Precious metals have been under pressure this year. Silver has led the way, down 25%. The pressure on miners has been even more severe. For some companies, this environment is very tough. For others, like Hecla Mining Company (NYSE:HL), it’s time to go shopping.
Boosting the asset portfolio
Falling silver prices have led to falling silver companies’ prices. Hecla is down 35% year-to-date. However, the prices of silver-related assets have fallen too, and Hecla Mining Company (NYSE:HL) is exploiting this fact. There is no better time to add assets to your portfolio than when the prices are depressed. So the company’s management has decided to pull the trigger and buy Aurizon Mines Ltd.(USA) (NYSEMKT:AZK).
Hecla Mining Company (NYSE:HL) made a proposal to Aurizon Mines Ltd.(USA) (NYSEMKT:AZK) shareholders back in the winter. On May, 9, the proposal was approved. There was a last administrative hurdle to deal with, and, finally, Canadian authorities approved the transaction between Hecla and Aurizon.
Hecla Mining Company (NYSE:HL) was mostly a silver producer before the deal. Silver accounted for 54% of Hecla’s revenue, while gold was the source for 14% of the revenue. Hecla also produces zinc and lead, which account for 32% of the revenue. After the purchase, this proportion would change. Hecla Mining Company (NYSE:HL) estimates that gold would be 39% part of its 2013 revenue, while silver’s share would slide to 38%.
Is this a smart move?
Aurizon Mines Ltd.(USA) (NYSEMKT:AZK) is a gold miner whose main asset, Casa Berardi mine, is situated in Canada. Aurizon has finished its first quarter with revenue of $43.2 million from 26,200 ounces of gold sold. The company had $189 million in cash and was debt-free. Hecla is counting on the fact that Casa Berardi would be able to produce approximately 150,000 ounces of gold with about a 50% cash margin. This would bring $212 million of revenue in current gold prices. Hecla Mining Company (NYSE:HL) estimates that the life of the mine would last for more than a decade.
Hecla has stated that it has a strategy of becoming a diversified miner. The purchase of Aurizon fits perfectly into this strategy. Gold prices have fallen 15% year-to-date, showing a better performance than silver prices. I think that both Hecla and Aurizon shareholders should be happy with this deal. In the current environment, one wants to be diversified and flexible, and that’s exactly what the deal brings.