Hecla’s Fourth Quarter Continues a Strong Second Half Of 2019

Hecla reports record annual revenue, gold production and silver reserves

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

HIGHLIGHTS

  • Fourth quarter sales of $225 million; cash flow from operations of $57 million; net loss of $8.0 million; and adjusted EBITDA of $62 million.1
  • 2019 silver production of 12.6 million ounces, up 22% and record gold production of 272,873 ounces, up 4%, over 2018.
  • 2019 sales of $673.3 million (the highest in the company’s history); cash flow from operations of $120.9 million; net loss of $99.6 million; and adjusted EBITDA of $177.7 million.1
  • Record reserves for silver, lead and zinc; increases of 11%, 5% and 8%, respectively over 2018.
  • Net debt reduction of approximately $136 million, or more than 23%, from the peak net debt mid-year.
  • Cash and cash equivalents of $62 million at year end, an increase of $35 million with no borrowings on the revolving line of credit facility.
  • Lowest All Injury Frequency Rate (AIFR) in Company history.
  • Lucky Friday return to full production is underway and expected to be complete by the end of 2020.
  • Moody’s Investors Service upgraded Hecla’s Corporate Family Rating from Caa1 to B3 with a stable outlook.

“2019 was a tale of two halves where the second half had higher production, higher prices, better earnings and more cash flow,” said Phillips S. Baker, Jr., President and CEO. “The strong third and fourth quarters markedly improved our financial condition, putting us in a better position to refinance the Senior Notes.”

“In 2020, at current prices, we expect continued strong cash flow generation with the ongoing solid performance at Greens Creek, the ramp-up of Lucky Friday, expected improvements at Casa Berardi and the potential mine life extension at San Sebastian from the Hugh Zone,” Mr. Baker added.

SILVER AND GOLD RESERVE SUMMARY

Proven and probable reserves are 212 million ounces of silver, an increase of 11% over last year and 2.71 million ounces of gold, a decrease of 5%. Proven and probable lead and zinc reserves of 810,930 tons and 1,001,930 tons are increases of 5% and 8%, respectively. The reserves for silver, lead and zinc are the highest in Company history. The price assumptions used for 2019 reserves of $14.50 for silver, $1.15 for zinc and $0.90 for lead are unchanged this year and our assumption for gold is $100 higher at $1,300 per ounce. The silver price assumption is among the lowest in the industry again this year.

Please refer to the reserves and resources tables at the end of this press release, or to the press release entitled “Hecla Reports Record Silver, Lead and Zinc Reserves” released on February 5, 2020, for the breakdown between proven and probable reserve and resource levels, as well as a detailed summary of the Company’s exploration programs.

FINANCIAL OVERVIEW

 

Fourth Quarter Ended

 

Twelve Months Ended

HIGHLIGHTS

December 31,

2019

 

December 31,

2018

 

December 31,

2019

 

December 31,

2018

FINANCIAL DATA

 

 

 

 

 

 

 

Sales (000)

$

224,945

 

 

$

136,520

 

 

$

673,266

 

 

$

567,137

 

Gross profit (loss) (000)

$

25,318

 

 

$

(1,265

)

 

$

23,399

 

 

$

79,099

 

Loss applicable to common stockholders (000)

$

(8,114

)

 

$

(23,831

)

 

$

(100,109

)

 

$

(27,115

)

Basic and diluted loss per common share

$

(0.02

)

 

$

(0.05

)

 

$

(0.20

)

 

$

(0.06

)

Cash provided by operating activities (000)

$

57,257

 

 

$

19,011

 

 

$

120,866

 

 

$

94,221

 

Net loss applicable to common stockholders for the fourth quarter and full year of 2019 was $8.1 million and $100.1 million, or $0.02 and $0.20 per basic share, respectively, compared to net losses applicable to common stockholders of $23.8 million and $27.1 million, or $0.05 and $0.06 per basic share, respectively, for the fourth quarter and full year of 2018. Among items impacting the results for the 2019 periods compared to 2018 were the following:

