Mike Fagan's Precious Portfolio: Special Alert No. 6: Tier-2 Portfolio Addition

Alert No. 6
December 8, 2020

Special Alert: Tier-2 Portfolio Addition

Dear Precious Portfolio subscriber,

In today’s alert, we’re announcing a new portfolio addition from Tier-2 (Mid-Tiers).

Precious Portfolio: Alert #6

Established in 1891, Hecla Mining Company is the largest and lowest cash cost silver producer in the United States and is responsible for about one-third of all silver produced in the USA.

The company has operating silver mines in Alaska (Greens Creek), Idaho (Lucky Friday), and Mexico (San Sebastian) and is a growing gold producer with operating mines in Quebec, Canada (Casa Berardi) and Nevada (Fire Creek).

In addition to its diversified silver and gold operating and cash-flow generating base, Hecla has a number of exploration properties and pre-development projects in 8 world-class silver and gold mining districts in North America.

With an active exploration and development program, the company has consistently grown its reserve base for future production with 2020 reserves totaling 212 million ounces of silver and 2.7 million ounces of gold reserves — all calculated using some of the lowest price assumptions in the industry.

Hecla Mining has done an outstanding job managing the COVID-19 crisis including bringing in a lab to Juneau, Alaska, to provide real-time testing at the Greens Creek mining operation.

In Q3 2020, the company produced 3.5 million ounces of silver and 41,000 ounces of gold, and, aided by strong silver margins, recorded its highest level of free cash flow in a decade.

Hecla’s 100%-owned and operated Greens Creek mine in southeast Alaska is one of the largest and lowest-cost primary silver mines in the world. Last year, the mine produced 9.9 million ounces of silver at an average cash cost of $1.97 per ounce (Note: silver currently trades north of $24 per ounce).

Hecla’s 100%-owned and operated Greens Creek mine in southeast Alaska is one of the largest and lowest-cost primary silver mines in the world — representing the cash generating engine of the company: 22% increase in silver reserves in 2019; 10 million oz silver production, $101 million in cash flow.

Hecla announced the following mining updates for its third quarter ended 30 September 2020:

• Greens Creek Mine, Alaska: At the Greens Creek mine, 2.6 million ounces of silver and 12,838 ounces of gold were produced in the quarter. Higher silver production compared to the third quarter of 2019 was due to slightly higher ore production and grades. The mill operated at an average of 2,340 tons per day (tpd). Greens Creek’s nine months production was higher than anticipated due to higher silver grades. The fourth quarter assumes planned grades.
  
• Lucky Friday Mine, Idaho: At the Lucky Friday mine, 636,389 ounces of silver were produced in the quarter. The mine has continued normal operations during the pandemic with the ramp-up proceeding as planned. Lucky Friday is expected to increase production in the fourth quarter to full throughput before the end of the year resulting in an estimated annual production of approximately 3 million ounces in 2021.
  
• Casa Berardi Mine, Quebec, Canada: At the Casa Berardi mine, 26,405 ounces of gold were produced in the quarter, including 6,800 ounces from the East Mine Crown Pillar pit, with the decrease primarily due to lower mill throughput resulting from major planned mill maintenance activities. The mill operated at an average of 3,138 tpd. Casa Berardi’s nine-month production was lower than anticipated because of the government-mandated shutdown and planned mill maintenance activities, but production in the fourth quarter should increase due to expected high-grade underground production from the East Mine.
  
• San Sebastian Mine, Durango, Mexico: At the San Sebastian mine, 0.3 million ounces of silver and 1,931 ounces of gold were produced in the quarter. Mining was completed in the third quarter and milling is expected to be completed in the fourth quarter of 2020. The mill operated at an average of 512 tpd. The Company continues to explore this highly prospective land package and will evaluate further mining based on exploration success.
  
• Nevada Operations (Elko County, NV): At the Nevada operations, ore mined during the quarter has been stockpiled for the third-party processing expected in the fourth quarter. Gold production may not be realized until the first quarter of 2021. Mining of non-refractory ore is substantially complete. Mining of refractory ore for the bulk sample test is expected to continue through the remainder of 2020. Production from this test is expected to be between 5 and 10 thousand ounces of gold.
  

  Fire Creek Mine, Nevada
  

  Hollister Mine, Nevada
  

  Midas Mine, Nevada

Additionally, Hecla has acquired a ~10% interest in junior silver company, Dolly Varden (TSX-V: DV)(OTC: DOLLF), which is advancing a 40 million-plus ounce silver project in British Columbia, Canada.

On 1 September 2020, Hecla announced a 50% increase in its quarterly dividend plus a lower realized price threshold for its silver-linked dividend. On a per ounce produced basis at $25, the aggregate dividend returns more than 5% of the silver price.

Hecla president & CEO, Phillips S. Baker, Jr., commented:

“Our Board’s adoption of this improved dividend policy reflects Hecla’s position as the United States’ largest silver producer with mines that have strong operating performance and high silver margins. Our long-standing dividend policy has been enhanced with a larger base dividend and a lower price trigger for the silver-linked dividend. As prices rise, shareholders should get more of the company’s cash flow which imposes continued strong operating and capital cost discipline. Given Hecla’s realized prices quarter to date, if in September Hecla realizes $25 per silver ounce sold, the dividend paid in the fourth quarter is expected to be 3.5 times higher than the last dividend paid. So, the enhanced policy gives shareholders a substantial increase in their returns or more than a dollar dividend for every ounce of silver Hecla produces in the quarter.”

Hecla Mining has approximately 530 million shares outstanding for a current market cap of $2.83 billion.

Hecla is well-funded with US$97 million in cash and cash equivalents at 30 September 2020. Also, in Q3, the company repaid $50 million on its revolving credit facility and has no remaining balance outstanding.

Current price: US$5.33 per HL share: Buy up to US$5.40

Establish your Hecla Mining (NYSE: HL) position incrementally and look for opportunities to buy on weakness. Learn more about Hecla Mining Company at Hecla-Mining.com.

Upcoming…

In our next bi-weekly alert, we’ll be adding an additional 1 to 2 stocks to our Precious Portfolio; we are currently reviewing a number of small-cap, mid-tier, and large-cap resource stocks that meet our criteria.

Yours In Profits,

Mike Fagan 
Editor, Precious Portfolio 

Previous Alerts

Alert No. 1   |   Alert No. 2   |   Alert No. 3   |   Alert No. 4   |   Alert No. 5