The writing is on the wall. The days of cheap capital are slowly coming to an end. Following the announcement by Federal Reserve Chairman, Ben Benarke, that he will start winding down the asset purchase program that was meant to shore up the faltering U.S. economy, other central banks seem likely to follow suit. The threat of a double dip recession seems to have abated, and policy makers seem more worried about inflation. As the Federal Reserve was pumping money into the economy at a rate of about $85 billion a month during the past four years, stocks and commodities were some of the biggest gainers. Hecla Mining Company (NYSE: HL), in part, benefitted from the commodity boom, but its fortunes now seem to be taking another turn.
About Hecla Mining Company
Though the company has existed for more than a hundred years, its activities were mostly limited to exploration. It is only recently through the acquisition of properties in Mexico, Canada, and parts of the United States has the company become a fully-fledged mining company. Hecla Mining produces unrefined gold and silver to traders and dealers and provides lead and zinc concentrate to smelters. The company is known to be the lowest cost silver producer in the United States.
End of the Commodity Boom
Since the beginning of 2013, gold has slumped more than 40% on fears that growth in China and other emerging markets may be slowing down. Silver, a precious but more abundant metal, is also seeing a slump in prices. Improving economic conditions have meant that investors see precious metals as less of a safe haven. Having traded above $5 at the end of 2012, Hecla Mining Company shares seem to be on a downward spiral. Investors are dumping stocks exposed to commodities as it is not known when prices will bottom out. Economic data shows consumer spending increasing, as seen by the record auto sales, and improvement in home prices. This reflects that more money is moving to the real economy at the expense of stocks and other securities.
Should You Buy Hecla Mining Company Shares?
For smart investors this could be the best time to purchase Hecla Mining stock for the simple reason that the real GDP growth follows a cyclical trend. During boom periods commodities like silver are less valued and during a downturn they provide a safe haven for investment. For long-term focused investors, the stock is at bargain price. A fact about Hecla Mining Company, which makes this stock a great buy, is that it hedges against fluctuations in commodity prices. The company hedges all revenue from zinc and lead, but not for silver which makes up 90% of its revenues. Due to this program, the company is able to maintain stable cash reserves and pay investors a minimum dividend each quarter. The company's balance sheet is also healthy with minimum debt. Most analysts have given the company's stocks a hold or buy rating. Gold production is set to increase in the year 2013 and this will compensate for a decrease in prices.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.