Helca Mining (HL): 'No Better Silver Miner'

Posted Sep 8th 2010 10:00AM by Steven Halpern
Filed under: Newsletters, Commodities, Stocks to Buy

"The "golden" days lie ahead for silver and investors who get exposure to this commodity and stocks in the sector; in my view, there is no better silver miner than the 119 year old Hecla Mining (HL)," says Ian Wyatt.

The editor of Top Stock Insights explains, "The company is one of the oldest miners in the U.S. and operates in Alaska and Idaho.

"Over the past 12 months, silver has lagged increases in gold by a large margin and that will not last. Investors buy silver for the same reason as gold, inflation.

"People are increasingly looking to own physical gold and silver, as evidenced by record sales of precious metals coins by the U.S. Mint. Historically, gold would be the investment of choice. But silver is increasingly the precious metal of choice.

"Last quarter Helca produced 2.6 million ounces of silver, which was below last year's levels. The decrease is due to a reduction in ore grades. The decline in mined silver was also below most analyst estimates of 2.8 million.

"To combat the decrease in silver mined, the company was able to reduce cash costs per ounce mined to a negative $1.82. Most analysts expected about $1.20 per ounce, which is what the company forecast cash costs will average in 2010.

"The lower costs were mainly a result of negative $4.40 per ounce costs in Green Creek. Management expects to extract between 10 and 11 million ounces of silver at $1-$1.50 per ounce costs. An increase in silver prices would help this stock.

"Helca has done a good job of recovering in the past year. The company has raised money through stock offerings and improved operating margins. Production is expected to remain between 10 to 12 million per year until new projects begin extraction.

"Without an increase in production the company is reliant on increases in silver or decreases in costs to grow. Also, the company has no debt and $250 million in cash, which can be put into new projects or may result in a buyout.

"The stock does not deserve to trade at a high growth multiple but at 25 times earnings and an industry average of 40, the stock has room to increase. Look for shares to trade above 35 times current EPS or $8.50 this year."

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