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Press Release

Hecla Reports Third Quarter 2018 Results

Company Release - 11/8/2018 3:05 AM ET

Casa Berardi has record low costs

COEUR D'ALENE, Idaho--(BUSINESS WIRE)-- Hecla Mining Company (NYSE:HL) today announced third quarter financial and operating results.

HIGHLIGHTS

  • Net loss applicable to common shareholders of $23.3 million, or $0.05 per share on lower prices of all four metals.
  • Cost of sales and other direct production costs and depreciation, depletion and amortization ("cost of sales") of $137.1 million.
  • Gross profit of $6.6 million and adjusted EBITDA of $40.3 million.1
  • Silver production of 2.5 million ounces at cash cost, after by-product credits, of $4.12 per ounce.2
  • Gold production of 72,995 ounces, up 16%, mainly due to additional ounces from Nevada.
  • Casa Berardi All In Sustaining Costs ("AISC"), after by-product credits, reduced to $896 per gold ounce, on higher throughput and lower stripping costs.3
  • Aggressive $12 million exploration spending was highest in Company history (see exploration press release issued November 6, 2018).
  • Strong financial position: Cash and cash equivalents of $60.9 million at September 30, 2018. Revolving line of credit undrawn at quarter end. Credit limit increased to $250 million on November 1, 2018.
  • Estimates for annual Company-wide silver and gold production and costs are refined.

"Our strategy is working. The EBITDA we generated despite low metals prices is a result of the improvements we made in our mines. A case in point is Casa Berardi, which is generating strong cash flow, with lower costs, higher mine throughput and an extended mine life," said Phillips S. Baker, Jr., President and CEO. "The Nevada operations are on the same path as Casa Berardi and Greens Creek, with the development and processes which should increase throughput and make the mines more efficient. In the meantime, the higher costs in Nevada are short-term and a function of electing to produce less to avoid sterilizing newly discovered mineralization."

"Greens Creek has been in production for about 30 years, but the mine continues to improve with a new mine plan that significantly increases its value. San Sebastian continues to mine the underground oxide ores and is on the verge of collecting the sulfide bulk sample which could supplement current production as well as significantly extend mine life. At Lucky Friday, our salaried employees are now focusing on production, rather than development, to minimize the financial impact of the strike. Finally, we don't have any large capital projects looming, and we plan to operate at a cash neutral basis, using our $250 million revolving line of credit sparingly to temporarily fund working capital requirements. We do not consider it a long-term source of borrowing," Mr. Baker added.

FINANCIAL OVERVIEW

  Third Quarter Ended   Nine Months Ended
HIGHLIGHTS  

September 30,
2018

 

September 30,
2017

 

September 30,
2018

 

September 30,
2017

FINANCIAL DATA                
Sales (000) $143,649   $140,839 $430,617   $417,662
Gross profit (000) $6,576 $42,963 $80,364 $106,139
(Loss) income applicable to common shareholders (000) ($23,322 ) $176 ($3,284 ) $33
Basic and diluted (loss) income per common share ($0.05 ) $— ($0.01 ) $—
(Loss) income (000) ($23,184 ) $314 ($2,870 ) $447
Cash provided by operating activities (000) $28,192 $28,294 $75,210 $74,115
 

Net loss applicable to common shareholders for the third quarter was $23.3 million, or $0.05 per share, compared to net income of $0.2 million, or $0.00 per share, for the same period a year ago, the result mainly due to the following items:

  • Sales of $143.6 million were impacted by lower silver and gold production at San Sebastian and Greens Creek, offset by the addition of Nevada sales in the third quarter 2018.
  • Lower realized silver and gold metals prices, as well as lower realized base metals prices.
  • Gain on base metal derivatives contracts of $19.5 million, which was net of realized gains on contracts monetized for cash proceeds of $32.8 million in the quarter.
  • Net foreign exchange loss of $2.2 million versus a loss of $4.9 million in the third quarter of 2017 due to a weakening of the Canadian dollar.
  • Interest expense, net of amount capitalized, of $10.1 million in the third quarter of 2018, increased over the $9.4 million recognized in the third quarter of 2017.
  • An increase of $4.6 million in exploration and pre-development expenditures over the third quarter of 2017, particularly focused on Nevada and San Sebastian operations.
  • Suspension-related costs of $6.5 million included Lucky Friday costs, as well as $1.1 million for curtailment of production from the Midas Mine in Nevada, along with $1.4 million in non-cash depreciation expense, in the third quarter of 2018.
  • Acquisition costs of $6.1 million recorded in the third quarter 2018.

