Hecla Reports Second Quarter 2019 Results

Increasing annual silver production estimates on higher Greens Creek grade

COEUR D’ALENE, Idaho–(BUSINESS WIRE)–Hecla Mining Company (NYSE:HL) today announced second quarter 2019 financial and operating results.

HIGHLIGHTS

  • Silver production of 3.0 million ounces and gold production of 60,768 ounces.
  • Increasing annual silver production estimate Company-wide to 11.7 million ounces due to higher grades at Greens Creek.
  • Total annual gold production estimate Company-wide unchanged at 274,000 ounces.
  • Sales of $134.2 million.
  • Adjusted net loss applicable to common shareholders of $36.4 million, or $0.07 per share.1
  • Adjusted EBITDA of $22.9 million and net debt/adjusted EBITDA (last 12 months) of 3.9x. 2,3
  • Cash and cash equivalents of $9 million, with a draw on the revolving line of credit of $52 million, at June 30, 2019.
  • Amended revolving credit agreement to allow higher net debt/EBITDA ratios through the second quarter of 2020.
  • Locked in minimum average prices of $1,400 per gold ounce and $15.13 per silver ounce by acquiring put options through the first quarter of 2020, while allowing full participation in potentially higher prices.

“Our financial performance in the second quarter was impacted by several items, including lower by-product credits and the timing of lead shipments at Greens Creek, and higher depreciation expense, which more than offset the positive impact of higher grades at Greens Creek,” said Phillips S. Baker, Jr., President and CEO. “Silver production at Greens Creek continued to be strong due to higher grades, so we are increasing our estimates for silver production for the year. Casa Berardi per-ounce costs were higher due to lower production, which should improve in the second half of the year with changes made to the mill and expected higher grades. We were reminded of the strong exploration potential of Casa Berardi and San Sebastian this quarter with high-grade intersections underground in the East Mine at Casa and an expanding oxide discovery at El Toro at San Sebastian. Changes were made in June at the Nevada operations, so they did not have much impact on the financial results for the second quarter but should help improve the cash flow in the second half of the year.”

Mr. Baker continued, “We have taken several steps in anticipation of refinancing our senior notes, due in 21 months. First, we bought put options that assure us of the minimum prices for the next few quarters that we receive for gold and silver. Next, we amended certain terms of our revolving credit agreement to improve availability to borrow funds. Finally, we have reduced expenditures, so we expect to be free cash flow positive in the third quarter and even more in the fourth quarter, enough to have no net revolver debt at year end. All of this should improve our debt to EBITDA profile heading into 2020.”

FINANCIAL OVERVIEW

 

Second Quarter Ended

 

Six Months Ended

HIGHLIGHTS

June 30, 2019

June 30, 2018

 

June 30, 2019

June 30, 2018

FINANCIAL DATA

 

 

 

 

 

Sales (000)

$

134,172

 

$

147,259

 

 

$

286,789

 

$

286,968

 

Gross (loss) profit (000)

$

(20,243

)

$

35,002

 

 

$

(16,799

)

$

73,788

 

(Loss) income (loss) applicable to common shareholders (000)

$

(46,670

)

$

11,936

 

 

$

(72,341

)

$

20,038

 

Basic and diluted (loss) income per common share

$

(0.10

)

$

0.03

 

 

$

(0.15

)

$

0.05

 

Net (loss) income (000)

$

(46,532

)

$

12,074

 

 

$

(72,065

)

$

20,314

 

Cash (used in) provided by operating activities (000)

$

(11,317

)

$

30,635

 

 

$

8,713

 

$

47,018

 

Net loss applicable to common shareholders for the second quarter 2019 was $46.7 million, or $0.10 per share, compared to net income applicable to common shareholders of $11.9 million, or $0.03 per share, for the same period in 2018. The second quarter result was mainly due to the following items:

  • Gross loss in Nevada was $20.2 million, which includes $17.8 million in depreciation expense, due to higher costs and lower grades and recoveries. At Greens Creek, gross profit was $17.1 million lower, primarily due to pricing. While at Casa Berardi, gross profit was lower by $14.1 million as a result of 8,353 fewer gold ounces sold, than in the second quarter of 2018, due primarily to mill maintenance activities.
  • Gain on metals derivative contracts of $3.8 million, compared to a gain of $16.8 million in the second quarter of 2018.
  • Loss of $4.6 million on the sale of Hecla’s interest in the Fayolle property in Quebec.
  • Net foreign exchange loss of $4.4 million compared to a gain of $2.5 million in the second quarter of 2018.

