As long as the market continues to trade in an uncertain environment, and the Fed continues its QE-2 program, the price of commodities will either remain stable or rise, given all things being equal, that is.  How long these conditions will exist is unknown, so any prediction on the spot price of gold or silver is, at best, a shot in the dark.  Thus, the question below is a difficult one to answer, but I will give it a shot.  

What is your opinion on holding SLW and HL as long-term investments?

First things first … Let me define what the topic is here.

Hecla Mining Company (HL) engages in the discovery, acquisition, development, production, and marketing of silver, gold, lead, and zinc.

Silver Wheaton Corp. (SLW), together with its subsidiaries, operates as a silver streaming company worldwide.

We are not talking about the spot price of gold or silver here, but we might as well be, as a direct correlation between the spot price of these metals and the companies that produce and distribute the metals exists.  However, when looking at the companies as investments, one has to look also at the fundamentals of the company, as well as the immediacy of price.

Some of the key fundamentals of SLW indicate it might be a company on the fly from the rapid increase in the price of silver.  The P/E ratios seem high, which means one has to question the long-term “value” here, even if profits and operating margins are good.  As well, look carefully at the ROA, ROE, and amount of cash on hand and the total debt.  The operating cash flow and the levered cash flow seem weak, and the company does not pay a dividend.

As to HL, the fundamentals are relatively on par with SLW.  The P/E ratios, the profit and operating margins are about half of SLW, but the ROA, the ROE are close, and the total cash and total cash per share are almost the same, as well.  The real difference is the operating cash flow and the levered free cash flow. HL is much lower in these last categories and it does not pay a dividend, as well.

The above are some of the things to consider when looking at long-term investments of companies so closely tied to trades that many might call “crowded.”  Gold and silver may or may not hold their lofty levels for much longer; it is so difficult to know at this point.  So, the question one has to ask is this:  Do these particular companies have the ability to sustain rising prices if the bottom should fall out of the gold and silver market? 

Trade in the day; invest in your life

Trader Ed