Operating cash flow was $28.2 million compared to $28.3 million in the third quarter of 2017, and included the proceeds received by monetizing the base metals hedges, offset by the net loss and lower working capital changes recorded in the third quarter 2018.

Adjusted EBITDA was $40.3 million compared to $60.5 million in the third quarter of 2017, with the decrease mainly due to lower base metals prices, higher exploration expense due to the addition of Hecla Nevada, and acquisition costs recorded in the third quarter 2018.

Capital expenditures (excluding capitalized interest) totaled $40.7 million for the third quarter 2018 compared to $25.5 million in the third quarter of 2017, with the increase mainly due to the addition of Hecla Nevada, capitalization of costs recorded in the third quarter 2018 for the Remote Vein Miner (RVM) project at Lucky Friday, and costs related to underground sulfide development at San Sebastian, partly offset by lower capital spending at Casa Berardi. Expenditures at the operations were $15.0 million at Hecla Nevada, $11.0 million at Greens Creek, $8.2 million at Casa Berardi, $4.8 million at Lucky Friday and $1.6 million at San Sebastian.

Metals Prices

The average realized silver price in the third quarter 2018 was $14.68 per ounce, 14% lower than the $17.01 price realized in the third quarter of 2017. The average realized gold price in the third quarter was $1,205 per ounce, 6% lower than the prior year period. Realized lead and zinc prices decreased by 13%, and 22% respectively, from the third quarter of 2017.

OPERATIONS OVERVIEW

Overview

The following table provides the production summary on a consolidated basis for the third quarter and nine months ended September 30, 2018 and 2017:

  Third Quarter Ended   Nine Months Ended
     

September 30,
2018

 

September 30,
2017

 

September 30,
2018

 

September 30,
2017

PRODUCTION SUMMARY            
Silver - Ounces produced 2,523,691   3,323,157 7,654,118   9,500,058
Payable ounces sold 2,588,478 2,540,817 6,993,695 8,098,652
Gold - Ounces produced 72,995 63,046 191,116 171,720
Payable ounces sold 68,568 57,380 183,050 161,921
Lead - Tons produced 4,238 5,370 15,387 18,426
Payable tons sold 3,986 2,936 12,599 13,612
Zinc - Tons produced 12,795 14,497 42,312 43,000
Payable tons sold 9,282 8,444 30,072 29,269
 

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 third quarter and nine months ended September 30, 2018:

Third Quarter Ended       Greens Creek   Lucky Friday   San Sebastian   Casa Berardi   Nevada Ops
Sept 30, 2018   Silver   Gold   Silver   Gold   Silver   Silver   Gold   Gold   Silver   Gold   Silver
Production (ounces)   2,523,691     72,995     1,876,417     11,559     31,639     521,931     3,666     43,981     9,559     13,789   84,145
Increase/(decrease) over 2017   (24 )%   16 %   (20 )%   (8 )%   (64 )%   (41 )%   (42 )%   %   (1 )%   N/A   N/A
Cost of sales & other direct production costs and depreciation, depletion and amortization (000)   $ 66,487     $ 70,586     $ 52,163     N/A     N/A     $ 14,325     N/A     $ 51,267     N/A     $ 19,319   N/A
Increase/(decrease) over 2017   37 %   43 %   24 %   N/A     N/A     114 %   N/A     4 %   N/A     N/A   N/A
Cash costs, after by-prod credits, per silver or gold ounce 2,4   $ 4.12     $ 803     $ 1.92     N/A     N/A     $ 12.02     N/A     $ 686     N/A     $ 1,179   N/A
Increase/(decrease) over 2017   (754 )%   7 %   (1,380 )%   N/A     N/A     485 %   N/A     (9 )%   N/A     N/A   N/A
AISC, after by-prod credits,

per silver or gold ounce 3

  $ 15.68     $ 1,143     $ 9.20     N/A     N/A     $ 16.95     N/A     $ 896     N/A     $ 1,932   N/A
Increase/(decrease) over 2017   136 %   5 %   106 %   N/A     N/A     2,142 %   N/A     (18 )%   N/A     N/A   N/A
                                             
