Hecla CEO on precious metal rally: Gold is trading on central banks, silver is a supply story

Key Concepts

• Precious Metals Rally: Significant price increases in gold and silver, particularly silver experiencing a substantial surge.
• Central Bank Gold Purchases: Increased gold acquisition by central banks, exceeding historical averages.
• Silver Supply Deficit: A consistent and growing gap between silver consumption and production.
• Primary vs. Byproduct Silver Deposits: Distinction between mines focused solely on silver extraction and those where silver is a secondary product of mining other metals.
• Geopolitical Risk & Mining Jurisdiction: The importance of political stability and regulatory certainty in mining investment decisions.
• M&A in Silver Mining: Consolidation trends within the silver mining industry driven by limited primary silver deposits.
• Gold-Silver Ratio: Historical correlation between gold and silver prices, typically around 60:1 during bull market cycles.

Precious Metals Rally & Demand Drivers

The interview centers on the current rally in precious metals, specifically gold and silver. Gold has risen 65%, reaching levels not seen since 1979, while silver has experienced an even more dramatic increase of 147%. The speaker, Rob, emphasizes that the quality of demand is a key factor driving this rally, not just the magnitude of the price increases. He notes the differing reasons behind the rallies: gold is primarily driven by central bank purchases, while silver’s surge is rooted in a supply-demand imbalance.

According to the World Gold Council, central banks have purchased over 1000 tonnes of gold annually since 2022, roughly double the historical average, and they are indicating continued purchasing plans. Silver, however, is facing a significant supply issue. The market is experiencing its fifth consecutive year of deficits, consuming approximately 200,000,000 ounces more silver annually than is produced. This supply squeeze is further exacerbated by China’s export restrictions, which took effect on January 1st. Additionally, accelerating industrial demand is contributing to the silver price increase.

Hecla Mining’s Position & Expansion Strategy

Hecla Mining, as the largest silver producer in the US, is well-positioned to benefit from these market dynamics. Rob explains that while increasing production is desirable, it’s challenging. A significant portion of silver production comes as a byproduct of mining gold, lead, and zinc. True “primary silver deposits” are rare, and developing new projects takes many years. Hecla’s existing production capacity provides a competitive advantage.

Regarding expansion, the company currently focuses on assets in Canada and the US. This geographic concentration provides investors with “certainty” and reduces risk, as these jurisdictions offer more predictable regulatory environments and security of assets. Rob explicitly states, “We’re not going to wake up and read that our mines have been taken away from us, or there’s some new surprise attack. It’s predictability and certainty.”

The possibility of expanding into regions like Venezuela, which possesses significant mineral deposits, was addressed. While acknowledging the potential, Rob emphasized the paramount importance of security and the need for clear guarantees and contracts. He stated Hecla’s current “appetite for risk is reasonably low” and the company prefers to see greater stability before considering investment in such regions.

Regulatory Environment & M&A Activity

The interview touched upon the regulatory landscape for mining. Rob acknowledged that permitting timelines have expanded, but highlighted the challenges inherent in finding and developing new silver deposits.

Regarding mergers and acquisitions (M&A), Rob noted that consolidation within the silver mining space is already occurring, driven by the scarcity of primary silver deposits. He emphasized that Hecla’s primary focus is on improving its own business through cost control and operational efficiencies, rather than relying on acquisitions. He declined to comment specifically on potential deals like a combination of Rio Tinto and Glencore.

Silver Price Outlook & Historical Correlations

Rob expressed a strong belief that silver prices can continue to rise, citing the favorable supply-demand dynamics and the positive tailwinds from the increasing gold price. He pointed to the historical correlation between gold and silver prices, typically around a 60:1 ratio towards the end of a bull market cycle. This suggests that as gold continues to appreciate, silver has the potential for even greater percentage gains. He stated definitively, “I think absolutely, absolutely. It can…” referring to silver’s potential for further price increases.

Conclusion

The interview paints a bullish picture for silver, driven by a unique combination of supply constraints, increasing industrial demand, and central bank activity in the gold market. Hecla Mining, with its existing production base and focus on politically stable jurisdictions, is positioned to capitalize on these trends. While expansion opportunities are being considered, the company prioritizes risk management and operational efficiency. The historical correlation between gold and silver suggests further upside potential for silver prices as the precious metals bull market continues.