Hey what the heck I am buying and accumulating. Everyone wants to dis these old line companies but this is what the brokers and joe 6pack know:
SPECIAL SITUATIONS
Hecla Mining Company (NYSE: HL) $1.33
One of the best performing sectors recently has been the most beaten down one. No, it is not technology, but mining. Gold prices have surged to levels not seen in over two years, as the precious metal has broken through the psychologically important $300 level. It appears that after a long hiatus as a safe-haven, that the combination of international terrorism fears and growing accounting worries are causing investors to flock to the metal. Companies such as Hecla Mining, a 110-year old company that mines and processes silver and gold in the United States, Venezuela and Mexico, are likely to benefit.
The company’s stock, which hit a high of $7 in April, 1998, has languished as a result of the growing technology mania. However, we believe that a combination of the turnaround that is already in process at the company and surging metals prices makes this an attractive entry point for investors. The company recently reported net income of $2.3 million, or 3 cents per share, for the year 2001. This compares to a net loss of $84 million, or $1.26 per share, in 2000. This substantial improvement occurred without the benefit of an increase in metals prices. The company achieved this by increasing gold production by 33% and reducing gold and silver-related production costs by 37%. The company has also increased reserves at both the La Camorra gold mine in Venezuela and the San Sebastian silver/gold mine in Mexico.
The performance improvement was dramatic, according to its recently released results. The company increased its gold production by nearly 50,000 tons during the past year, while reducing production costs from $211 to $133 per once. The company showed a similar improvement in silver. San Sebastian, the company’s new mine located in Durango, Mexico, had a tremendous start-up in 2001, going from an exploration project to an operating mine, while being cash self-sustaining. This is highly unusual, as these projects often require substantial cash infusions. We believe that this demonstrates that the company is capable of developing other projects without jeopardizing its financial position.
Just as the company has been able to improve its operating performance, it has also significantly enhanced its financial condition. The company increased its cash position from $1.4 million in 2001 to $7.6 million at the end of 2001. It also reduced its debt levels by $50 million. This should ensure that the company does not need to raise capital at its current price. The stock has increased from $0.79 on November 21st to $1.33 on Friday. Volume has been significant, a positive sign when a stock is rising in value, as it indicates that institutions could be accumulating positions. It has now traded one million shares or more in two of the last three days, which has not happened since May. We believe that the combination of the substantially improved operating performance along with rising prices for metals gives investors significant upside potential, as the company’s valuation is still just $100 million. |