Cash used by operating activities was $11.3 million compared to cash provided by operating activities of $30.6 million in the second quarter of 2018, with the decrease mainly due to lower gross profit and timing of working capital changes.

Adjusted EBITDA was $22.9 million compared to $57.7 million in the second quarter of 2018, with the decrease mainly due to lower margins at Casa Berardi, negative results at our Nevada operations, and lower silver and base metals prices at Greens Creek.

Capital expenditures (excluding capitalized interest) at the operations totaled $38.9 million for the second quarter compared to $26.8 million in the second quarter of 2018, with the increase primarily due to the addition of the Nevada operations. Greens Creek and Casa Berardi expenditures decreased by $5.5 million and $0.4 million. Expenditures at Nevada operations, Casa Berardi, Greens Creek, San Sebastian and Lucky Friday were $17.3 million, $9.4 million, $8.7 million, $2.1 million, and $1.5 million respectively.

Metals Prices

The average realized silver price in the second quarter was $15.01 per ounce, 10% lower than the $16.61 in the second quarter of 2018. Average realized lead and zinc prices decreased 26% and 9%, respectively, while the average gold price increased 2%.

Metals Forward Sales Contracts

The following table summarizes the quantities of metals committed under financially settled forward sales contracts at June 30, 2019:

 

 

Ounces/Pounds Under Contract

(in thousands)

 

Average Price per Ounce/Pound

 

 

Silver

Gold

Zinc

Lead

 

Silver

Gold

Zinc

Lead

Contracts on forecasted sales

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

2019 settlements

 

 

 

25,629

 

1,653

 

 

N/A

 

N/A

 

$

1.25

 

$

0.96

 

2020 settlements

 

 

 

12,125

 

1,102

 

 

N/A

 

N/A

 

$

1.27

 

$

0.96

 

2021 settlements

 

 

 

 

 

 

N/A

 

N/A

 

 

 

 

2022 settlements

 

 

 

 

 

 

N/A

 

N/A

 

N/A

 

 

The forward contracts represent 14% of the forecasted payable zinc production for the 36-month period ended June 30, 2022 at an average price of $1.25 per pound and 3% of the forecasted payable lead production for the same period at an average price of $0.96 per pound.

Setting A Short-term Floor for Silver and Gold Prices

The Company has bought put option contracts in an amount approximating the expected silver and gold sales through a portion of 2020, setting a minimum average price of $1,400 per gold ounce and $15.13 per silver ounce. Buying a put option sets a floor on the price the Company expects to receive on substantially all of its projected near-term production while maintaining exposure to the upside, other than the transaction costs. This gives the Company confidence in the minimum prices it will receive.

OPERATIONS OVERVIEW

Overview

The following table provides the production summary on a consolidated basis for the second quarter and six months ended June 30, 2019 and 2018:

 

 

 

Second Quarter Ended

 

Six Months Ended

 

 

 

June 30, 2019

June 30, 2018

 

June 30, 2019

June 30, 2018

PRODUCTION SUMMARY

Silver –

 

Ounces produced

3,018,765

 

2,596,423

 

 

5,941,896

 

5,130,518

 

 

 

Payable ounces sold

2,418,586

 

2,313,753

 

 

5,316,669

 

4,405,217

 

Gold –

 

Ounces produced

60,768

 

60,313

 

 

120,789

 

118,121

 

 

 

Payable ounces sold

59,127

 

59,643

 

 

120,063

 

114,482

 

Lead –

 

Tons produced

5,515

 

5,522

 

 

11,299

 

11,149

 

 

 

Payable tons sold

3,963

 

4,745

 

 

8,811

 

8,613

 

Zinc –

 

Tons produced

13,315

 

14,299

 

 

27,259

 

29,510

 

 

 

Payable tons sold

9,823

 

10,686

 

 

19,356

 

20,790

 

