subject: Silver Miner To Resume Production Next Year [print this page] The recent rise in silver prices has been exceptionally strong. This move up in silver has been quite obvious for anyone whos been paying attention to the Federal Reserve. As Ive stated many times over the last few months, any new substantial monetary policy action would be bullish for commodities like gold, silver, and the associated mining stocks.
The run-up was in anticipation of the September central bank meeting, in which the Federal Reserve initiated what can be called quantitative easing number three. Silver prices went from approximately $27.00 an ounce in July to the current price of roughly $34.00 an ounce. Mining stocks associated with silver also had a substantial move up.
One stock that I wrote about at the time was Hecla Mining Company (NYSE/HL) when it was trading for $4.50. Since that time, it has had a spectacular move-up to approximately $6.75. The question is: do silver prices and mining stocks associated with the commodity have more room to run?
Taking a look at Hecla, the firm is one of the lowest cost producers among silver mining stocks. Whenever investors look to mining stocks, whether they are involved with silver, gold, or any other commodity, ensuring that costs are low and can remain so is extremely important for the long-term profitability of the firm. The spread between the realized (sold) price per ounce of silver versus the costs is where the operating profit comes from.
One of the more interesting parts of the business Im waiting for is the resumption of the firms Lucky Friday mine. Heclas shares were hit earlier in the year because production at the Lucky Friday mine had to be stopped due to rock bursts that injured several miners. In another incident, two miners were unfortunately killed by rubble. However, the company states that it anticipates the mine to reopen in the first quarter of 2013. The company expects to increase its production by approximately 50% once this mine is back up to full speed.
Investing in silver mining stocks can be hazardous due to operational issues. Its always tragic when life is lost due to an accident at the workplace. It appears that Hecla has learned its lesson, and new safety measures are in place. For investors interested in silver mining stocks, the appeal of Hecla is due to its low-cost basis per ounce of silver and the mine reopening. With the new production coming online next year, as long as silver prices remain elevated, this stock is poised to do quite well.
The stock has had a substantial move up this year. One slight concern might be the overbought Relative Strength Index (RSI) condition, but as long as current support holds, the trend is still bullish. A break above the current resistance level would be significantly bullish for the stock. As go silver prices, so will the price of all mining stocks in the sector. The spot price of a commodity is something that Hecla or any other silver mining stocks cant control. What they can control is operational costs, and Hecla is an extremely low-cost producer.