Nine Months Ended Greens Creek Lucky Friday San Sebastian Casa Berardi Nevada Ops
Sept 30, 2018   Silver   Gold   Silver   Gold   Silver   Silver   Gold   Gold   Silver   Gold   Silver
Production (ounces)   7,654,118     191,116     5,789,440     38,396     156,015     1,593,770     12,051     126,880     30,748     13,789   84,145
Increase/(decrease) over 2017   (19 )%   11 %   (7 )%   (2 )%   (80 )%   (36 )%   (37 )%   12 %   15 %   N/A   N/A
Cost of sales and other direct production costs and depreciation, depletion and amortization (000)   $ 178,784     $ 171,469     $ 141,763     N/A     $ 5,844     $ 31,177     N/A     $ 152,150     N/A     $ 19,319   N/A
Increase/(decrease) over 2017   3 %   24 %   1 %   N/A     (60 )%   70 %   N/A     10 %   N/A     N/A   N/A

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

  $ 0.05     $ 802     $ (2.22 )   N/A     N/A     $ 8.28     N/A     $ 760     N/A     $ 1,179   N/A
Increase/(decrease) over 2017   (69 )%   (7 )%   (404 )%   N/A     N/A     356 %   N/A     (11 )%   N/A     N/A   N/A
AISC, after by-prod credits, per silver or gold ounce 3   $ 10.71     $ 1,095     $ 4.71     N/A     N/A     $ 13.34     N/A     $ 1,004     N/A     $ 1,932   N/A
Increase/(decrease) over 2017   33 %   (11 )%   (16 )%   N/A     N/A     9,629 %   N/A     (18 )%   N/A     N/A   N/A
       

Greens Creek Mine - Alaska

At the Greens Creek mine, 1.9 million ounces of silver and 11,559 ounces of gold were produced in the third quarter, compared to 2.3 million ounces and 12,563 ounces, respectively, in the third quarter of 2017. Lower silver production was expected as a result of lower grades due to mine sequencing. The mill operated at an average of 2,316 tons per day (tpd) in the third quarter, 3% lower than the third quarter of 2017.

The cost of sales for the third quarter was $52.2 million, and the cash cost, after by-product credits, per silver ounce, was $1.92, compared to $41.9 million and ($0.15), respectively, for the third quarter of 2017.2 The AISC, after by-product credits, was $9.20 per silver ounce for the third quarter compared to $4.47 in the third quarter of 2017.3 The per ounce silver costs were higher primarily due to lower base metals prices and the number of tons milled.

A new 2019 mine plan should reduce the amount of development in the next four years to access significant ore reserves at shallower depth in proximity to old workings (East Ore). It also utilizes existing workings, rather than developing a new ramp system, to access these materials and brings this higher-grade ore into production beginning in 2019, instead of near the end of the mine life, which should increase revenues over the next few years. The combination of exploration success over the past year and the optimization of sequencing should enable the mine life to be maintained or extended.

"When we acquired Greens Creek, our goal was consistency of production at an increased throughput. Having achieved that we moved to continuous improvements like the increased recoveries in the mill. Now we have identified a new mine plan that improves the mine's economics by increasing production, reducing both development and the mining fleet while potentially extending the mine life. The improvements we have made to this mine demonstrate the importance of having a long mine life that allows the time to make improvements and realize their benefits," said Mr. Phillips S. Baker, Jr.

Casa Berardi - Quebec

At the Casa Berardi mine, 43,981 ounces of gold were produced in the third quarter, the second highest quarterly gold production since acquisition, including 7,614 ounces from the East Mine Crown Pillar (EMCP) pit; compared to 44,141 ounces in the third quarter of 2017. The steady production was primarily due to ore throughput. The mill operated at an average of 3,846 tpd in the third quarter, the highest rate since acquisition, and an increase of 8% over the third quarter of 2017.

The cost of sales was $51.3 million for the third quarter and the cash cost, after by-product credits, per gold ounce was $686, compared to $49.3 million and $750, respectively, in the prior year period.2,4 The decrease in cash cost, after by-product credits, per gold ounce is due to the higher gold production. The AISC, after by-product credits, was $896 per gold ounce for the third quarter compared to $1,091 in the third quarter of 2017, primarily due to lower capital spending.3

The automated 985 drift project continues to improve the operating efficiency of the mine, with the autonomous haul truck running better and with higher availability than originally anticipated. The second 40-ton Sandvik autonomous haul truck is scheduled to arrive in the fourth quarter. Operating two autonomous trucks is expected to result in operating savings of several million dollars a year.

