whitman cfa challenge presentation
TRANSCRIPT
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
Recommendation Company Overview Industry Competition Financials Valuation Risks Summary
Company Overview
Recommendation Company Overview Industry Competition Financials Valuation Risks Summary
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
Recommendation Company Overview Industry Competition Financials Valuation Risks Summary
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
Recommendation Company Overview Industry Competition Financials Valuation Risks Summary
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
Recommendation Company Overview Industry Competition Financials Valuation Risks Summary
Gold Market
50%
34%
8%
8%
Q3 2016 Gold Demand (tonnes)
JewelryInvestmentTechnologyCentral Banks
56%
21%
7%
15%
Q3 2015 Gold Demand (tonnes)
JewelryInvestmentTechnologyCentral Banks
Recommendation Company Overview Industry Competition Financials Valuation Risks Summary
Mining Industry CapEx Capital Expenditures (CapEx) down
Decreasing costs
Gains in commodity prices will likely
lead to increasing CapEx
Recommendation Company Overview Industry Competition Financials Valuation Risks Summary
Alternative Financing Increase in industrywide streaming Hecla does not engage in streaming
transactions Greater risk and upside
Recommendation Company Overview Industry Competition Financials Valuation Risks Summary
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
Recommendation Company Overview Industry Competition Financials Valuation Risks Summary
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
Recommendation Company Overview Industry Competition Financials Valuation Risks Summary
EBITDA Ratios EV/EBITDA above industry average
Above average leverage
Second highest return among competitors
Significantly outperformed the industry
Recommendation Company Overview Industry Competition Financials Valuation Risks Summary
Hecla: Alpha & Beta
Low Beta
Volatile earnings
Recommendation Company Overview Industry Competition Financials Valuation Risks Summary
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
Recommendation Company Overview Industry Competition Financials Valuation Risks Summary
FinancialsEBITDA & Net Margins: 2006-2015
16
Discounted reserves Assets and Liabilities Destruction by management
Recommendation Company Overview Industry Competition Financials Valuation Risks Summary
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 $
Recommendation Company Overview Industry Competition Financials Valuation Risks Summary
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)
Recommendation Company Overview Industry Competition Financials Valuation Risks Summary
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
Recommendation Company Overview Industry Competition Financials Valuation Risks Summary
Assets & Liabilities
On average Hecla reinvests $164.7 million per year
Hecla averages a 0.86% return or $1.37 million annually
Recommendation Company Overview Industry Competition Financials Valuation Risks Summary
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
Recommendation Company Overview Industry Competition Financials Valuation Risks Summary
Other Valuations
Lack of Hedging
Future regulations
CERCLA 108b
Management turnover
Recommendation Company Overview Industry Competition Financials Valuation Risks Summary
Risks
Recommendation Company Overview Industry Competition Financials Valuation Risks Summary
Investment Summary
Current Price: $6.34
Target Price: $7.62
Upside: 20.2%
BUYImproving Efficiency
Cheap Assets
Possible Decreasing Regulations
Questions?