The following tables provide a summary of the final production, cost of sales, cash cost, after by‑product credits, per silver and gold ounce, and AISC, after by-product credits, per silver and gold ounce for the second quarter and six months ended June 30, 2019, with comparisons to the prior year period:

Second Quarter Ended

 

 

 

Greens Creek

Lucky

Friday

San Sebastian

Casa Berardi

Nevada Operations

June 30, 2019

Silver

 

Gold

Silver

 

Gold

Silver

Silver

 

Gold

Gold

 

Silver

Gold

 

Silver

Production (ounces)

3,018,765

 

 

60,768

 

2,372,270

 

 

13,257

 

127,147

 

463,735

 

 

3,547

 

31,270

 

 

6,164

 

12,694

 

 

49,449

 

Increase/(decrease)

422,342

 

 

455

 

372,479

 

 

(462

)

102,460

 

(95,912

)

 

(325

)

(11,452

)

 

(6,134

)

12,694

 

 

49,449

 

Cost of sales and other direct production costs and depreciation, depletion and amortization (000)

$

61,744

 

 

$

92,671

 

$

45,650

 

 

$

 

$

4,951

 

$

11,143

 

 

$

 

$

55,152

 

 

$

 

$

37,519

 

 

$

 

Increase/(decrease)

$

1,182

 

 

$

40,976

 

$

(2,092

)

 

N/A

 

$

3,207

 

$

67

 

 

N/A

 

$

3,457

 

 

N/A

 

$

37,519

 

 

N/A

 

Cash costs, after by-product credits,

per silver or gold ounce 4, 6

$

3.50

 

 

$

1,151

 

$

2.38

 

 

$

 

$

 

$

9.22

 

 

$

 

$

1,101

 

 

$

 

$

1,274

 

 

$

 

Increase/(decrease)

$

4.07

 

 

$

376

 

$

5.85

 

 

N/A

 

$

 

$

 

 

N/A

 

$

326

 

 

N/A

 

$

1,274

 

 

N/A

 

AISC, after by-product credits per silver or gold ounce5

$

11.16

 

 

$

1,700

 

$

6.37

 

 

$

 

$

 

$

15.50

 

 

$

 

$

1,437

 

 

$

 

$

2,347

 

 

$

 

Increase/(decrease)

$

(0.24

)

 

$

661

 

$

1.94

 

 

N/A

 

$

 

$

(1.65

)

 

N/A

 

$

398

 

 

N/A

 

$

2,347

 

 

N/A

 
   
Six Months Ended

 

 

 

Greens Creek

Lucky

Friday

San Sebastian

Casa Berardi

Nevada Operations

June 30, 2019

Silver

 

Gold

Silver

 

Gold

Silver

Silver

 

Gold

Gold

 

Silver

Gold

 

Silver

Production (ounces)

5,941,896

 

 

120,789

 

4,605,017

 

 

27,585

 

300,774

 

904,814

 

 

7,077

 

63,069

 

 

14,404

 

23,058

 

 

116,887

 

Increase/(decrease)

811,378

 

 

2,668

 

691,994

 

 

748

 

176,307

 

(167,025

)

 

(1,308

)

(19,830

)

 

(6,785

)

23,058

 

 

116,887

 

Cost of sales and other direct production costs and depreciation, depletion and amortization (000)

$

130,389

 

 

$

173,199

 

$

99,762

 

 

$

 

$

7,132

 

$

23,495

 

 

$

 

$

104,233

 

 

$

 

$

68,966

 

 

$

 

Increase/(decrease)

$

18,091

 

 

$

72,317

 

$

10,160

 

 

N/A

 

$

1,288

 

$

6,643

 

 

N/A

 

$

3,351

 

 

N/A

 

$

68,966

 

 

N/A

 

Cash costs, after by-product credits,

per silver or gold ounce 4, 6

$

2.90

 

 

$

1,213

 

$

1.46

 

 

$

 

$

 

$

10.20

 

 

$

 

$

1,107

 

 

$

 

$

1,502

 

 

$

 

Increase/(decrease)

$

4.82

 

 

$

413

 

$

5.68

 

 

N/A

 

$

 

$

4.20

 

 

N/A

 

$

307

 

 

N/A

 

$

1,502

 

 

N/A

 

AISC, after by-product credits per silver or gold ounce5

$

10.29

 

