How To Grab 22% On Hecla Mining Co...
The last time I saw an opportunity this unique was back in 2009…
Back then, I had my eye on Hecla Mining Co (HL.) Hecla, as long-time readers know, is a North American pure-play on silver.
Today I want to cover a rare opportunity that you can take advantage of with Hecla shares — rest assured, it’s something most investors don’t know about. Depending on your outlook for silver, this could be a great opportunity to make a quick 22%…
Back in 2009 gold and silver shares were recovering from the 2008 market meltdown. Volatility was high, forecasts were dreary and underlying metals prices were recuperating from a 25% correction. All in all, not a very different scenario from what we’ve got today.
In retrospect, early 2009 was the perfect timing-play on gold and silver’s next run. And thus, beaten down miners offered massive upside and unique short-term gains — Hecla being one of them.
I like Hecla. Today, the company is a relatively straightforward play with a manageable market cap shy of $1 billion — that’s about 1/20th the size of, say, a mining giant like Goldcorp.
From a production standpoint Hecla runs two mining operations. Greens Creek, in mining friendly Alaska, is their main silver operation — in 2012 the mine produced 6.3 million ounces of silver. Hecla’s other operation is the Lucky Friday mine in Idaho — the mine went offline last year for rehab work, but resumed production in Q1 2013.
In a good year for Hecla, production should be above 10 million ounces of silver — plus the associated gold, lead and zinc production (which helps offset mining costs.)
Helca lists its “cash cost” from 2012 as $2.70 per ounce of equivalent silver. But as we know, “cash costs” are about as solid a metric as trying to gauge someone’s weight by glancing at a funhouse mirror. A better metric is the “all in” cost, which for Hecla sits right around $20 per ounce. Of note, Hecla’s all in cost has varied slightly over the past couple years — for example, in 2010 it was closer to $17 an ounce.
In perspective, Hecla is one of the lowest cost pure play silver miners on the market. And even though all in cost of $20 an ounce seem high (especially with current prices for the metal at $19) there’s still upside in this play. After all, just a slight increase in silver prices (a rise to $25?) or a decrease in costs (down to $15?), could lead to a nice turnaround.
Besides being straightforward, Hecla is cheap. Shares recently dropped below the $3 threshold, which is why this play caught my eye.
It was the same story back in 2009. You see, there was a unique way to play Hecla shares for a gain — in fact, this strategy is lower risk than holding shares outright and can add a little upfront income to your wallet, to boot!
I’m talking about a covered call strategy.
Right now with prices in the doldrums for Hecla there’s a simple way to play Hecla for a potential 22% gain by December 2013. And remember, in today’s no interest world, making 22% in less than six months is stellar!
By buying shares of Hecla while simultaneously selling a covered call (sometimes called a “buy/write” strategy) you can instantly collect income, while also leaving some room for continued profit. I won’t get into the details here but this is a very common practice and if you don’t know how to initiate this low-risk strategy simply talk to your broker or trading platform help desk. When it’s all said and done it’s just a click or two more of the mouse than a regular stock purchase.
If you’re familiar with covered calls I’d be interested in selling the December 2013 $3 Calls (right now those calls are trading for around $40 per contract.) With Hecla’s shares trading around $2.80 we’re not trying to hit a homerun with this play — after all, for a payout on our strategy we only need shares to be trading above $3 by December. This covered call strategy increases our probability for making money, so in other words it’s a solid base hit.
In short, if Hecla shares rise a mere 7.5% between now and December 2013, this play will hand you a cool 22% — or about triple the move of regular Hecla shares.
Along with production from its two operations, Hecla recently completed the acquisition of a Canadian miner Aurizon Mines. This gives Hecla another operation (in mining friendly Quebec.) It also helps offset risks — like the Lucky Friday rehab — and could lead to a lower cost per ounce in the long-run.
There’s still a lot up in the air with Hecla, but it’s worth a look today. If you want to start wading in the silver market, this may be your best low-cost, low-risk way to do it. Hecla announces earnings in early August, so by then the market will have new swath of data to digest — and we may be on our way to making 22%.
Keep your boots muddy,
Original article posted on Daily Resource Hunter