Hecla Mining (HL) is one of our favorite silver miners. The company recently made a decision to purchase Klondex Mining (KLDX). We believed that after the selloff the stock faced, there was an opportunity here. While we discussed the terms of the deal and what it meant for Hecla, we did not focus on performance of the name of late, not really go into detail on the ongoing strike at Lucky Friday.

In our opinion, the ongoing strike at the Lucky Friday mine is a double-edged sword. On the one hand, the lack of activity extends mine life, lowers expenses significantly, and could lead to leaner operations once back online. However, the revenue generation from the mine, as well as the fact that it is margin positive, is missed by the company.

For these reasons the stock had been falling for a year now. The strike has been ongoing that long. It also does not look like there will be a resolution too soon, as the miners’ union recently rejected any arbitration of the contract proceedings. Keeping in mind that Lucky Friday has been down since spring 2017, let us talk about production and finances for Hecla Mining.

The strike absolutely is weighing. At the Lucky Friday mine, 838,657 ounces of silver were produced for the year. This is a 77% decline in production compared to 2016. Of course, the strike is in the spotlight, but it overshadows other operations of the company that you need to be aware of.

There were declines at Greens Creek mine. Last quarter, 8.4 million ounces of silver and 50,855 ounces of gold were produced. These are 10% and 6% lower than last year. Lower output was due to lower grades at the mine.

At the San Sebastian mine, 3.3 million ounces of silver and 25,177 ounces of gold were produced. This was a decline of 24% and 26% respectively, mostly due to reduced tonnage and throughput. While these declines are palpable, the results were above expectations, so it is actually a positive.

Finally over at the Casa Berardi mine, 156,653 ounces of gold were produced, including 37,922 ounces from the East Mine Crown Pillar pit, where expansion is underway. This was an increase of nearly 11,000 ounces compared to 2016, a very positive piece of news for production.

Overall, we think production was weak and this weighed on the finances. The declining production has led to selling pressure on the stock for nearly a year straight, mostly because of the impact to financials. Ultimately Lucky Friday’s absence and the declines at San Sebastian were felt.

In terms of the top line, we saw sales for the fourth quarter and full year were 3% and 11% lower, respectively than the same periods in 2016, mainly due to lower silver, zinc and lead production due to the ongoing strike at Lucky Friday.

While these declines weight, keep in mind that it would have been much worse if it was not for favorable pricing. The declines here were offset greatly by higher realized silver, gold, zinc and lead prices in 2017. Metal prices were much better in 2017 relative to 2016.

When we factor in expenses, which were well managed, as well as tax changes, the net loss to Hecla was $27.7 million for the fourth quarter and $23.5 million for the full year of 2017, compared to net income of $20.3 million for the fourth quarter and $69.5 million for the full year of 2016.

While a lot of this loss was due to lower revenues, charges associated with tax reform took net income negative. As such, we like to look at adjusted EBITDA. Here there was good news for the quarter. Adjusted EBITDA was $72.0 million for the quarter compared to $65.9 million last year, and $235.0 million for all of 2017 compared to $265.1 million in 2016. This is very bullish in our opinion, with EBITDA rising from last year, despite Lucky Friday being off line. If we can just get more help from metal prices, the stock should soar, especially when this strike ends.

When the Lucky Friday strike ends and the mine comes back online and is at full capacity, we expect the impact to sales to be double-digit positive over 2017. We also believe that profitability will remain a focus, while labor costs will undoubtedly rise thanks to better contracts for workers. Still, the company has managed to keep expenses in line, and has expanded EBITDA during this difficult time. Considering the stock has been cut in half in a year, we are bullish since operations are improving.