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Hecla Reports Third Quarter 2023 Results

by ahnationtalk on November 7, 202337 Views

November 6, 2023

Hecla Mining Company (NYSE:HL) today announced third quarter 2023 operating and financial results.

THIRD QUARTER HIGHLIGHTS

Operational

  • Produced 3.5 million ounces of silver and 11.4 million ounces year to date (“YTD”).
  • Continued ramping up Keno Hill, producing 0.7 million ounces of silver.
  • Casa Berardi began to transition to an open pit only operation, producing 24,259 ounces of gold, with total cost of sales of $56.8 million and an All-in Sustaining Cost (“AISC”) per gold ounce of $1,695.4
  • Lucky Friday on track to resume operations at the beginning of 2024.
  • Gold production guidance reiterated, with gold cash cost guidance lowered.
  • Greens Creek silver production guidance increased, offset by lower anticipated production at Keno Hill; consolidated silver cost guidance affirmed.

Financial

  • Sales of $181.9 million, with 38% from silver and 36% from gold.
  • Consolidated silver total cost of sales of $90.7 million and cash cost and AISC per silver ounce (each after by-product credits) of $3.31 and $11.39, respectively.3,4
  • Cash flow from operations of $10.2 million; $74.6 million YTD; with Greens Creek generating $36.1 million in cash flow from operations for the quarter and $122.7 million YTD.
  • Greens Creek generated $28.3 million in free cash flow for the quarter, $101.7 million YTD.2
  • Net loss applicable to common stockholders of ($22.6) million or ($0.04) per share and adjusted net loss applicable to common stockholders of ($3.5) million or ($0.01) per share.5

Strategic

  • Recognition of Hecla’s innovation with the U.S. patent for the Underhand Closed Bench (UCB) mining method and the 2023 NIOSH Mine Safety and Health Technology Metals Sector Innovation Award.
  • Completed the acquisition of ATAC Resources, adding a massive land package of over 700 square miles comprised of the Rackla and Connaught properties in the Yukon.
  • All-Injury Frequency Rate of 1.34, 28% lower than the national average.

“Greens Creek reported another strong quarter and has generated over $100 million in free cash flow for the first nine months, our plans for returning Lucky Friday to production in early 2024 are well underway, and we are pleased with the start of the transition to an open pit only operation at Casa Berardi,” said Phillips S. Baker Jr., President and CEO. “While exploration drilling at Keno Hill has yielded encouraging results and we expect to increase our reserves and resources, the production ramp-up has been slowed due to key mine infrastructure projects that are just now being completed. However, more importantly, safety performance at Keno Hill has been below Hecla’s standards, and we are assessing our safety processes and mining practices to set the mine up for long term success.”

Baker continued, “Hecla is already the largest silver producer in the U.S. and will be Canada’s largest when Keno Hill achieves full production. Hecla is the fastest-growing established silver producer, and we expect to produce up to 20 million ounces of silver by 2025. Because silver is a key component in solar power generation, which is the fastest growing source of renewable energy, Hecla will be a direct contributor to the energy transition.”

FINANCIAL OVERVIEW

In the following table and throughout this release, “total cost of sales” is comprised of cost of sales and other direct production costs and depreciation, depletion and amortization.

In Thousands unless stated otherwise

3Q-2023

2Q-2023

1Q-2023

4Q-2022

3Q-2022

YTD-2023

YTD-2022

FINANCIAL AND PRODUCTION SUMMARY

Sales

$

181,906

$

178,131

$

199,500

$

194,825

$

146,339

$

559,537

$

524,080

Total cost of sales

$

148,429

$

140,472

$

164,552

$

169,807

$

137,892

$

453,453

$

432,941

Gross profit

$

33,477

$

37,659

$

34,948

$

25,018

$

8,447

$

106,084

$

91,139

Net loss applicable to common stockholders

$

(22,553

)

$

(15,832

)

$

(3,311

)

$

(4,590

)

$

(23,664

)

$

(41,696

)

$

(33,310

)

Basic loss per common share (in dollars)

$

(0.04

)

$

(0.03

)

$

(0.01

)

$

(0.01

)

$

(0.04

)

$

(0.07

)

$

(0.06

)

Adjusted EBITDA1

$

46,251

$

67,740

$

61,903

$

62,261

$

26,555

$

175,894

$

155,230

Total Debt

$

616,246

$

551,841

Net Debt to Adjusted EBITDA1

2.2

1.9

Cash provided by operating activities

$

10,235

$

23,777

$

40,603

$

36,120

$

(24,322

)

$

74,615

$

53,770

Capital Additions

$

(55,354

)

$

(51,468

)

$

(54,443

)

$

(56,140

)

$

(37,430

)

$

(161,265

)

$

(93,237

)

Free Cash Flow2

$

(45,119

)

$

(27,691

)

$

(13,840

)

$

(20,020

)

$

(61,752

)

$

(86,650

)

$

(39,467

)