 

$

1,729

 

$

4.85

 

 

$

 

$

 

$

16.02

 

 

$

 

$

1,387

 

 

$

 

$

2,666

 

 

$

 

Increase/(decrease)

$

1.68

 

 

$

667

 

$

2.29

 

 

N/A

 

$

 

$

3.02

 

 

N/A

 

$

325

 

 

N/A

 

$

2,666

 

 

N/A

 

Greens Creek Mine – Alaska

At the Greens Creek mine, 2.4 million ounces of silver and 13,257 ounces of gold were produced, compared to 2.0 million ounces and 13,719 ounces, respectively, in the second quarter of 2018. Silver production was the most in the last three years, and the increase compared to the second quarter of 2018 was due to higher grades. The mill operated at an average of 2,301 tons per day (tpd), which was slightly higher than the second quarter of 2018.

The cost of sales was $45.7 million, and the cash cost, after by-product credits, per silver ounce, was $2.38, compared to $47.7 million and $(3.47), respectively, for the second quarter of 2018.4 The AISC, after by-product credits, was $6.37 per silver ounce compared to $4.43 in the second quarter of 2018.5 The increased silver production means there is less by-product credit to apply to each ounce of silver so the cost per ounce after by-products is higher. The per ounce silver costs were higher primarily due to lower by-product metal prices and production, partially offset by higher silver production.

Production in the second half is expected to be similar to the first half, and to be spread fairly evenly between the third and fourth quarters, but due to shipment schedules the cash flow should mostly be in the fourth quarter.

Casa Berardi – Quebec

At the Casa Berardi mine, 31,270 ounces of gold were produced, including 6,685 ounces from the East Mine Crown Pillar (EMCP) pit, compared to 42,722 ounces in the second quarter of 2018. The decrease is primarily due to lower ore grades, and lower mill recovery as a result of planned adjustments to a number of mill components to accommodate a higher throughput and the requirement for a new carbon in leach (CIL) drive train, which was installed in May. The shortfall in production in the first half of the year is expected to be made up over the remainder of the year with the introduction of a pre-crush system and projected higher grades. The mill operated at an average of 3,820 tpd, which was slightly lower than the second quarter of 2018.

The cost of sales was $55.2 million and the cash cost, after by-product credits, per gold ounce was $1,101, compared to $51.7 million and $775, respectively, in the second quarter of 2018.4,6 The increase in cash cost, after by-product credits, per gold ounce is mainly due lower gold production. Lower production, partially offset by lower capital spending, resulted in higher AISC, after by-product credits, of $1,437 per gold ounce, compared to $1,039 in the second quarter of 2018.5

Production and cash flow from Casa Berardi are expected to be higher in second half of the year, with the greater impact in the fourth quarter.

San Sebastian – Mexico

At the San Sebastian mine, 463,735 ounces of silver and 3,547 ounces of gold were produced, compared to 559,647 ounces and 3,872 ounces, respectively, in the second quarter of 2018. The decreases were due to lower grades, as expected, upon transitioning to increased throughput coming from underground material, versus higher-grade open pit material. The mill operated at an average of 504 tpd, which was 21% higher than the second quarter of 2018.

The cost of sales was $11.1 million and the cash cost, after by-product credits, was $9.22 per silver ounce, compared to $11.1 million and $9.79, respectively, in the second quarter of 2018. The cash cost, after by-product credits, decreased due to lower mining costs and higher by-product credits on a per-ounce basis. The AISC, after by-product credits, was $15.50 per silver ounce compared to $17.15 in the second quarter of 2018 with the variance due to the same factors along with lower capital and exploration spending.5

Production is expected to remain consistent with the first half of the year but with the cash flow weighted to the fourth quarter. A review of sulfide ore continues, including a bulk sample to test the capabilities of the third-party plant and the suitability of long-hole stoping for the ore body, with results expected by the fourth quarter of 2019.

Nevada Operations (acquired on July 20, 2018)

For the Nevada operations, 12,694 ounces of gold and 49,449 ounces of silver were produced. During the second quarter, a review of the Nevada operations was conducted and changes made. The mining contractor has been demobilized, and the decision made to mine only currently developed material at Fire Creek and to suspend production and development at Hollister. Mining at Midas is expected to continue through the end of the third quarter. Some surface exploration drilling and hydrology studies are still planned to gather information on the deposits to aid future development programs. Additional changes could also be taken with the goal of turning it into a positive cash flowing unit.

