Hecla Updates COVID-19 Actions and Reports First Quarter 2020 Results
Minimal disruption to operations and solid liquidity position Hecla for a strong second half of 2020
COEUR D’ALENE, Idaho–(BUSINESS WIRE)–Hecla Mining Company (NYSE:HL) (Hecla or the Company) today announced first quarter financial and operating results.
COVID-19 UPDATE
- Responding quickly to COVID-19 mitigated the impact.
- Four out of five mines operating, representing 95% of Hecla’s production.
- Casa Berardi restarted operations on April 16 after government-mandated industry-wide shutdown on March 23.
- No known cases of COVID-19 at any of Hecla’s sites.
- Annual guidance updated.
“Our rapid and early response to COVID-19 protected our workers, operations, and the communities in which we operate,” said Phillips S. Baker, Jr., Hecla’s President and CEO. “With our key mines operational, we expect the second half of the year to be strong as Casa Berardi resumes normal operations, Lucky Friday ramps-up to full production and Greens Creek continues to deliver. Our Nevada operations have performed well and have taken a step forward with a third-party processing agreement for a bulk sample of refractory ore and positive results from the hydrological study which could result in continuing production through the end of the year and beyond.”
“While our financial position is strong, with over $200 million in cash at quarter end, no near-term debt maturities and no large capital projects planned for the next several years, we are reducing 2020 capital and exploration expenditures by 25%. We also continue to protect our revenues with put options for silver and gold that set a floor price but don’t limit upside participation, and forward sales of our lead and zinc production,” said Baker.
“Finally, we are able to re-establish production and cost guidance. Our silver production guidance is largely unchanged with AISC, after byproduct credits, about 10% higher due primarily to benchmark smelter costs and lower byproduct credits from lower zinc production and prices. Our gold production guidance is about 10% lower, but AISC, after byproduct credits, is relatively unchanged due to lower capital costs,” said Baker.
HIGHLIGHTS
- Silver production of 3.2 million ounces (2.6 million ounces sold) and gold production of 58,792 ounces.
- Sales of $136.9 million and cash provided by operating activities of $5 million.
- A gain of $7.9 million on metals derivatives contracts.
- Net loss for the quarter of $17.2 million, or $0.03 per basic share.
- Cost of sales and other direct production costs and depreciation, depletion and amortization (“cost of sales”) of $125.6 million.
- Gross profit of $11.4 million and adjusted EBITDA of $37.8 million; net debt/adjusted EBITDA (last 12 months) of 2.5x.1,2
- Financial results impacted by lower provisional prices for a Greens Creek shipment, higher treatment charges, higher product inventory and COVID-19 related shutdown of Casa Berardi.
- Bulk sample processing agreement in Nevada and hydrology study shows existing water infrastructure may be sufficient to support a refractory ore mining plan.
- Have put option contracts for gold and silver to establish a floor price of $16 for silver in the second quarter and $1,450, $1,650 and $1,600 for gold in the second through fourth quarters, for much of the expected production but with full upside available other than cost of the contracts.
- Cash and cash equivalents and short-term investments of $215.7 million, including a precautionary $210 million drawn on the revolving credit facility.
- Issued $475 million of senior notes due in 2028 replacing $506.5 million senior notes due in 2021, reducing long term debt and extending its maturity.
- Maintaining common and preferred share dividend.
FINANCIAL OVERVIEW
|
|
First Quarter Ended |
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|
HIGHLIGHTS |
March 31, 2020 |
March 31, 2019 |
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FINANCIAL DATA |
|
|
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|
Sales (000) |
$ |
136,925 |
|
$ |
152,617 |
|
||
|
Gross profit (000) |
$ |
11,372 |
|
$ |
3,444 |
|
||
|
Loss applicable to common stockholders (000) |
$ |
(17,323) |
|
$ |
(25,671) |
|
||
|
Basic and diluted loss per common share |
$ |
(0.03) |
|
$ |
(0.05) |
|
||
|
Net loss (000) |
$ |
(17,185) |
|
$ |
(25,533) |
|
||
|
Cash provided by operating activities (000) |
$ |
4,927 |
|
$ |
20,030 |
|
||
Net loss for the first quarter of $17.2 million, compared to a net loss of $25.5 million in the first quarter of 2019, impacted by the following factors:
- Revenue declined due to lower provisional prices for a Greens Creek shipment, higher treatment charges and COVID-19 related loss of production at Casa Berardi.
- Gross profit increased primarily due to higher prices and higher gold grades in the Nevada operations, partially offset by lower gross profit at Greens Creek.
- A net foreign exchange gain of $6.6 million versus a net loss of $3.1 million in the first quarter of 2019, with the variance primarily related to the impact of a weaker CAD relative to the USD.
- A $7.9 million gain on metals derivatives contracts versus a loss of $1.8 million in the first quarter of 2019, with the variance due to declining base metal prices and lower prices for silver at the end of the quarter.