  • Gross profit for the fourth quarter of 2019 was higher by $26.6 million. The variance was due in part to higher gross profit at Greens Creek and San Sebastian of $22.0 million and $4.2 million, respectively, and lower losses in Nevada and Lucky Friday of $3.1 million and $2.4 million, respectively, partly offset by higher losses at Casa Berardi of $5.1 million for the fourth quarter.
  • Gross profit for the full year of 2019 was $55.7 million less, principally due to depreciation expense in Nevada.
  • Losses on metal derivative contracts for the fourth quarter and full year of 2019 of $1.3 million and $4.0 million, respectively, compared to a slight loss in the fourth quarter and a gain of $40.3 million in the full year. During the third quarters of 2019 and 2018, the Company settled in-the-money contracts prior to their maturity date, for cash proceeds of approximately $6.7 million and $32.8 million, respectively.
  • Foreign exchange losses of $1.5 million and $8.2 million were recognized in the fourth quarter and full year of 2019, respectively, compared to gains of $7.5 million and $10.3 million, respectively. The variances were primarily due to changes in the value of the Canadian dollar relative to the U.S. dollar.
  • Interest expense was $14.7 million in the fourth quarter and $48.4 million for the full year of 2019 compared to $10.9 million and $40.9 million, respectively. The increase in the 2019 periods was due to a loss on the prepayment of the Ressources Quebec Note and increased amounts drawn on the revolving credit facility, which were repaid, leaving no amount drawn as of December 31, 2019.
  • Income tax benefit for the fourth quarter and full year of 2019 of $4.1 million and $24.1 million, respectively, compared to benefits of $5.2 million and $6.7 million, respectively.
  • Suspension costs for the fourth quarter of $3.3 million and $12.1 million for the full year of 2019, compared to costs of $2.4 million and $20.7 million, respectively.
  • Exploration and pre-development expense was $3.0 million for the fourth quarter and $19.1 million for the full year of 2019, compared to $9.4 million and $40.6 million, respectively due to reduced spending at all sites.

Cash provided by operating activities for the fourth quarter and full year of 2019 of $57.3 million and $120.9 million, respectively, was $38.2 million and $26.6 million higher, respectively, compared to the prior year periods. The increase in the fourth quarter of 2019 was primarily due to lower spending in Nevada, higher sales and lower exploration. The increase for the full year of 2019 was a result of the same factors, along with lower acquisition costs and Lucky Friday suspension costs and the impact of working capital changes, partially offset by lower cash proceeds from settlement of base metals derivative contracts prior to their maturity date.

Adjusted EBITDA increased $43.2 million quarter-over-quarter, and the $177.7 million in 2019 was $6.4 million more than 2018.1 The increases were primarily due to lower spending in Nevada, higher sales, and lower exploration spending.

Fourth quarter capital expenditures totaled $23.8 million, including $12.9 million at Greens Creek, $7.7 million at Casa Berardi, and $3.0 million at Lucky Friday. Capital expenditures, including non-cash items for equipment acquired under finance leases, for the year 2019 totaled $128.1 million, compared to last year’s $140.6 million.

Metals Prices

Average realized silver prices in the fourth quarter and full year 2019 were $17.47 and $16.65 per ounce, respectively, compared to $14.58 and $15.63, respectively, for the prior year periods. Average realized prices for gold for the fourth quarter and full year 2019 were $1,488 and $1,413 per ounce, respectively, higher by 20% and 12%, respectively, compared to the prior year periods. Average realized prices for lead were 3% higher, with the zinc price 4% lower quarter-over-quarter. The average realized prices for lead and zinc for the full year of 2019 were 13% and 10% lower, respectively, compared to 2018.

