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Jbay76 (< 20)

Hecla Mining Uncertainty

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11

April 13, 2011 – Comments (6) | RELATED TICKERS: HL , SIL

After reading almost all of Hecla's 10k for 2010, I am left wondering whether or not their future is on a good track.  I haven't read many 10ks due to the fact that 1) I have only been investing for a few years, and 2) I have been lazy.  And, I think this is my first time reading a miners 10-K.  Having said that, I have never imagined reading an annual report rife/ripe/loaded with so many warnings about investing in the company.

For example:

1) Global financial crisis may impact business and financial condition in ways we can't predict

2) Past losses could reoccur in the future

3) The pending lawsuit against us by the Couer d'Alene Basin Indian Tribe is not settled yet, and until that occurs there is no set limit as to how much we will have to pay, how much will have to paid when, and if we'll even have the money to cover it (I'll get back to that in a second)

4) Our accounting practices may be imprecise (don't you hire someone(s) to make sure that this doesn't happen?)

5) Our ore bodie estimates may be imprecise (see above comment)

and on and on it goes, for a 4-5 pages.  This is a company over 100 years old, why so many warnings?  I realize this is a volatile industry, but # 4 and 5 are what I'd expect from a younger, more junior miner, not HL.

Their production last year was the best its been in a long time 10.5 million oz of Ag, 68.8K of Au, ~47K Pb and 83K of Zn.  The majority of their probable reserves of  Ag is at their Greens Creek Unit , 99.7 million ozs. with current cash costs for silver being -$3.90.  The Lucky Friday mine doesn't seem so lucky, with contained Ag P&P reserves of 43.3 million ozs. at a current cash cost of 3.76.  I guess electricity is an issue over their at Admiralty Island, and as long as diesel costs increase, so will their operating costs.  Costs on and off the island probably have a fiscal impact as well.

Now, what really gets me is the litigation they are in with Couer d'Alene Indian Tribe.  Its not settled yet, and so it is difficult to truly determine how much HL will have to pay to resolve this issue once and for all. But given the figures and timelines they present in the 10K, if the case was settled tomorrow, HL would burn through somewhere between 105 and 157 million this year.  Thats a lot when they currently report having 238 million in cash right now.

This has been very sobering reading and I would like input from other Fools who have read the 10k to see what other P.O.V's may be.

Thanks

J

6 Comments – Post Your Own

#1) On April 13, 2011 at 7:57 PM, ChrisGraley (29.74) wrote:

It struck me as a pretty unbiased and detailed 10-k.

They seemed to mix in plenty of good and bad.

 

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#2) On April 14, 2011 at 12:41 AM, silverminer (30.49) wrote:

JBay,

There's nothing unusual there. That particular section is often just as scary-sounding regardless of the company or industry. I suggest you take a look at a few dozen more 10-Ks before drawing conclusions from the warnings listed in any one. You'll soon develop a sense for which statements represents real tangible risks, and which are merely statements designed to absolve the company of culpability in any number of unlikely nightmare scenarios.

Hecla's a solid company, and a bargain to boot.

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#3) On April 14, 2011 at 8:24 AM, Jbay76 (< 20) wrote:

OK, thanks for the input.  I guess I'll look at the 10K's of other miners and compare....atleast its good investigation into other miners as well. 

Thanks!

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#4) On April 14, 2011 at 11:21 AM, StoneyTerp12 (39.19) wrote:

J,

 Points 1, 2 and 4 are standard accountant speak.  I'm a CPA in the real estate industry, and every financial statement I write has the same message.  I wouldn't be concerned with those disclosures.

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#5) On April 14, 2011 at 11:52 AM, Jbay76 (< 20) wrote:

OK, its just a CYA disclosure than.....thanks for that info.

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#6) On April 14, 2011 at 1:40 PM, Jbay76 (< 20) wrote:

There is one thing I forgot to mention about Hecla, their executive compensation is one of the lowest in the industry with 318M for 2010. Gammon Gold had the lowest with 208M, industry average was 388M (it might be 338M, can't remember off the top of my cabeza)

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