"Casa Berardi was the standout mine for us this quarter. The improvements and innovations we have made in the mine are paying off with the declining cost profile, higher gold production and cash flow on record throughput," said Mr. Phillips S. Baker, Jr. "We are very proud of the cover story on Casa Berardi in CIM's September/October issue."

San Sebastian - Mexico

At the San Sebastian mine, 521,931 ounces of silver and 3,666 ounces of gold were produced in the third quarter, compared to 880,885 ounces and 6,342 ounces, respectively, in the third quarter of 2017. The lower silver and gold production was expected as a result of lower grades. The mill operated at an average of 432 tpd, an increase of 9% over the third quarter of 2017.

The cost of sales was $14.3 million for the third quarter and the cash cost, after by-product credits, was $12.02 per silver ounce, compared to $6.7 million and ($3.12), respectively, in the third quarter of 2017.2 The AISC, after by-product credits, was $16.95 per silver ounce for the third quarter compared to ($0.83) in the third quarter of 2017, principally due to the higher costs of mining underground versus higher-grade stockpiles and work being conducted on the Velardeña tailings facility.3 The Company plans to process a bulk sample by the end of the year with revenues expected in the first quarter of 2019. If successful, this could lead to the beginning of mining of the sulfides by late 2019.

"The upcoming bulk sample of the Hugh Zone sulfide material could significantly increase the mine life. We plan to continue our "capital lite" strategy here since we already have a contract with a third-party mill and anticipate using a contract miner. With almost no capital at risk, the returns on the investment have been extraordinary," said Mr. Phillips S. Baker, Jr.

Nevada Operations (acquired on July 20, 2018)

For the period July 20 to September 30, 2018, 13,789 ounces of gold were produced. The Nevada operations are focused on development and exploration activities at Fire Creek and Hollister at the expense of production. Little development had been undertaken during 2018 at these properties by the former owners. Our expectation is to increase Fire Creek throughput from 350 tons per day to 550 tons per day by mid-2019. The development of a drift to the Hatter Graben exploration target is underway with completion expected late in 2019.

During the reporting period, approximately $15.0 million in capital and $4.5 million in exploration expense was invested in Nevada. Of the $15.0 million in capital, $7.3 million related to the completion of the tailings facility at Midas which should provide the necessary waste capacity for the next four years, while $7.0 million was for development that is needed to increase Fire Creek and Hollister mine throughput, and $0.7 million was spent on completing the CIL circuit at the Midas Mill which is expected to increase the recoveries of the ore being processed from Hollister.

Notable highlights include:

  • General
    • Movement of personnel and equipment to Fire Creek and Hollister is substantially complete.
  • Midas
    • Production at Midas is winding down with minimal production of previously developed ore planned until year end.
    • Midas mill CIL tanks are operational, and completion of the remaining installation work is expected in the fourth quarter.
    • New tailings storage facility is on track for completion in 2018.
  • Fire Creek
    • Now fully staffed (with the addition of the Midas crews).
    • Ground conditions are improving and new in-cycle procedures have been developed for consistent development advance rates.
    • The ramp-up in development is proceeding with the addition of more headings.
    • Installation of the shotcrete plant is nearing completion, will be added to the development cycle to mitigate ground issues and support rehabilitation of existing haulage ways.
    • The mining of select high-grade zones has been moved from Q3 2018 into 2019 as the ore extended vertically farther than expected, and development is needed for full extraction of the ore panels.
  • Hollister/Hatter Graben
    • Development of the Hatter Graben is ahead of schedule with about 10% of the footage completed.

"In the 100 days we have owned the Nevada properties we have been in continuous change - winding down Midas, resolving the roadbed issues at Fire Creek, advancing the development at Hatter Graben, and completing the capital projects on the mill and tailings facility. We expect the pace of change to continue as we commission a new batch plant that should improve ground control, test a road-header to improve mining in soft rock and rework the mine plan as we gain more knowledge. However, we don't believe we will need to make significant new financial investment to put the mine on the same improvement path that we have seen at Greens Creek and Casa Berardi," said Mr. Phillips S. Baker, Jr.

Lucky Friday Mine - Idaho

At the Lucky Friday mine, 31,639 ounces of silver were produced in the third quarter, compared to 88,298 ounces in the third quarter of 2017, with the salaried workers focused mostly on development.

