Positive cash flow and a projected increase in production give this mining stock a bright outlook.

While the company’s silver production was down somewhat in the latest quarter, cash flow jumped. And the recent acquisition of a Canadian firm will boost its annual gold production. The stock is well positioned to gain when silver and gold prices rise.

HECLA MINING CO. (symbol HL on New York; www.hecla-mining.com) explores for, mines and processes both silver and gold in the U.S., Canada and Mexico.

Most of the company’s silver output comes from three sites: the Greens Creek mine in Alaska; the Lucky Friday project in Idaho; and the San Sebastian mine in Mexico. Hecla’s Casa Berardi mine in Quebec has supplied its gold, although a new acquisition will add to its gold production (see below).

In the three months ended June 30, 2018, the company’s silver output fell 7.5%, to 2.6 million ounces from 2.8 million. That decrease was because of lower ore grades at its San Sebastian mine as it shifted to new deposits. An ongoing labour strike at its Lucky Friday site also lowered production.

The company produced 60,313 ounces of gold in the quarter—up 14.7% from 52,561 a year earlier.

Hecla’s cash flow rose 308%, to $30.7 million from $7.5 million a year earlier. The increase was mainly due to higher gold and base metal prices and production, partially offset by higher costs for research and development.

Mining Stocks: New acquisition due to add 150,000 ounces of gold per year

Hecla started up the San Sebastian mine in December 2015. Longer term, it aims to build another silver mine at its Montanore project in Montana. That site holds 230 million ounces of silver and 2.0 billion pounds of copper.

On July 20 2018, Hecla completed its purchase of Klondex Mines (symbol KDX on Toronto) for $462 million U.S., in cash and Hecla shares.

Klondex will first spin off its Canadian assets to its current shareholders. Hecla will then acquire Klondex’s three gold mines in Nevada—Fire Creek, Midas and Hollister.

The purchase will add roughly 150,000 ounces of gold to Hecla’s current output of around 210,000 ounces per year. As well, there is considerable room to improve operations at Klondex’s three high-grade underground mines, and so expand their reserves.

Silver and gold prices will heavily influence Hecla’s share price. That’s the same for most precious-metal producers. Meanwhile, the company’s expected increase in production and its positive cash flow give it speculative appeal.

Recommendation in Stock Pickers Digest: Hecla Mining is a buy.

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