Now May Be the Time To Stock Up On Hecla Mining

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Includes: CDE, HL
by: Andy So

I’ve had Hecla Mining Company (NYSE:HL) on my watchlist as a potential silver mining investment. Hecla is a 116 year old mining company headquartered in Coeur d’Alene, Idaho. HL dropped today nearly 12% to close at $6.70. I am watching HL carefully for an attractive entry point. Presumably shares of the company dropped on a cut of 2007 gold production. According to this Reuters article:

[Hecla Mining Company]…cut its full-year gold production outlook due to a temporary suspension of operations at its mine in Venezuela.

The precious metals company now expects full-year 2007 gold production of between 115,000 ounces and 120,000 ounces.

It had previously estimated gold production for the year to be 128,000 ounces.

If I am reading this correctly the drop in gold production is an estimated 8-13,000 ounces. This is hardly enough of drop in gold production to warrant a 12% drop in Hecla shares. Investors should note that gold contributes approximately 30% of the companies profit, the remaining 70% comes from silver production. Shares of Hecla many also face downward pressure from a drop in gold and silver prices today. Gold is currently trading at $660.90 and silver is currently trading at $12.63.

If you compare the HL chart to another one of my favorite silver picks, Coeur d’Alene Mines Corporation (NYSE: CDE), you will notice that the two shares have moved almost in lock-step since Coeur has gone public. There is some divergence from CDE in percentage gain. I believe this is mainly due to share dilution used to raise capital for the company and this contributes to CDE’s low P/E of 13.

hl-cde

I’ve written previous analysis on Coeur and while I consider the company a fundamentally better value than Hecla, I give HL a nod forward as being a better managed company in terms of delivering shareholder value. It is difficult for CDE investors to realize short to medium-term gains in share price due to the large amount of outstanding shares. While fund and individual accumulation or a possible reverse split of CDE shares will lead to unraveling the true value behind CDE, it will take some time. HL has a reasonable P/E of 21, an ROA of 6.24% and an ROE of 18.81%. The company has 111.34M in cash and no debt.

If you expect that gold and silver prices will rise long-term, now may be a good time to build a position in Hecla while shares are depressed. I expect to see some additional downward pressure on gold and silver prices in the short-term. My 2007 price target for gold is $700 per ounce, my price target for silver is $15 per ounce.

I may look too add HL to my portfolio if shares trade under or at the low $6 range.

Disclaimer: the author currently owns 15,000 shares of CDE purchased at an average price of $4.24.

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