Seabridge Gold (tsx:sea) and Hecla Mining Company (nyse:hl) are two companies that investors can't seem to figure out. Prior to the temporary shutdown of Lucky Friday, Hecla was one of if not the largest pureplay silver producer in the United States. After the Lucky Friday incident, investors fled the company resulting in an immediate loss of 30% of its silver output, half of its lead output and some of its reputation. But today, Hecla is reporting not only that it will restart Lucky Friday within half a year but also that it will be expanding it with the construction of a fourth shaft which will lengthen mine life, possibly to 30 years. With $233 million in cash equivalents Hecla is also active in the M&A department; Hecla laid out $110 million for US Gold & Silver back in July 2012 (which was turned down). The bad news for the company ? Total operating expense last quarter was steady with the previous four quarters even though revenue was way down (averaged $108.105m over those quarters but just $67.02m in the last). Not all was bad though, Hecla did manage to double dividends q2q (2c per share up from 1c despite eps being only 1c).
Seabridge Gold really is A gold mine !
According to the company's second quarter report it "will continue to advance its two major gold projects, KSM and Courageous Lake in order to either sell them or joint venture them towards production with major mining companies."
Ivanhoe Mines potential ?
Ivanhoe Mines (now Turqoise Hill Resources) more than quadrupled in value after Rio Tinto took interest in it. Whether or not Seabridge does the same the fact remains it controls 100% of what will someday be Canada's largest gold mine.
Three days after releasing the last quarterly report, on September 5, 2012 Seabridge released data from exploration drilling done last summer. Drilling revealed veins with the highest gold grades found to date ! The findings are sure to bring KSM's 2P gold reserves closer to 40 million ounces (was 38.2m according to last estimate done). Over the entire deposit, the average gold grade is 0.55 grams per tonne but at a 2 meter intercept, one of the newest holes drilled revealed 66.7 grams of gold per tonne in addition to 287 grams of silver !! (average grade over the entire hole was 8.94 g gold, 41.6g silver).
Seabridge also revealed that it is only focused on KSM and Courageous Lake which is why it's in the process of divesting all other assets (big chunk let go last quarter in Red Mountain Project) but don't be fooled into thinking it's letting go of all other interests; When it sold Red Mountain and various Nevada projects, in addition to cash Seabridge Gold received more than 4 million shares of each company. So, when those other projects pan out (no pun intended) Seabridge will realize even more in return not that it isn't already giving investors a healthy return (sept 5 - oct 4 : +15.05%, july 5 - oct 4 : +30.16%). Bad News: No production means no dividends.
Watch Out ! Seabridge Comes With Risks
Core assets Kerr-Sulpherets-Mitchell (BC) and Courageous Lake (NWT) are located in regions where aboriginal groups also have land. The First Nations people could be entitled to key land and thus other agreements may need to be reached. Shifts in political conditions and/or regulations (environmental laws, tax laws) could impact the company's ability to continue developing either project. Right now though everything appears to be stable and, considering exploration at KSM has been ongoing for more than six years without any major disputes, I'd say the rewards outweigh the risks.
Notes: Last quarter, cash resources declined by -$19 million due to advancements at KSM and Courageous Lake - Courageous Lake 2P reserves surpass 6 million ounces - All of KSM's 10.3 million ounces of proved reserves reside in the Mitchell open pit deposit (including probably it's 27.5m) - 10.2 million ounces in probable gold reserves must be mined from a block cave (Mitchell 7.4m, Iron Cap 2.8m) - Iron Cap is the newest of the four deposits (added May 2011).
Hecla Mining Company
Hecla stock price has been on the upswing since September 13, 2012 (+10% that day while adding modestly to that gain since then). On August 7, 2012, the week before it acquired an interst in Dolly Varden Corporation, Hecla Mining Company reported on the 1st half / 2nd quarter of 2012. The results were mixed; On the one hand Greens Creek produced less: 1.365043 million ounces of silver down from the previous year (1.5m ounces), steady with the previous quarter (1.328704m oz) while on the other hand the cash cost per ounce of silver produced was down significantly from the prevous quarter ($2.24 --> $1.03 /oz). So why the 49.7% q2q drop in gross profit ? A couple reasons; Average realized silver price down -26.1% between last two quarters (1st and 2nd) $36.59 --> $27.05. Production was steady but payable ounces was not;
Payable silver sunces sold: 1,133,764 oz (-39.7% vs 2q11, -20.6% vs 1q12). Gold, lead, zinc production steady with the prevous quarter but down from 2011: gold @13,257 oz (-8.1% vs 2q11, +4.8% vs 1q12), lead @4,873T (+0.4% vs 2q11, -6.3% vs 1q12), zinc @16,073T (-15.3% vs 1q12, +0.8% vs 2q11).
Hecla usually hedges most of its current lead and zinc production. Capex was $26.6m up from $26.4m the previous quarter which is another reason why gross profit was down so much (revenue was down a lot but expenses weren't). Also hitting the bottom line: $24 million in cash flow attributable to 2q production was defered to the next quarter. Expect earnings to take a bit of a hit in the second half because that's when the company will be spending most of its 2012 capex on Lucky Friday, Green's Creek and pre-development projects ($77m / $130m full year estimate).
Lucky Friday is on track to restart production by early 2013. Prior to the shutdown, Lucky Friday also produced about half of the company's lead as well as 12% of its zinc meaning that production will go up across the board.
In 2011 the mine produced 31.5% of Hecla's silver (Hecla's stock value plummeted even more than that when investors got the news earlier this year that it would shut down) so when it gets back online expect the price to go higher. All told, Hecla Mining has about 200 million ounces of 2P silver reserves. June 30, 2012 vs Dec. 31, 2011: Assets (-0.4% to $1,390,494,000) and shareholder equity (+0.5% to $1,145,433,000) steady.
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