Loading ...Hi Bill!
No sooner do I post my comments regarding producer hedging last night than I see this news from Hecla Mining:
https://www.kitco.com/news/2019-07-18/Hecla-Reports-Hedges-In-Options-Market-Higher-2Q-Silver-Output.html
” The company said it established hedges that utilize put options on expected gold and silver sales through the first quarter of 2020, locking in a minimum average price of $1,400 per gold ounce and $15.13 per silver ounce.” – ENDQUOTE
In the most recent quarterly report, Hecla published their AISC for gold @ $1760 per ounce, and for silver @ $9.34 per ounce, net of by-product credits. And that does not include the other G&A expenses plus non-cash items that further erode the overall profitability for the company. Big surprise, Hecla lost more than $25 million during the quarter.
Right now both gold and silver are trending higher and looking bullish for the first time in several years. So these guys think its a great idea to forward sell some of their gold and silver output to lock in a gold price below cost, and lose the leverage to a possible breakout run higher? They are losing money and burning through mineral inventory at the mines to do so, while squandering the opportunity to capture higher revenue if at last the market moves beyond these pitiful prices. And the very act of putting these hedges on will just make it easier for the Cartel to suppress the metals further and rob shareholders of gains down the line.
Recall how Barrick was aggressively hedging through the early phase of this bull market and losing money hand- over-fist on those hedges. Thereafter they completed a huge equity offering and blew billions of dollars to retire the hedge book, late in the surge for the metals prices at the time. What damage did this strategy do to shareholders and for what gain?
Recall also how Rob McEwen built Goldcorp and established the company as a premium miner with superb performance, in part by refraining from any hedging activity. By providing shareholders with full leverage to the metals during the bull market run, Goldcorp was one of the best stocks to own. After he left Goldcorp the stock has lost its luster. I wonder if there is a connection?
For the record, Hecla is facing several class action lawsuits right now. The stock is marooned at the lower end of its multi-year range. For investors looking for leverage to the rising trend of the precious metals, why would anyone consider Hecla now, if they do not even have the confidence in their own mine output to avoid the trap of hedging? I note that Hecla rewards inept management with top-tier pay packages though.
Ipso–hedging. and Hecla and Barrick
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