Why Hecla Mining Stock Caved In Today

What happened

Shares of silver and gold mining company Hecla Mining Company (HL -10.26%) tumbled 9.4% through 3:15 p.m. ET on Monday after revealing that a fire at its Lucky Friday mine caused “a fall of ground” at the mine’s No. 2 egress shaft, potentially compromising ventilation at the mine.

So what

Hecla was quick to assure that the part of the mine that experienced the fire was “unused” and that “no personnel were in the mine at the time of the failure.” Nevertheless, management warned that both production volumes and cost guidance for this particular mine will be affected by this incident.  

That’s no huge surprise. Management noted that it is “working on a plan to resume production” at the mine, which sounds like another way to say that Hecla has halted production at the mine.

Now what

How big of a deal is this for Hecla, and how worried should investors be? Well, my answers would be “big enough” and…”it depends.”

The bad news is that the Lucky Friday mine is Hecla’s second biggest producer of silver, accounting for 1.26 million ounces of silver produced in the most recent quarter. (The good news is that it’s still only half as large as the company’s Greens Creek mine, which produced twice as much silver last quarter and a fair bit of gold as well). Lucky Friday was also, however, the only one of Hecla’s mines that increased production of silver year over year last quarter. Greens Creek’s silver production declined by 15%.  

As for how worried investors should be, though, that really depends on how long it will be before Hecla can get production back up and running at Lucky Friday. If it’s any help, analysts at RBC Capital Markets estimate that any prolonged shutdown of operations at the mine could imperil as much as 30% of the company’s expected earnings before interest, taxes, depreciation, and amortization (EBITDA) in the second half of this year, potentially causing the company to miss earnings.  

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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