Third-party ore processing arrangements are also being pursued with the goal of reducing transportation and milling costs. This could include mills that can process ore that is considered refractory. With water discharge from Fire Creek higher than it was a year ago, work is underway to increase discharge permits, expected to be obtained in the near future and increase non-consumptive water rights, expected within approximately one year. These changes, combined with changing how the water is treated, are important steps towards addressing the increase in water inflow expected when the mine expands north and southwards.

Production and cash flow at the Nevada operations are expected to be higher in the second half of the year, particularly in the fourth quarter as a result of the reduction in development spending.

Lucky Friday Mine – Idaho

At the Lucky Friday Mine, 127,147 ounces of silver was produced compared to 24,687 ounces in the second quarter of 2018 mainly due to a shift in focus from development to production by the salaried staff. The higher level of production is helping to defray costs associated with the strike at Lucky Friday. Cost of sales was $5.0 million compared to $1.7 million in the second quarter of 2018, mainly the result of increased production.

The Remote Vein Miner (RVM) is fully fabricated. It is expected to begin operating at EPIROC’s test mine in Sweden by the end of the summer, with delivery to Lucky Friday expected in the second quarter of 2020.

EXPLORATION

Exploration (including corporate development) expenses for the second quarter were $4.3 million, a decrease of $3.5 million compared to the prior year period.

A complete summary of exploration for the second quarter can be found in the exploration news release entitled “Hecla Reports New High-Grade at Casa Berardi and Expanding Near-Surface Oxide Resource at San Sebastian” issued on August 6, 2019.

PRE-DEVELOPMENT

Pre-development spending was $0.8 million for the quarter, compared to $1.4 million for the second quarter of 2018, principally to advance the permitting of Rock Creek and Montanore.

2019 ESTIMATES7

2019 Production Outlook

 

Silver Production

(Moz)

Gold Production

(Koz)

Silver Equivalent

(Moz)

Gold Equivalent

(Koz)

 

Previous

(if revised)

Current

Previous

(if revised)

Current

Previous

(if revised)

Current

Previous

(if revised)

Current

Greens Creek

7.7

 

9.0

 

50

 

52

 

24.0

 

27.0

 

305

 

278

 

Lucky Friday

0.2

 

0.5

 

N/A

 

N/A

 

0.2

 

1.3

 

N/A

 

N/A

 

San Sebastian

2.0

 

2.0

 

14

 

14

 

3.0

 

3.0

 

40

 

40

 

Casa Berardi

N/A

 

N/A

 

150

 

146

 

11.7

 

12.7

 

150

 

146

 

Nevada Operations

0.1

 

0.2

 

60

 

62

 

4.9

 

5.5

 

63

 

64

 

Total

10.0

 

11.7

 

274

 

274

 

43.8

 

49.5

 

558

 

528

 

       

2019 Cost Outlook

 

Costs of Sales (million)

Cash cost, after by-product

credits, per silver/gold ounce2,5

AISC, after by-product credits, per

produced silver/gold ounce3

 

Previous

(if revised)

Current

Previous

(if revised)

Current

Previous

(if revised)

Current

Greens Creek

$202

$202

$0

$2.25

$5.50

$7.50

Lucky Friday

N/A

N/A

N/A

N/A

N/A

N/A

San Sebastian

$41

$46

$9.00

$9.00

$12.00

$13.00

Total Silver

$243

$248

$1.10

$3.25

$11.00

$12.50

Casa Berardi

$210

$210

$850

$950

$1,150

$1,250

Nevada Operations

$105

$147

$1,200

$1,300

$1,700

$1,600

Total Gold

$315

$357

$950

$1,100

$1,325

$1,425

 

2019 Capital and Exploration Outlook

 

Previous

(if revised)

Current

2019E Capital expenditures (excluding capitalized interest)

$138 million

$138 million

2019E Exploration expenditures (includes Corporate Development)

$16 million

$15 million

2019E Pre-development expenditures

$2.5 million

$2.5 million

2019E Research and Development expenditures

$1 million

$1 million

 

DIVIDENDS

Common

The Board of Directors elected to declare a quarterly cash dividend of $0.0025 per share of common stock, payable on or about September 3, 2019, to shareholders of record on August 23, 2019. The realized silver price was $15.01 in the second quarter and therefore did not satisfy the criteria for a larger dividend under the Company’s dividend policy.

