Whitman CFA Challenge Presentation

Whitman CollegeCFA Research Challenge

February 3, 2017

Hecla Mining Company

San Sebastian mineDurango, Mexico

Sawyer Shader-SeaveKyle FixMikaela SladeJack Fogarty

http://www.hecla-mining.com/

2

1-Feb-16

24-Feb-16

18-Mar-

16

10-Apr-16

3-May

-16

26-May

-16

18-Jun-16

11-Jul-1

6

3-Aug-16

26-Aug-16

18-Sep-16

11-Oct-

16

3-Nov-1

6

26-Nov-1

6

19-Dec-1

6

11-Jan-17

$4.00 $4.50 $5.00 $5.50 $6.00 $6.50 $7.00 $7.50 $8.00

RecommendationBUY

Target Price: $7.62

Upside: 20.19%

As of 1/28/17

HL Daily stock price: 6 monthsFair Value: $7.62

Current Price: $6.34

Recommendation Company Overview Industry Competition Financials Valuation Risks Summary

Undervalued

Cheap Assets

3

Main Features

Largest Silver Producer in America

Past Events

Dividend paid 11/17/16: $0.0025 (0.04%)

Upcoming Events

4Q Earnings report February 28th

NYSE: HL Sector: Basic Materials Industry: Mining Price: $6.34

Market ProfileClosing Price $6.3452 Week High $7.6452 Week Low $1.72 Market Capitalization $ 2,506M Shares Outstanding 395.29MFloat 327.02MShort % of Float 5.64%Avg. Daily Volume 108,516 Dividend Yield 0.16% P/E -P/B 1.7P/S 4.1P/OCF 12.45


Company Overview


Silver Market

Jewelry

Coins and Bars

Silverw

are

Industrial Fa

brication

Electronics

Brazing

PhotographySo

lar

Etylene Oxid

eOther

Total0

200

400

600

800

1000

1200

1400

Silver Demand by Year and Segment(millions of OZ)

2013

2014

2015


Silver Market

19%

25%

5%

50%

2015 Silver Demand by Segment

JewelryCoins and BarsSilverwareIndustrial Fab-rication

42%

10%8%

13%

2%

25%

Industrial Fabrication

ElectronicsBrazingPhotographySolarEtylene OxideOther


Gold Market

Jewelry Technology Investment Bar and Coin

ETFs, etc. Central Banks

Total Demand

-50

150

350

550

750

950

1150

1350

Gold Demand by Year and Segment(tonnes)

Q3 '15Q3 '165-yr avg


Gold Market

50%

34%

8%

8%

Q3 2016 Gold Demand (tonnes)

JewelryInvestmentTechnologyCentral Banks

56%

21%

7%

15%

Q3 2015 Gold Demand (tonnes)

JewelryInvestmentTechnologyCentral Banks


Mining Industry CapEx Capital Expenditures (CapEx) down

Decreasing costs

Gains in commodity prices will likely

lead to increasing CapEx


Alternative Financing Increase in industrywide streaming Hecla does not engage in streaming

transactions Greater risk and upside


Porter’s Five Forces Threat of New Entrants- VERY LOW (1/5)

Threat of Substitutes- HIGH (4/5)

Bargaining Power of Suppliers- HIGH (4/5)

Competition- HIGH (4/5)

Bargaining Power of Buyers- LOW (2/5)

Forward P/E P/Book P/Sales P/Cash FlowHL 16.2 1.5 3.5 10.5CDE 13 2.7 2.1 9.9SLW 15.9 1.6 8.8 13.6NEM 18.5 1.7 2.3 7.6KGH-PL 21.5 0.9 1 5.9ABX 15.7 2.3 2 6.5Industry Avg 17.7 1.9 1.4 10.9


Financial Ratios

As of 1quarter ago

Top CompetitorsCDE: Coeur Mining Inc.

SLW: Silver Wheaton Corp. NEM: Newmont Mining Corp.

KGH-PL: KGHM Polska Miedz SA

ABX: Barrick Gold Corp.

EV/EBITDA NET DEBT/EBITDAHL 14.73 4.98CDE 6.56 3.01SLW 16.19 3.47NEM 5.59 1.2KGH-PL 9.87 3.6ABX 5.96 2.58Industry Average 10.2 2.07


EBITDA Ratios EV/EBITDA above industry average

Above average leverage

Second highest return among competitors

Significantly outperformed the industry


Hecla: Alpha & Beta

Low Beta

Volatile earnings


Financials

(millions of $) 5 year Average

10 Year Average

EBITDA 137.4 101.5Net Income 14.4 25.7Cash FlowFrom Operations

71 80.9

2006-12 2007-12 2008-12 2009-12 2010-12 2011-12 2012-12 2013-12 2014-12 2015-12

-150

-100

-50

0

50

100

150

200

250

300

350

EBITDA

Net income

Net cash provided by operating activities

Free cash flow

Hecla Profit Metrics: 2006-2015

Volatile margins

2006-12 2007-12 2008-12 2009-12 2010-12 2011-12 2012-12 2013-12 2014-12 2015-12

-40.00%

-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

EBITDA Margin Net Margin


FinancialsEBITDA & Net Margins: 2006-2015

16

Discounted reserves Assets and Liabilities Destruction by management


Valuation

Proven and Probable reserves Based on 2015 production rates Discounted annually for their WACC

-

500,000,000.00

1,000,000,000.00

1,500,000,000.00

2,000,000,000.00

2,500,000,000.00

3,000,000,000.00

3,500,000,000.00

1,141,519,563.26

872,893,736.56

657,219,636.45 602,440,706.28

3,274,073,642.55

Current Value of Reserves $


Reserves

thousands of oz/tonnes

Proven and Probable Reserves

Silver 175,429Gold 2,073Lead 687,960Zinc 738,930

175.43 million oz in reserves Based on 2015 production rates Discounted 6% annually Increasing production rates?

y1 y2 y3 y4 y5 y6 y7 y8 y9 y10 y11 y12 y13 y14 y15 y160

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

Silver Reserves

Annual production oz (based on 2015 production) Discounted value (based on 6% WACC)


Silver Reserves & Production

Assets (millions of $)

Total cash 159

Receivables 71

Equity and other investments 4

Other long-term assets 5

Total 239

Liabilities (millions of $)

Short-tem debt 2

Long-term debt 500

Total 5020

100

200

300

400

500

600

239

502

Auxiliary Assets

Debt

We included Hecla’s most liquid assets in their Auxiliary Assets

We also included Hecla’s $502 in short and long-term debt


Assets & Liabilities

On average Hecla reinvests $164.7 million per year

Hecla averages a 0.86% return or $1.37 million annually


Destruction of value

Their annual cost of capital is $9.88 million leading to a $8.46 million loss per year

The terminal value of this loss $141.84 million

-$20.00

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$160.00

$180.00

$164.70

$1.37

-$8.46

Destruction of Value(millions of $)

Series1

DCF Comparable Company


Other Valuations

Lack of Hedging

Future regulations

CERCLA 108b

Management turnover


Risks


Investment Summary

Current Price: $6.34

Target Price: $7.62

Upside: 20.2%

BUYImproving Efficiency

Cheap Assets

Possible Decreasing Regulations

Questions?

Date post:	07-Feb-2017
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Whitman CFA Challenge Presentation

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