Silver crashed from multi-decade highs over the summer which put pressure on silver mining stocks. Hecla Mining Company (HL) is still expected to see double digit earnings growth in 2011 and 2012. Yet this Zacks #1 Rank (strong buy) also has a lot of value with a forward P/E of 10.
Hecla Mining is one of the 20 largest silver producers in the world and one of the few silver-focused miners. The company produces silver at 2 mines: Green Creek in Alaska and Lucky Friday in Idaho.
It is also in development in Colorado and Mexico.
Being in stable geopolitical regions is a big selling point as nationalization and taxation concerns have been front and center for mining companies in 2011.
Increased Its Credit Facility
On Oct 11, Hecla announced that it had increased its undrawn secured revolving credit facility to $100 million from $60 million.
As of Sep 30, 2011 the company had cash and cash equivalents on hand of $413 million and no significant outstanding debt. With the addition of the $100 million, the company said it has sufficient capital to fulfill its settlement obligations for the environmental liability at the Coeur d’Alene Basin Superfund site, which included $168 million due on Oct 11.
Hecla is obligated to pay $263.4 million plus certain interest payments over a period of 3 years to the United States, the State of Idaho and the Coeur d’Alene Tribe.
Dividend Linked to Silver Prices
On Sep 20, Hecla became the first silver miner to announce that it was linking its dividend payout to the price of silver.
If the average quarterly realized silver price is $30, then Hecla will pay 1 cent per share in that quarter or 4 cents for the year.
Under this new policy, the expected third quarter payout should be 3 cents per share if silver averaged $40 per ounce in the quarter. That is 12 cents per year.
If silver were to average $60 an ounce in a quarter, shareholders would get 7 cents in that quarter.
Sales Rose 33% in the Second Quarter
On Aug 9, Hecla reported its second quarter results and saw sales jump 33% to $117.9 million compared to the second quarter of 2010.
The quarter was clearly boosted by the surging silver prices. The average realized per ounce was $35.80 compared to just $18.96 in the second quarter of 2010.
For the first half of the year, average realized prices were 102% above those of the first half of 2010.
Silver margins continued to be high despite increasing industry cost pressures.
The company hasn’t been consistent on surprising on the estimate and this quarter was no exception. Hecla missed on the Zacks Consensus by 27%. Earnings per share were 11 cents compared to the consensus of 15 cents.
2011 and 2012 Full Year Estimates Mixed
The 2011 Zacks Consensus Estimate has been holding at 56 cents per share over the last 30 days. This is down from 60 cents 90 days ago.
But earnings are still expected to grow by 80% compared to 2010. The company made just 31 cents last year.
Analysts see more growth heading into 2012. 1 estimate was raised in the last week which pushed the 2012 Zacks Consensus up to 63 cents from 62 cents.
That is further earnings growth of 12.5%.
Shares Decline in 2011
It has been a tough year for shareholders despite silver prices surging earlier in the year. Shares have fallen for most of 2011.
But Hecla is now a value stock.
In addition to a P/E of 10, the company has a price-to-book of only 1.5. A P/B under 3.0 usually indicates value.
Hecla also has a solid 1-year return on equity (ROE) of 12.9%.
With the Coeur d’Alene settlement finally behind it and silver prices holding at historically high levels, Hecla offers a way to get in on the silver trade with double digit earnings growth AND the possibility of a dividend.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her at twitter.com/traceyryniec.