Preferred

The Board of Directors elected to declare a quarterly cash dividend of $0.875 per share of preferred stock, payable on or about October 1, 2019, to shareholders of record on September 13, 2019.

SENIOR MANAGEMENT CHANGES

Hecla today announced changes to its senior leadership structure.

Mr. Lauren Roberts joins the Company as its Senior Vice President and Chief Operating Officer. A mining engineer with over 30 years’ experience in the industry, Mr. Roberts has held progressively more senior roles at Kinross since joining them in 2004, ending as Senior Vice President and Chief Operating Officer. He previously worked for Hecla from 1989 to 1997 and then spent seven years at Barrick before joining Kinross.

Mr. Larry Radford, formerly Hecla’s Senior Vice President and Chief Operating Officer, transitions to the temporary role of Chief Technical Officer. He will assist with the transition of responsibilities to Lauren and lead the Technical Services and Project Development teams.

Mr. Dean McDonald, Senior Vice President, Exploration, is retiring. Since joining Hecla in 2006, Dean has been instrumental in the Company achieving record silver reserves in 10 of the past 11 years and strong growth in gold reserves. Dean’s role will be divided between Keith Blair, who becomes Chief Geologist, and Kurt Allen, who becomes Director of Exploration.

“Lauren Roberts has held key leadership roles at Kinross, and I am excited that he has elected to return to Hecla,” said Mr. Baker. “I want to thank Dean for his significant contributions to Hecla over the past 13 years and wish him well in his retirement. I want to thank Larry for enabling a smooth transition, and I also want to congratulate Keith on becoming Chief Geologist and Kurt on becoming Director of Exploration.”

CONFERENCE CALL AND WEBCAST

A conference call and webcast will be held Wednesday, August 7, at 10:00 a.m. Eastern Time to discuss these results. You may join the conference call by dialing toll-free 1-855-760-8158 or for international dialing 1-720-634-2922. The participant passcode is HECLA. Hecla’s live and archived webcast can be accessed at www.hecla-mining.com under Investors or via Thomson StreetEvents Network.

ABOUT HECLA

Founded in 1891, Hecla Mining Company (NYSE:HL) is a leading low-cost U.S. silver producer with operating mines in Alaska, Idaho, and Mexico and is a gold producer with operating mines in Quebec, Canada and Nevada. The Company also has exploration and pre-development properties in seven world-class silver and gold mining districts in the U.S., Canada and Mexico, and an exploration office and investments in early-stage silver exploration projects in Canada.

NOTES

Non-GAAP Financial Measures

Non-GAAP financial measures are intended to provide additional information only and do not have any standard meaning prescribed by generally accepted accounting principles in the United States (GAAP). These measures should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

(1) Adjusted net (loss) income applicable to common stockholders is a non-GAAP measurement, a reconciliation of which to net (loss) income applicable to common stockholders, the most comparable GAAP measure, can be found at the end of the release. Adjusted net (loss) income is a measure used by management to evaluate the Company’s operating performance but should not be considered an alternative to net (loss) income, or cash (used in) provided by operating activities as those terms are defined by GAAP, and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. In addition, the Company may use it when formulating performance goals and targets under its incentive program.

(2) Adjusted EBITDA is a non-GAAP measurement, a reconciliation of which to net (loss) income, the most comparable GAAP measure, can be found at the end of the release. Adjusted EBITDA is a measure used by management to evaluate the Company’s operating performance but should not be considered an alternative to net (loss) income, or cash (used in) provided by operating activities as those terms are defined by GAAP, and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. In addition, the Company may use it when formulating performance goals and targets under its incentive program.

Contacts

For further information, please contact:

Mike Westerlund

Vice President – Investor Relations

800-HECLA91 (800-432-5291)

Email: hmc-info@hecla-mining.com

Website: www.hecla-mining.com

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Sky Optics Media drone video