Silver ounces produced

3,533,704

3,832,559

4,040,969

3,663,433

3,549,392

11,407,232

10,525,917

Silver payable ounces sold

3,142,227

3,360,694

3,604,494

3,756,701

2,479,724

10,107,415

8,554,894

Gold ounces produced

39,269

35,251

39,571

43,634

44,747

114,091

132,173

Gold payable ounces sold

36,792

31,961

39,619

40,097

40,443

108,372

125,721

Cash Costs and AISC, each after by-product credits

Silver cash costs per ounce 3

$

3.31

$

3.32

$

2.14

$

4.79

$

3.43

$

2.86

$

1.11

Silver AISC per ounce 4

$

11.39

$

11.63

$

8.96

$

13.98

$

12.93

$

10.52

$

9.49

Gold cash costs per ounce 3

$

1,475

$

1,658

$

1,775

$

1,696

$

1,349

$

1,635

$

1,409

Gold AISC per ounce 4

$

1,695

$

2,147

$

2,392

$

2,075

$

1,669

$

2,075

$

1,678

Realized Prices

Silver, $/ounce

$

23.71

$

23.67

$

22.62

$

22.03

$

18.30

$

23.28

$

21.25

Gold, $/ounce

$

1,908

$

1,969

$

1,902

$

1,757

$

1,713

$

1,921

$

1,817

Lead, $/pound

$

1.07

$

0.99

$

1.02

$

1.05

$

0.95

$

1.02

$

0.98

Zinc, $/pound

$

1.52

$

1.13

$

1.39

$

1.24

$

1.23

$

1.34

$

1.47

Sales in the third quarter increased by 2% to $181.9 million from the second quarter of 2023 (“prior quarter”) due to higher realized prices for silver, lead and zinc, and higher gold sales volumes, partially offset by lower realized gold prices and lower sales volumes of silver, lead, and zinc, reflecting the temporary suspension of production at Lucky Friday beginning in August due to a fire in the secondary escapeway and subsequent rehabilitation activities.

Gross profit decreased to $33.5 million, a decrease of 11% over the prior quarter, primarily due to higher depreciation, depletion and amortization at Casa Berardi based on the expectation that underground mining will be completed by mid-2024.

Net loss applicable to common stockholders for the quarter was ($22.6) million, an increase over the prior quarter primarily related to:

  • Ramp-up and suspension costs increased by $4.7 million, reflecting the impact of the Lucky Friday suspension, and the ramp-up of Keno Hill, partially offset by Casa Berardi resuming production following a 21-day suspension in June due to the Quebec wildfires.
  • Exploration and pre-development expenditures increased by $6.8 million due to increased activity during the summer season.
  • Other operating expense of $1.6 million, compared to other operating income of $4.3 million, which included the receipt of $5.9 million from an insurance settlement in the prior quarter.
  • Fair value adjustments increased the net loss by $3.8 million due to unrealized losses on our derivative contracts not designated as accounting hedges for $5.2 million, partially offset by unrealized gains on our marketable equity securities portfolio of $1.4 million.

The above items were partly offset by:

  • A foreign exchange gain of $4.2 million, compared to a loss of $3.9 million, reflecting the impact of the U.S. dollar appreciation on Canadian dollar denominated monetary assets and liabilities.
  • An income and mining tax benefit of $1.5 million compared to an expense of $5.2 million based on taxable losses in Canada.

Consolidated silver total cost of sales in the third quarter decreased by 6% to $90.7 million from the prior quarter, primarily due to lower concentrate tons sold from Lucky Friday. Cash costs and AISC per silver ounce, each after by-product credits, were $3.31 and $11.39, respectivelywhich only include costs of Greens Creek for August and September.3,4 Consolidated cash costs per ounce were unchanged from the prior quarter as Greens Creek cash costs per ounce were higher due to lower gold by-product credits (attributable to lower production and realized prices), which were offset by lower costs at Lucky Friday due to suspension of operations. Consolidated AISC per silver ounce after by-product credits was further impacted by higher planned sustaining capital spending.3,4

Consolidated gold total cost of sales increased by 32% to $57.8 million in the third quarter due to two factors. In the prior quarter, Casa Berardi operations were suspended due to the Quebec wildfires. In this quarter, depreciation, depletion and amortization expense is accelerated, reflecting the anticipation of underground mining being completed in mid-2024. Cash costs and AISC per gold ounce, each after by-product credits, were $1,475 and $1,695, respectively.3,4 The decrease in cash costs per ounce was attributable to higher gold production at Casa Berardi, with AISC also impacted by lower sustaining capital spend.

Adjusted EBITDA for the third quarter decreased to $46.3 million compared to $67.7 million in the prior quarter due to suspension of operations at Lucky Friday and higher exploration and pre-development expenses. The prior quarter was favorably impacted by the monetization of zinc hedges, which realized gross proceeds of $7.6 million.

Cash and cash equivalents at the end of the third quarter were $100.7 million and included $80 million drawn on the revolving credit facility. In the third quarter, the ratio of net debt to Adjusted EBITDA increased over the prior quarter from 2.1 to 2.2. With the ongoing ramp-up at Keno Hill, and Lucky Friday operations expected to be suspended for the remainder of 2023, the Company expects the net debt to Adjusted EBITDA ratio to remain above the Company’s target of 2.0 for the remainder of 2023.1

Cash provided by operating activities was $10.2 million and decreased by $13.5 million over the prior quarter, primarily due to the suspension of production at Lucky Friday.

Capital expenditures, net of finance leases, were $55.4 million in the third quarter, compared to $51.5 million in the prior quarter. Capital spend at Casa Berardi was $16.2 million, primarily for tailings construction activities and mobile equipment purchases for the open pit operations. The increase in Greens Creek’s capital spend was related to the timing of equipment purchases and surface projects, with the increase in Lucky Friday’s capital spend also impacted by the timing of equipment purchases, the service hoist and coarse ore bunker projects, and the rehabilitation and mitigation work related to the #2 shaft. Keno Hill capital spend was $11.5 million and increased over the prior quarter due to increased spend on mine infrastructure projects, mobile equipment purchases, and modifications related to the secondary crusher as the mine continues to ramp-up.

Free cash flow for the quarter was negative $45.1 million, compared to negative $27.7 million in the prior quarter. The decrease in free cash flow was attributable to the Lucky Friday suspension and higher capital spend.2

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