OPERATIONS OVERVIEW

Overview

The following table provides the production summary on a consolidated basis for the fourth quarter and twelve months ended December 31, 2019 and 2018:

 

 

Fourth Quarter Ended

 

Twelve Months Ended

 

 

December 31,

2019

 

December 31,

2018

 

December 31,

2019

 

December 31,

2018

PRODUCTION SUMMARY

 

 

 

 

 

 

Silver –

Ounces produced

3,411,988

 

 

2,715,385

 

 

12,605,234

 

 

10,369,503

 

 

Payable ounces sold

3,999,013

 

 

2,260,690

 

 

11,548,373

 

 

9,254,385

 

Gold –

Ounces produced

74,773

 

 

70,987

 

 

272,873

 

 

262,103

 

 

Payable ounces sold

85,237

 

 

64,478

 

 

275,060

 

 

247,528

 

Lead –

Tons produced

6,804

 

 

4,704

 

 

24,210

 

 

20,091

 

 

Payable tons sold

7,118

 

 

3,615

 

 

19,746

 

 

16,214

 

Zinc –

Tons produced

16,185

 

 

13,711

 

 

58,857

 

 

56,023

 

 

Payable tons sold

12,147

 

 

9,201

 

 

39,381

 

 

39,273

 

The following tables provides a summary of the final production, cost of sales and other direct production costs and depreciation, depletion and amortization (“cost of sales”), cash cost, after by-product credits, per silver or gold ounce, and All in Sustaining Cost (“AISC”), after by-product credits, per silver and gold ounce, for the fourth quarter and twelve months ended December 31, 2019:

Fourth Quarter Ended

Total

Greens Creek

Lucky

Friday

San Sebastian

Casa Berardi

Nevada Operations

December 31, 2019

Silver

Gold

Silver

Gold

Silver

Silver

Gold

Gold

Silver

Gold

Silver

Production (ounces)

3,411,988

 

74,773

 

2,741,090

 

15,356

 

216,488

 

422,434

 

3,897

 

34,793

 

10,499

 

20,727

 

21,477

 

Increase/(decrease) over 2018

26

%

5

%

27

%

17

%

1,562

%

(5

)%

33

%

(3

)%

43

%

9

%

(76

)%

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

 

$

91,124

 

$

108,503

 

$

71,481

 

N/A

$

5,472

 

$

14,171

 

N/A

$

60,444

 

N/A

$

48,059

 

N/A

Increase/(decrease) over 2018

45

%

45

%

48

%

N/A

40

%

33

%

N/A

28

%

N/A

74

%

N/A

Cash costs, after by-prod credits, per silver or gold ounce 2,4

$

3.58

 

$

1,003

 

$

2.76

 

N/A

N/A

$

8.89

 

N/A

$

1,037

 

N/A

$

946

 

N/A

Increase/(decrease) over 2018

$

(0.43

)

$

(45

)

$

0.97

 

N/A

N/A

$

(5.89

)

N/A

$

97

 

N/A

$

(305

)

N/A

AISC, after by-prod credits,

per silver or gold ounce 3

$

11.31

 

$

1,187

 

$

7.86

 

N/A

N/A

$

11.78

 

N/A

$

1,278

 

N/A

$

1,024

 

N/A

Increase/(decrease) over 2018

$

(2.22

)

$

(395

)

$

(0.06

)

N/A

N/A

$

(7.73

)

N/A

$

(70

)

N/A

$

(996

)

N/A

Twelve Months Ended

Total

Greens Creek

Lucky

Friday

San Sebastian

Casa Berardi

Nevada Operations

December 31, 2019

Silver

Gold

Silver

Gold

Silver

Silver

Gold

Gold

Silver

Gold

Silver

Production (ounces)

12,605,234

 

272,873

 

9,890,125

 

56,625

 

632,944

 

1,868,884

 

15,673

 

134,409

 

31,540

 

66,166

 

181,741

 

Increase/(decrease) over 2018

22

%

4

%

24

%

10

%

274

%

(8

)%

5

%

(17

)%

(17

)%

N/A

N/A

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

$

278,849

 

