it is one of the few from the 2005-6 "go-go" era that is still riding 1,000% or more gains so some investors probably decided to cash in their big pile of chips. Too bad for them, the stock could theoretically go to $50 in a few years for another 1,000% gain. As for PAAS and HL, both very solid buys. Consider the call options for a kicker.

Long Ideas for an Upcoming Crash

These are not as much "top" picks as they are safe picks. Yamana? Everybody's favorite yet continues to be "undervalued" for some reason. Barrick--where is growth upside? Pan American--good but the obvious pick in silver along with Silver Wheaton. Hecla--this one has possibilities but again how "special" is this pick?

Hecla Mining: Best Valued Silver Producer

I don't know about $30, but this is clearly a $20 stock just to get to the same peer valuation as PAAS and SLW (since both have declined recently, the $20 is probably more like $17). The negative cash cost for silver is from zinc and lead, not just gold, so there is some exposure to base metals. But forgetting gold and base metals completely, the stock is still arguably undervalued based on projected silver production alone: 11 million oz. x $15 = $165 million x 10X revenue multiple (minimum for PAAS/SLW) = $1.65 billion / 123 million shares = $13.41/share. Of course, this excludes the $700 million cash purchase component of Greens Creek and explains why the shares are down around $8 currently. To wit, if Hecla were to issue shares to fund the purchase at $10/share (not likely, but a distinct possibility and it would certainly not happen at a lower price than that), then it would be $1.65 billion / 203 million shares = $8.12/share. As it stands, the plan appears to be the use of short to medium term financing to be repaid from operating cash flow. Regarding Venezuela, there must be some mistake as in 2007 La Camorra represented 30% of sales but was actually operated at a loss. The 3% probably refers to gross profit contribution, which is an entirely different thing.