There was no cost of sales for the third quarter, as there were no concentrate shipments during the quarter.

The Company is now focusing on limited production by salaried staff to help minimize the financial impact of the ongoing strike. In addition, construction of the Remote Vein Miner (RVM) continues in Sweden. The RVM has the potential to revolutionize how the mine operates, making it safer and more efficient. Costs related to care-and-maintenance of the mine are reported in a separate line item in our condensed consolidated statement of operations and are excluded from the calculation of cost of sales, cash cost, after by-product credits, per silver ounce and AISC, after by-product credits, per silver ounce.

"Lucky Friday has the longest mine life of all our properties, but at these silver prices and with the work rules the union workers have clung to, even at full production the mine doesn't generate significant free cash flow. So, we are operating to minimize the cash consumption before we go back into production which we expect to be primarily from the RVM," said Phillips S. Baker, Jr.

EXPLORATION AND PRE-DEVELOPMENT

Expenditures

Exploration (including corporate development) expenses were $12.4 million, an increase of $5.2 million compared to the third quarter of 2017. Full year exploration (including corporate development) expenses are expected to be $35 million, up from $23.5 million in 2017, in part reflecting exploration at the Nevada operations, San Sebastian, Casa Berardi and Greens Creek and drilling at Kinskuch and Little Baldy.

A complete summary of exploration for the third quarter can be found in the news release entitled "Hecla Reports Continued Drilling Success in the Third Quarter" released on November 6, 2018.

"This quarter's exploration, at $12 million, is 60% more than any quarter in the past five years primarily as a result of adding Nevada exploration to an already substantial program. While there are good results from all the programs, we plan to pare back future expenditures to operate within cash flow," said Mr. Phillips S. Baker, Jr.

PRE-DEVELOPMENT

Pre-development spending was $1.2 million for the quarter, for permitting of Rock Creek and Montanore.

In August, the U.S. Forest Service issued its Final Record of Decision (ROD) authorizing Phase 1, which is the exploration phase, for Rock Creek.

At the Montanore project, the Forest Service continues to work on a Supplemental Environmental Impact Statement (EIS), pursuant to the 2017 Montana Federal District Court remand of the previous Forest Service ROD. The court's decision allows the agency to advance authorizations for the initial evaluation phase of the project. A draft Supplemental EIS is anticipated in the first half of 2019.

BASE METALS AND CURRENCY HEDGING

Base Metals Forward Sales Contracts

There are no forward sales contracts outstanding at this time, other than provisional hedges (which address changes in prices between shipment and settlement with customers).

Foreign Currency Forward Purchase Contracts

The following table summarizes the quantities of Canadian dollars and Mexican pesos committed under financially settled forward purchase contracts at September 30, 2018:

 

Currency Under Contract
(in thousands of CAD/MXN)

  Average Exchange Rate
CAD   MXN CAD/USD   MXN/USD
2018 settlements 29,300   47,110 1.30   19.66
2019 settlements 91,200 124,320 1.31 20.28
2020 settlements 61,700 7,100 1.29 20.72
2021 settlements 36,500 1.28
2022 settlements 6,400 1.27
 

2018 ESTIMATES5

The Company is providing updated annual estimates as follows:

2018 Production Outlook

        Silver Production

(Moz)

    Gold Production

(Koz)

    Silver Equivalent

(Moz)

    Gold Equivalent

(Koz)

        Original

(if revised)

    Current     Original

(if revised)

    Current     Original

(if revised)

    Current     Original

(if revised)

    Current
Greens Creek       7.5-8.1     7.6-7.9     50-55     50-53     21.0-22.5     21.1-22.1    

300-315

    301-310
Lucky Friday                                                  
San Sebastian       2.0-2.5     2.0-2.2     15-17     15-16     2.9-3.7     2.9-3.3     41-52     41-47
Casa Berardi                   157-162     161-165     11.0-11.5     11.3-11.7     157-162     161-165
Nevada Operations             0.1-0.2     40-50     36-41     2.9-3.8     2.6-3.1     41-52     37-43
Total       9.5-10.6     9.7-10.3     262-284     262-275     37.8-41.5     37.9-40.2     539-581     540-565
                                 

2018 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

        Original

(if revised)

    Current     Original

(if revised)

    Current     Original

(if revised)

    Current
Greens Creek       $ 198     $ 183       $ (0.50 )     $ (1.00 )     $ 7.00