$

371,018

 

$

211,719

 

N/A

$

16,621

 

$

50,509

 

N/A

$

217,682

 

N/A

$

153,336

 

N/A

Increase/(decrease) over 2018

15

%

51

%

11

%

N/A

70

%

21

%

N/A

9

%

N/A

N/A

N/A

Cash costs, after by-prod credits, per silver or gold ounce 2,4

$

2.93

 

$

1,066

 

$

1.97

 

N/A

N/A

$

8.02

 

N/A

$

1,051

 

N/A

$

1,096

 

N/A

Increase/(decrease) over 2018

$

1.85

 

$

195

 

$

3.10

 

N/A

N/A

$

(1.67

)

N/A

$

251

 

N/A

N/A

N/A

AISC, after by-prod credits,

per silver or gold ounce 3

$

10.13

 

$

1,411

 

$

5.99

 

N/A

N/A

$

12.10

 

N/A

$

1,354

 

N/A

$

1,527

 

N/A

Increase/(decrease) over 2018

$

(1.31

)

$

185

 

$

0.41

 

N/A

N/A

$

(2.58

)

N/A

$

274

 

N/A

N/A

N/A

 

Greens Creek Mine – Alaska

The increase in silver and gold production for the quarter and full year resulted from higher grades, with the quarterly increase also due to higher throughput. The mill operated at an average of 2,351 tons per day (tpd) in the fourth quarter and 2,318 tpd for the full year. The annual throughput was a record.

The higher cost of sales and per silver ounce cash costs, for the periods were primarily due to higher production costs and treatment charges. The decrease in AISC per silver ounce, for the quarter resulted from higher silver production.

For the full year of 2019, Greens Creek generated cash provided by operating activities of approximately $136.2 million and spent $29.3 million on additions to properties, plants and equipment, resulting in free cash flow of $106.9 million.5

Casa Berardi – Quebec

Lower quarterly and annual gold production was due to lower grades, as planned. Gold production was also impacted by lower mill throughput and recoveries in the first half of 2019 due to planned adjustments to a number of mill components to accommodate higher throughput, and the requirement for a new carbon in leach (CIL) tank drive-train, which was installed in May 2019. The mill operated at an average of 3,950 tpd in the fourth quarter 2019 and 3,775 tpd for the year.

Higher quarterly and annual cost of sales were due to the extension of stripping at the East Mine Crown Pillar (EMCP) pit as well as increased quantities of waste and ore extracted from the pit and higher haulage costs due to deepening of the pit. Milling costs were also higher due to costs for pre-crushing of ore to allow for increased throughput, and higher costs for mill enhancements, maintenance and reagents. These factors impacting mining and milling costs, along with lower gold production, also resulted in increased cash costs per gold ounce. However, AISC per gold ounce declined in the fourth quarter due to lower capital spending.

For the full year of 2019, Casa Berardi generated cash provided by operating activities of approximately $55.7 million and spent $35.8 million on additions to properties, plants and equipment, resulting in free cash flow of $20.0 million.5

Process improvement studies are being implemented in 2020 in an effort to improve throughput, recovery and lower costs to increase cash flow.

San Sebastian – Mexico

San Sebastian’s lower metal production was expected due to the transition from shallow, high-grade open pits to lower-grade underground production. The mill operated at an average of 425 tpd in the fourth quarter 2019 and 479 tpd for the year.

The higher cost of sales was due to the higher cost of underground mining and depreciation. Cash cost and AISC per ounce, after by-product credits, were lower as a result of higher by-product credits, due to higher gold production prices, with AISC also impacted by lower exploration spending.

For the full year of 2019, San Sebastian generated cash provided by operating activities of approximately $19.1 million and spent $5.0 million on additions to properties, plants and equipment, resulting in free cash flow of $14.1 million.5

The Company is completing its study on the Hugh Zone sulfide ore and expects a decision on development in the first quarter, which would allow production to begin by the end of the year.