- Ramp-up and suspension-related costs increased by $10.2 million due to 1) lower production at Lucky Friday as capital investments were prioritized and the ramp-up after the strike ended in January 2020, 2) suspension of production at the Midas and Hollister mines and the Aurora mill in Nevada, and 3) a temporary suspension of production at Casa Berardi to comply with the shut-down order issued to the mining industry by the Government of Quebec as part of the fight against the spread of COVID-19.
- Higher interest expense by $5.6 million primarily as a result of one-time costs related to refinancing of Senior Notes, including one month of having both the 2021 and 2028 notes outstanding.
- Lower income tax benefit by $6.2 million due to reduced losses at Nevada and Casa Berardi.
Operating cash flow of $4.9 million decreased 75% compared to the first quarter of 2019, primarily due to the higher ramp-up and suspension costs and interest expense.
Adjusted EBITDA of $37.8 million increased 35% compared to the first quarter of 2019, primarily due to lower exploration expense and higher margins at Nevada and Casa Berardi, partially offset by lower margins at Greens Creek as a result of the majority of shipments in the quarter occurring in March at lower than average silver, lead and zinc prices, as well as higher treatment charges.1
Capital expenditures totaled $20.0 million for the first quarter of 2020 compared to $36.4 million in the first quarter of 2019, with the decrease primarily due to reduced spending at Nevada operations. Capital expenditures during the first quarter 2020 at Casa Berardi, Greens Creek, Lucky Friday, Nevada, and San Sebastian operations were $8.5 million, $5.5 million, $4.3 million, $0.9 million, and $0.8 million, respectively.
Metals Prices
The average realized silver price in the first quarter of 2020 was $14.48 per ounce, 8% lower than the $15.70 price realized in the first quarter of 2019. Realized gold prices were higher by 21% while lead and zinc prices were lower by 16%, and 32%, respectively. The lower realized silver price relative to the average market price of $16.94 for the first quarter was the result of a large portion of our silver sales occurring through concentrate shipments in March, when the price hit a quarterly low. Final settlement of the March sales is pending, and the Company anticipates recognizing a gain upon settlement of the sales in the second quarter as a result of either an increase in the silver price or exercise of put contracts in place.
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|
|
Three months ended March 31, |
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|
|
|
2020 |
2019 |
||||
|
Silver – |
London PM Fix ($/ounce) |
$ |
16.94 |
$ |
15.57 |
||
|
|
Realized price per ounce |
$ |
14.48 |
$ |
15.70 |
||
|
Gold – |
London PM Fix ($/ounce) |
$ |
1,583 |
$ |
1,304 |
||
|
|
Realized price per ounce |
$ |
1,588 |
$ |
1,308 |
||
|
Lead – |
LME Final Cash Buyer ($/pound) |
$ |
0.84 |
$ |
0.92 |
||
|
|
Realized price per pound |
$ |
0.78 |
$ |
0.93 |
||
|
Zinc – |
LME Final Cash Buyer ($/pound) |
$ |
0.96 |
$ |
1.23 |
||
|
|
Realized price per pound |
$ |
0.88 |
$ |
1.30 |
||
Precious Metals Put Option Contracts and Base Metals Forward Sales Contracts
In June 2019, Hecla began using financially settled put option contracts to manage the exposure of its forecasted future gold and silver sales to potential declines in market prices for those metals. These put contracts give the Company the option, but not the obligation, to realize contracted prices on quantities of silver and gold put contracts. The Company also enters into financially settled forward sales contracts to manage price exposure to silver, gold, zinc and lead for the Greens Creek concentrate shipments (also called provisional hedges). In addition, the Company uses financially settled forward contracts to manage exposure to changes in prices of zinc and lead (but not silver and gold) contained in the forecasted future Greens Creek concentrate shipments.
|
Percentage of Forecasted Production Protected and Average Price per Ounce/Pound |
||||||||||||||||
|
|
Puts (Floor Price) |
Forward Sales |
||||||||||||||
|
|
Silver |
Gold |
Zinc |
Lead |
||||||||||||
|
Protection as a % of Sales |
|
|
|
|
|
|
|
|
||||||||
|
Q2/2020 |
100% |
$16.00 |
100% |
$1,450 |
86% |
$0.91 |
71% |
$0.76 |
||||||||
|
Q3/2020 |
0% |
|
59% |
$1,650 |
84% |
$0.87 |
61% |
$0.81 |
||||||||
|
Q4/2020 |
0% |
|
40% |
$1,600 |
66% |
$0.88 |
42% |
$0.78 |
||||||||
|
Q1/2021 |
0% |
|
0% |
|
2% |
$0.88 |
1% |
$0.75 |
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OPERATIONS OVERVIEW
The following table provides the production summary on a consolidated basis for the quarters ended March 31, 2020 and 2019:
|
|
|
First Quarter Ended |
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|
|
|
March 31, 2020 |
March 31, 2019 |
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PRODUCTION SUMMARY |
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||
|
Silver – |
Ounces produced |
3,245,469 |
2,923,131 |
|
|
Payable ounces sold |
2,582,279 |
2,898,083 |
|
Gold – |
Ounces produced |
58,792 |
60,021 |
|
|
Payable ounces sold |
57,103 |
60,936 |
|
Lead – |
Tons produced |
5,893 |
5,784 |
|
|
Payable tons sold |
4,130 |
4,848 |
|
Zinc – |
Tons produced |
12,847 |
13,944 |
|
|
Payable tons sold |
9,836 |
9,533 |
The difference between silver ounces produced and sold in the quarter is primarily due to the timing of concentrate shipments at Greens Creek.
