While Hecla Mining Company (HL 5.48%) dubs itself the largest primary silver producer in the United States, the company is also focused on the yellow metal. Last year, in fact, Hecla achieved a company record for annual gold production: 262,103 ounces. This past year has proven to be rather disappointing for investors, however, as the company's stock has plummeted more than 11% year to date; meanwhile, the price of silver and the S&P 500 have soared nearly 23% and 21%, respectively.
Jumping to conclusions, skeptical investors may assume that the best course of action regarding Hecla's stock is to stay away, eschewing it for more compelling opportunities. On the other hand, savvy investors are likely intrigued, wondering if the market is overreacting. So let's take a closer look at the company to see whether there is, in fact, a chance to pick up shares at an attractive price or if it's best to turn our attention to other options in the mining sector.
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The bull case
Casting Hecla's future in a lustrous light, optimists point to the fact that the company is poised to increase mineral production in 2019 compared to 2018. According to management's 2019 guidance, Hecla will achieve silver production of 11.7 million ounces and gold production of 274,000 ounces, representing growth of 12.5% and 4.5%, respectively. Evidently, the company is on track to achieve this forecast. Although the company hasn't reported third-quarter earnings yet, management has reported preliminary mineral production results, which indicated that through the first nine months of 2019, Hecla has increased silver production by 21% and gold production by 4% compared to the same period last year.
Besides the increase in mineral production which has the optimists enthused, management's suggestion that the company is poised for rising free cash flow is another source of excitement. For one, management revealed in a recent investors presentation its belief that it foresees a 40% increase in free cash flow over the next five years compared to the average $72 million which the asset has generated over the past five years. But wait, there's more. Addressing the company's other core asset, management stated that Casa Berardi, following the stripping of pits "could generate Greens Creek-like free cash flow."
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The prospect of a more glittering cash flow statement is especially exciting considering the company's recent performance. In 2018, Hecla reported free cash flow of negative $42.7 million -- a sharp drop from the positive $17.8 million which the company reported in 2017.
The bear case
Although the prospects of growing mineral production and cash flow has some investors excited, there are several reasons why others would rather run for the hills. For one, the company's inability to grow its operational cash flow has resulted in management turning to the debt and equity markets to help fund its operations. While investors have suffered from significant dilution over the past three years, the company has also further weighed down its balance sheet with debt. 
HL Shares Outstanding data by YCharts.
Attempting to strengthen its financial position, management recently revealed its long-term target of a net debt-to-EBITDA ratio of 2.5. Skeptics, however, will point to the fact that management aspires to achieve this feat by growing EBITDA and not by paying down debt -- something which seems questionable considering the company's EBITDA margin has fallen notably from 33.3% to 25.1% in 2018, according to Morningstar.
Turning from the company's financials, bears will point to additional causes for concern, stemming from the company's challenges in attempting to develop projects its portfolio. Last April, for instance, a U.S. court presented Hecla with a setback when it reversed a decision regarding a water permit for the Rock Creek project, a proposed silver and copper mine, in Montana. Another source of concern relates to the company's operations in Nevada. Speaking to the challenges encountered there, management stated that "the Nevada operations have not generated the cash flow we had hoped for so we are curtailing most development and reducing the workforce. . ." last June. Consequently, Hecla now plans on a $25 million reduction in spending relating to the Nevada operations in 2019.
Digging into the final word
Although management has an auspicious view of the remainder of 2019, the concerns regarding the company's financials, stalled project in Montana, and less-than-lucrative operations in Nevada suggest that investors would be better off watching this stock from the sidelines for the time being. And for investors who are still on the fence, perhaps the fact that the company's stock is trading at 17.9 times operational cash flow, a steep premium to the five-year average of 11.5, will help convince them that the risks don't outweigh the potential rewards.