Nevada Operations

Gold production was 9% higher quarter-over-quarter. The assets were acquired on July 20, 2018. During 2019, ore was processed at an average of 576 tpd.

Cost of sales for the year rose primarily as a result of reporting a full year’s results, and were higher for the fourth quarter due to higher sales volume and increased depreciation. However, per gold ounce cash costs and AISC declined for the fourth quarter by $305 and $996 per gold ounce because of increased gold production resulting from higher grades, with the decrease in AISC also due to lower exploration spending, partially offset by higher sustaining capital.

The mining of developed ore is expected to continue at Fire Creek until about mid-year, when the mining activities are planned to pause. To lower the cut-off grade, the Company is studying mining methods, processing of refractory ore and hydrology. Production is not anticipated to begin again until these studies are successfully completed and permitted.

Lucky Friday Mine – Idaho

Production in 2019 was similar to 2018 with the production and capital improvements being performed by salaried staff.

Union workers at Lucky Friday ratified the collective bargaining agreement in January 2020, and many are beginning to return to work. The Company anticipates re-staffing of the mine to take place in stages, with a ramp-up to full production levels expected by the end of 2020.

Underground testing and modification of the Remote Vein Mining (RVM) machine is underway in Sweden. The machine is expected to be sent to Lucky Friday by late 2020.

EXPLORATION AND PRE-DEVELOPMENT

Exploration

Exploration (including corporate development) expenses were $2.4 million and $15.9 million for the fourth quarter and full year 2019, respectively. This represents a decrease of 71% and 55% over the fourth quarter and full year 2018. These decreases were primarily the result of lower expenses at the Nevada operations and overall decreased site exploration during 2019.

A complete summary of exploration activities can be found in the news release entitled “Hecla Reports Record Silver, Lead and Zinc Reserves” released on February 5, 2020.

Pre-development

Pre-development spending was $0.6 million in the fourth quarter and $3.2 million for the full year 2019, principally to advance the permitting at Rock Creek and Montanore.

Rock Creek/Montanore

At Rock Creek, the Company updated and the Kootenai National Forest partially approved its plan of operation to reflect the Record of Decision (ROD) issued in 2018. In December 2019, the Company submitted an amendment application to the Montana Department of Environmental Quality to modify the existing Exploration License to match the ROD. The Company plans to continue the permitting process at the site despite the existence of litigation challenging the project.

At Montanore, the Kootenai National Forest issued a draft Supplemental Environmental Impact Study for the evaluation phase for public comment in the third quarter of 2019. The project remains the subject of ongoing litigation. The Company plans to continue the permitting process at the site despite the existence of litigation challenging the project.

METALS AND CURRENCY DERIVATIVES

Base Metals Forward Sales Contracts

The following table summarizes the quantities of base metals committed under financially settled forward sales contracts, other than provisional hedges (which address changes in prices between shipment and settlement with customers), at December 31, 2019:

 

Pounds Under Contract

(in thousands)

 

Average Price per Pound

 

Zinc

Lead

 

Zinc

Lead

Contracts on forecasted sales

 

 

 

 

 

2020 settlements

441

 

11,740

 

 

$

1.13

 

$

0.98

 

The contracts represent 1% of the forecasted payable zinc production for the year at an average price of $1.13 per pound, and 30% of the forecasted payable lead production for the next year at an average price of $0.98 per pound.

