In a June 6 research note, CIBC analyst Cosmos Chiu reported that Hecla Mining Co. (HL:NYSE) lowered 2019 guidance for its Nevada assets "but offered few insights into a longer-term solution for the operations."
The new Nevada numbers for the year are 60,000 ounces (60 Koz) of gold production at an all-in sustaining cost (AISC) of $1,750 per ounce (1,750/oz), down from 78 Koz.
Chiu noted the revised numbers are better than CIBC's expectation of 38 Koz ounces at an AISC of about $2,000/oz but they may be unachievable given that the company only produced 10 Koz in Q1/19 and is expected to yield about the same amount in Q2/19. Consequently, CIBC now models the Nevada operations bringing in 52 Koz total in 2019 at an AISC of about $1,850/oz.
With respect to its Nevada operations, Chiu pointed out, Hecla plans to close Hollister and limit new development at Fire Creek to help reduce the companywide capital expense by $12 million to $138 million. "Mining in 2019 will focus on predeveloped ore at Fire Creek's Spiral 2 and remnant stopes at Midas," he added.
Also regarding cost cutting but at the corporate level, Chiu indicated, Hecla expects to lower its 2019 exploration budget by $9 million and general and administrative expenses budget by $4 million.
Looking forward, "a potential impairment of the Nevada operations will be assessed at the end of Q2/19, but Hecla does not expect it to be significant," Chiu wrote.
CIBC has an Underperformer rating and $1.25 per share target price on Hecla and will maintain those until the miner "can demonstrate a longer-term plan to reduce debt and improve the outlook in Nevada."
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Disclosures from CIBC, Hecla Mining Company, Earnings Update, June 6, 2019
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Important Disclosure Footnotes for Hecla Mining Company (HL)
• Hecla Mining Company is a client for which a CIBC World Markets company has performed investment banking services in the past 12 months.
• CIBC World Markets Inc. has received compensation for investment banking services from Hecla Mining Company in the past 12 months.
• CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from Hecla Mining Company in the next 3 months.
