Given the uncertainty surrounding the global economy, investors would be forgiven for being slightly underwhelmed by the performance of both gold and silver. Whilst gold embarked on a hasty retreat after taking out all time highs in late June, the price of silver plotted out a similar route. As the chart below illustrates, 2010 has seen the price of gold increase by 10% whilst silver has increase by approximately 5%.

Although gold accounts for 17% of Hecla's output, silver accounts for 39% of total production and is therefore the group's main focus. Having posted a stellar 2009 in which the group saw rising prices for their commodities, greater cost control and excellent work with the drill bit, 2010 has continued much in the same vein.

That said the difference between the second quarters of 2009 and 2010 are stark. Whilst this time last year the group reported a loss of US$2 million, this time around the group reported net earnings of US$13.7 million. The main catalyst was of course the significantly higher price gained for both silver and gold with HeclaÕs realised prices of US$18.96 per ounce of silver and US$1246 per ounce for gold greater than the average of the respective spot prices by quite some margin.

The group's production of key commodity silver may have come in lower at 2.6 million ounces versus 3 million ounces from the corresponding period of 2009, however output was marginally higher quarter on quarter and higher commodities prices realised more than made up for any shortfall. Whilst the average prices for silver and gold were 33% and 30% higher, respectively, the average prices for lead and zinc were also markedly higher at 29% and 37% respectively.

Indeed of Hecla's 'bi products' only lead productions was lower than 2009 levels. The net effect of this was that's Hecla achieved its silver at a cash cost of negative US$1.82 per ounce, after factoring in the value of these bi products. In our view, this is quite an achievement as during the second quarter of last year, total cash costs came in at of $3.38 per ounce... 2010 is therefore a marked improvement.

Operationally the group continued to tick all the boxes and grades are improving. As a reminder to Members Hecla is produces silver, gold, lead and zinc and is organised into two segments: the Greens Creek and Lucky Friday units.

So how have the individual mines fared?

The group's cash cow the Greens Creek mine in Alaska produced 1.8 million ounces of silver during the second quarter of 2010 at a lean average total cash cost per ounce of negative US$4.56. Whilst the cash costs were significantly lower relative to the corresponding period of 2009, shareholders will not be so encouraged by the 10% silver grade on 2009 levels.

Encouragingly though grades have actually improved quarter on quarter. The mine is set to produce 7 million ounces of silver this year and the operation is taking giant strides in reaching its long-term goal of milling 2,300 tons per day.

Meanwhile at the Lucky Friday mine in northern Idaho output fell just short of 800,000 ounces of silver with average total cash cost of US$4.47 per ounce. Thanks to rehabilitation work in the mine's exhaust shaft and secondary escape-way, and higher prices realised for the operations bi products, the theme of lower production but higher cash costs vis-a-vis Q2 2009 continued.

The mine forecast to produce approximately 3 million ounces of silver in 2010 and with many other precious metals players have issued downward revisions in production guidance of late it is encouraging to note that Hecla has maintained its original 2010 production guidance of 10-11 million ounces of silver. From a cash costs perspective, however there has been an improvement and 2010 outlook for total cash costs has been reduced to as the company expects higher prices for zinc and lead.

But it is not just current production levels which have impressed. Hecla's commitment to the production of tomorrow is also a major attraction and during the second quarter alone, US$5.8 million was spent on exploration.

Hecla's exploration teams have made progress on prospects in Idaho, Colorado and Mexico however steps have also been taken to bolster the contributions of its current producing assets. At Greens Creek significant extensions to current reserves and resources have been found and drilling has unearthed higher than expected grades of silver and gold. And at Lucky Friday the company continues to define new resources.

Beyond these assets, at Silver Valley (located close to Lucky Friday) promising mineralization and structures have been unearthed and several veins are yet to be tested. At San Juan Silver in Colorado where Hecla has a 70% interest, the company has just received the green light from the US Forest Service to fully access a 25 square mile expanse of the past-producing Creede mining district.

Meanwhile in Mexico on the San Sebastian property, a systematic evaluation of targets through drilling and surface prospecting continues. Activity covers promising targets one of the which, the Cerro Santiago target covers a strong silver and gold soil anomaly.

Thanks to ongoing robust operating cash flows, Hecla stands on very firm footing and is well equipped to continue exploring at current rates. The group generated US$54 million from operations and as at June 30, 2010, held a cool US$197 million in cash and with zero debt bank debt. This compares favourably to net cash of US$105 million at year end 2009.

Looking at the weekly chart of Hecla Mining we can see that the share price has broken the uptrend that had been supporting prices since the November 2008 low of $0.99. The share price hit a high of $7.47 on the 4^th of December 2009 but has since pulled back below the 200 week moving average and has more recently broken below the 39 week/200 day moving average. The weekly MACD has also turned negative and is currently crossing the zero signal line which is bearish.

Looking at the daily chart of Hecla we can see that the 50 day moving average now looks to be acting as resistance. The 50 day MA has also just crossed below the 200 day MA forming what is known as a death cross which is bearish. Horizontal support kicks in at the $4.50 level.

On the valuation front, shares trade on a forward price earnings multiple of 22 times, which falls to below 18 times in 2011. In our view, these numbers are undemanding, particularly as precious metals producers tend to trade on premium ratings.

As such, Hecla Mining will remain firmly held in the Fat Prophets portfolio.