Precious Metals Put Option Contracts

In June 2019, we began using financially-settled put option contracts to manage the exposure of our forecasted future gold and silver sales to potential declines in market prices for those metals. These put contracts give us the option, but not the obligation, to realize established prices on quantities of silver and gold to be sold in the future. The following table summarizes the quantities of metals for which we have entered into put contracts and the average exercise prices as of December 31, 2019:

 

Ounces under contract

(in thousands)

 

Average price per ounce

 

Silver

Gold

 

Silver

Gold

 

(ounces)

(ounces)

 

(ounces)

(ounces)

Contracts on forecasted sales

 

 

 

 

 

2020 settlements

5,700

 

130

 

 

$

15.73

 

$

1,435

 

Foreign Currency Forward Purchase Contracts

The following table summarizes the Canadian dollars and Mexican pesos the Company has committed to purchase under foreign exchange forward contracts at December 31, 2019:

 

Currency Under Contract

(in thousands of CAD/MXN)

 

Average Exchange Rate

 

CAD

MXN

 

CAD/USD

MXN/USD

2020 settlements

110,300

 

7,100

 

 

1.30

 

20.72

 

2021 settlements

80,700

 

 

 

 

1.29

 

 

 

2022 settlements

63,300

 

 

 

 

1.30

 

 

 

2023 settlements

24,700

 

 

 

 

1.31

 

 

 

2020 ESTIMATES6

2020 Production Outlook

 

Silver Production

(Moz)

Gold Production

(Koz)

Silver Equivalent

(Moz)

Gold Equivalent

(Koz)

Greens Creek *

8.9 – 9.3

46 – 48

21.5 – 22.1

240 – 246

Lucky Friday *

1.4 – 1.8

N/A

3.2 – 3.6

35 – 40

San Sebastian

0.8 – 1.0

7 – 8

1.4 – 1.7

16 – 19

Casa Berardi

N/A

135 – 140

12.1 – 12.6

135 – 140

Nevada Operations

N/A

24 – 29

2.2 – 2.6

24 – 29

Total

11.1 – 12.1

212 – 225

40.4 – 42.6

450 – 474

* Equivalent ounces includes Lead and Zinc production

 

 

 

 

2020 Cost Outlook

 

Costs of Sales

(million)

Cash cost, after

by-product credits, per

silver/gold ounce2,4

AISC, after by-product

credits, per produced

silver/gold ounce3

Greens Creek

$200

$4.25 – $5.00

$8.50 – $9.75

Lucky Friday *

$15

$5.25 – $5.50

$8.75 – $9.00

San Sebastian

$25

$3.00 – $4.25

$6.25 – $8.50

Total Silver

$240

$4.00 – $5.00

$11.00 – $12.25

Casa Berardi

$185

$875 – $900

$1,225 – $1,275

Nevada Operations

$50

$825 – $1,000

$850 – $1,050

Total Gold

$235

$850 – $925

$1,150 – $1,250

* Expected cost of sales during full production. LF cash costs and AISC are calculated using only Q4 production and costs

 

 

 

2020 Capital and Exploration Outlook

2020E Capital expenditures (excluding capitalized interest)

$115 million

2020E Exploration expenditures (includes Corporate Development)

$15 million

2020E Pre-development expenditures

$2.5 million

2020E Research and Development expenditures

$0 million

CONFERENCE CALL AND WEBCAST

A conference call and webcast will be held today, Thursday, February 6, 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 by 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 Reuters Eikon, a password-protected event management site.

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 growing gold producer with operating mines in Nevada and Quebec, Canada. The Company also has exploration and pre-development properties in eight 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 United States generally accepted accounting principles (GAAP). These measures should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. The non-GAAP financial measures cited in this release and listed below are reconciled to their most comparable GAAP measure at the end of this release.

(1) Adjusted EBITDA is a non-GAAP measurement, a reconciliation of which to net 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 income, or cash 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) Cash cost, after by-product credits, per silver and gold ounce is a non-GAAP measurement, a reconciliation of which to cost of sales and other direct production costs and depreciation, depletion and amortization (sometimes referred to as “cost of sales” in this release), can be found at the end of the release. It is an important operating statistic that management utilizes to measure each mine’s operating performance. It also allows the benchmarking of performance of each mine versus those of our competitors.

Contacts

Mike Westerlund

Vice President – Investor Relations

800-HECLA91 (800-432-5291)

Investor Relations

Email: hmc-info@hecla-mining.com
Website: http://www.hecla-mining.com

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