Hecla Mining Co HL

Preferred C

[seriousinvest]

Canaccord just came out with a pretty bullish report on HL with a $3.40 target.  What the report doesn't really mention is the way to play this is to buy the HL Preferred C(HL1C) currently trading around $35. The C is a somewhat strange instrument.  It will mandatorily convert into common on 1/1/11.  The conversion ratio varies between 8.45 and 10.3 but as long as the common is below $9.70(and as we know it is way below) you will get the 10.3.  The Preferred carries a 6.50% coupon(off the $100 par) so it should pay $1.63 a quarter.  They stopped paying dividends (which are cumulative) for the past 2 quarter so at conversion(assuming they don't start paying earlier) one would get $13 in dividends.  They have the option of paying in cash or stock(based on the then current price of the common). There is one kicker- the maximum shares that they have to pay is the unpaid dividends divided by $3.395 so the max number of shares one will get is 3.83. At the current market price(around $3) that works out to $11.50 in stock.  Of course, if the common increases above $3.40 you will get the entire $13. If the common is flat for the next year 11/2 on conversion you would get common worth about $43(for a profit of almost 25% on a stock that is flat).

CA has a $4.30 target price.  If that were to be attained then the preferred would be worth  $57(a 60+%) gain.   For the record, I bought a fair amount of the Preferreds at the end of April for around $23 so I'm pretty happy(so far ) with the position.