Mining analyst Chris Lichtenheldt of UBS Investment Research has cut his 12-month target price on Hecla Mining (HL-N) to US$8 per share from his earlier forecast of US$9.85 per share, after the silver miner announced it has been forced to close its Lucky Friday mine in Idaho until early 2013.
Following a rock burst on Dec. 14, the federal Mine Safety and Health Administration (MSHA) ordered Hecla to close the mine. The MSHA’s subsequent review found a build-up of concrete-like substances on the main Silver shaft’s walls.
On Jan. 11, the MSHA ordered the company to close the shaft and remove the material.
Hecla estimates that it will take until year-end to fix the problem, though management expects the mine to produce silver for decades. Company-wide, Hecla expects to produce 7 million oz. silver this year, down from its earlier forecast of 9 million oz. silver.
The shaft in question extends for one mile and provides primary access to the Lucky Friday mine. The sand and concrete material blocking the shaft has built up over a number of years and will be treated by power washing, the company says. The company also plans to build the No. 4 shaft and bypass around the rock burst.
Lichtenheldt says he assumes the mine will remain closed until 2013’s second quarter, but believes that fixing the problem will be straightforward, and maintains his “buy” rating on the stock.
“While a mine closure prompted by an MSHA review will be of ongoing concern for the market, we have no reason to believe the issue will not be resolved as planned,” he writes, adding that the problem is “not expected to be a complicated issue to resolve,” but acknowledges that it is “time consuming.”
Hecla estimates the impact on 2012 cash flow will be in the range of US$20 million, Lichtenheldt says, but he anticipates that the figure will be US$40 million, “as our forecasted metal prices drove cash flows that were higher than expected capital expenditure.” Lichtenheldt explains that Hecla had planned to reinvest all cash flow into its expansion project, which is now on hold.
“Management was asked if they would be open to a takeout, given the stock price has suffered dramatically over the recent past, and could be appealing to acquirers,” the analyst writes. “Management indicated they are unlikely to be receptive to offers near current trading levels, they believe the shares are worth something in the “teens” . . . however, they stated any offers would be reviewed appropriately.”
At presstime, Hecla traded at US$4.63 per share within a 52-week range of US$4.25-US$11.08. The company has a US$1.3-billion market capitalization.
Be the first to comment on "Hecla closes Lucky Friday for one year"