Hecla Mining Co.'s Silver Moment

Shares of Hecla Mining Co. (NYSE:HL) have been beaten up during what should be extremely bullish conditions for the largest silver miner in the United States.

I think that presents some value for investors willing to take a contrarian view.

As I write this, Hecla Mining is down 50% in the past 52 weeks. I honestly find this situation a headscratcher − especially in light of where silver prices may be headed.

What's more, the company is sitting on a horde of cash and carries no net debt. This means the company is stable and able to function without access to capital markets.

As an investor, I consider this situation nearly bulletproof.

Notice that I said "nearly" ­− not completely.

There is one thing that can severely damage a company with a solid balance sheet. It is called lawsuits.

Unfortunately for Hecla, they had a bad 2011 in that regard.

The company had two fatal accidents at a producing mine with an additional third event that injured seven more workers.

These events caused the Mine Safety and Health Administration (MSHA) to close the shaft in question and require the removal of built-up material before Hecla can resume operations.

Known as the Lucky Friday mine, it may be shut down throughout 2012.

In the aftermath, a specific group of investors became so angry with management's disclosures relating to these fatal accidents that they filed suit.

This bad luck streak in the mines and in the courtrooms has hammered the stock price to a point I now find cheap, even considering the potentially damaging lawsuits.

In short, when I look at Hecla Mining today, I see value investing is at its best.

I love to find an out-of-favor stock where the fundamentals are still strong and the company is already profitable.

It's time to "Buy" Hecla Mining Co. (**) - before the market sees the silver lining in the fundamentals.

Hecla Mining's Silver Lining

You see, Hecla Mining Co.:

  • Has record revenue
  • Has record production
  • Pays a silver-based dividend
  • Is the largest US producer of silver
  • Has low price-to-earnings

Hecla announced record results in its latest earnings report. Revenue in 2011 was $477.6 million with gross profits of $265 million.

The company produced 9.5 million ounces of silver with a cash cost to produce, after adding in byproduct credits, of $1.15 per ounce.

Hecla also pays a dividend based on the price of silver. It's an unusual feature and another reason why I like the stock.

From their most recent release:

"Our Board's action to declare the silver-linked dividend and introduce a minimum quarterly dividend, reiterates Hecla's excellent operating margin and strong financial position," said Hecla's President and Chief Executive Officer, Phillips S. Baker, Jr. "In addition to increased cash returns, our shareholders will also have an opportunity to benefit from higher silver prices."

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