Jan 11th 2012 2:02PM
Updated Jan 27th 2012 11:36AM
Hecla already had a headache, but now it's suffering from a full-blown hangover.
The series of unfortunate incidents that plagued Hecla Mining's (NYS: HL) mile-deep Lucky Friday mine during 2011 attracted the scrutiny of the Mine Safety and Health Administration, which has now ordered the mine's primary shaft closed until it can be cleared of debris that has accumulated over the years. Hecla estimates that the maintenance work will keep the mine shut through early 2013, leaving embattled silver investors to wonder whether someone spiked their holiday eggnog.
Hecla shares plummeted by more than 26% this morning, essentially mirroring a 26% reduction in the miner's 2012 production outlook from 9.5 million ounces to 7 million ounces. Despite a strong price environment that saw the average price of silver in 2011 surge by 74% over the prior-year average, Hecla's stock has lost some 54% of its value over the past 12 months. Though shareholders may wish to avert their eyes, the following image captures the devastation:
But Hecla insists that Lucky Friday's luck has not run out, and reminds investors: "the Lucky Friday mine is a world-class mine that we see producing silver for decades to come. Hecla and the Lucky Friday mine have faced challenges in the past and we will once again overcome them." I have no doubt that is true, and brave investors may wish to begin sifting through the rubble here for signs of an attractive entry point for long-term investment.
Of course, there may be easier ways to make money in silver during 2012, and I recently laid out my top 10 picks to help Fools whittle down their choices. While Hecla slips deep into temporary stagnation, First Majestic Silver (NYS: AG) sails clear out in front of the mid-tier pack with estimated 2012 production of 10 million ounces. Silvercorp Metals (NYS: SVM) , with an expectation of 6.65 million silver-equivalent ounces during its fiscal 2012, will now gnaw at Hecla's heels. The smaller superstars of the mid-tier space -- Endeavour Silver (NYS: EXK) and Fortuna Silver Mines (NYS: FSM) -- are afforded by Hecla's troubles an opportunity to burst into contention as legitimate rivals to the miner that once seemed to possess an unassailable head start. Endeavour, whose monumental growth spurt is responsible for the noteworthy outperformance displayed in the above chart, just this week reported outstanding 2011 production volume of 4.7 million silver-equivalent ounces. From expected output of 2.6 million silver-equivalent ounces during its first full year in production this year, Fortuna's new San Jose mine could swiftly double by 2017.
As a long-term recovery story, however, Hecla continues to warrant careful attention. For starters, let's consider just how lucky Hecla is to retain major production volume from its flagship Greens Creek mine in Alaska. Greens Creek accounted for 64% of Hecla's consolidated output through the first nine months of 2011, and the operation will now carry Hecla through this painful period as a one-mine wonder. Hecla is fortunate, also, to hold roughly $246 million in cash and an undrawn $100 million credit facility! After pausing to review the forthcoming capital expenditures related to this mine maintenance, my own focus will remain fixed on the enormous pressure that Hecla will be under from investors to jump-start growth momentum with a strategic acquisition. I know which target I consider the keenest fit, and it came in at No. 8 on my top 10 list.
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- Add Hecla Mining to My Watchlist
- Add Endeavour Silver to My Watchlist
- Add Fortuna Silver Mines to My Watchlist
- Add Silvercorp Metals to My Watchlist
- Add First Majestic Silver to My Watchlist
At the time this article was published Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Endeavour Silver, First Majestic Silver, Fortuna Silver Mines, Hecla Mining, and Silvercorp Metals. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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