First quarter production equates to 10.8 million ounces on a silver equivalency basis and 115,511 ounces on a gold equivalency basis.
The following table provides a summary of the production, 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 or gold ounce, for the quarters ended March 31, 2020 and 2019.
|
First Quarter Ended March 31, 2020 |
|
|
|
Greens Creek |
Lucky Friday |
San Sebastian |
Casa Berardi |
Nevada Operations |
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|
Silver |
|
Gold |
Silver |
|
Gold |
Silver |
Silver |
|
Gold |
Gold |
|
Silver |
Gold |
|
Silver |
|||||||||||||||||||||||||
|
Production (ounces) |
3,245,469 |
|
|
58,792 |
|
2,775,707 |
|
|
12,273 |
|
95,748 |
|
346,625 |
|
|
2,802 |
|
26,752 |
|
|
5,934 |
|
16,965 |
|
|
21,455 |
|
|||||||||||||
|
Increase/(decrease) |
11 |
% |
|
(2) |
% |
24 |
% |
|
(14) |
% |
(45) |
% |
(21) |
% |
|
(21) |
% |
(16) |
% |
|
(28) |
% |
64 |
% |
|
(68) |
% |
|||||||||||||
|
Cost of sales and other direct production costs and depreciation, depletion and amortization (000) |
$ |
60,314 |
|
|
$ |
65,239 |
|
$ |
49,182 |
|
|
– |
$ |
2,832 |
|
$ |
8,300 |
|
|
– |
$ |
48,325 |
|
|
$ |
– |
|
$ |
16,914 |
|
|
– |
||||||||
|
Increase/(decrease) |
(12) |
% |
|
(19) |
% |
(9) |
% |
|
N/A |
30 |
% |
(33) |
% |
|
N/A |
(2) |
% |
|
N/A |
(46) |
% |
|
N/A |
|||||||||||||||||
|
Cash costs, after by-product credits, per silver or gold ounce 35 |
$ |
5.76 |
|
|
$ |
1,061 |
|
$ |
5.63 |
|
|
– |
$ |
– |
|
$ |
6.91 |
|
|
– |
$ |
1,268 |
|
|
– |
$ |
735 |
|
|
– |
||||||||||
|
Increase/(decrease) |
155 |
% |
|
(17) |
% |
1,049 |
% |
|
N/A |
N/A |
(38) |
% |
|
N/A |
14 |
% |
|
N/A |
(59) |
% |
|
N/A |
||||||||||||||||||
|
AISC, after by-product credits per silver or gold ounce 4 |
$ |
11.06 |
|
|
$ |
1,302 |
|
$ |
7.90 |
|
|
– |
– |
$ |
9.59 |
|
|
– |
1,615 |
|
|
– |
$ |
808 |
|
|
– |
|||||||||||||
|
Increase/(decrease) |
18 |
% |
|
(26) |
% |
144 |
% |
|
N/A |
N/A |
(42) |
% |
|
N/A |
21 |
% |
|
N/A |
(74) |
% |
|
N/A |
||||||||||||||||||
Greens Creek Mine – Alaska
During the first quarter, Greens Creek began quarantining all employees in a Juneau facility for 14 days before starting a 28-day work rotation. No one, including local residents, is allowed on the mine site if they have not been quarantined. The Company remains extremely cautious during the pandemic as protecting the workers and the local community is its highest priority. These changes at Greens Creek are reflected in these results and the new guidance assumptions.
At Greens Creek, the mine operated largely as expected and in-line with last year except the cash cost and AISC, after by-product credits increased primarily due to the following:
- There were 2 lead shipments instead of 3 in the first quarter of 2019.
- $4 million increase in treatment costs compared to the first quarter of 2019. Increased treatment charges will continue throughout 2020.
- An additional 4 million of treatment costs due to a spot customer’s failure to perform under its purchase agreement, for which the Company is seeking remedies.
- Lower by-product prices and volumes reduced the by-product credits almost $6.6 million.
The mill operated at an average of 2,185 tons per day (tpd) in the first quarter compared to 2,298 tpd in the first quarter of 2019. Tonnage was lower due to the mill being down early in the quarter for replacement of a failed SAG motor. Mill performance exceeded plans for the remainder of the quarter and is on track to recover the tonnage over the balance of the year.
More than 2 million ounces of silver were sold in March at a lower price than the average for the first quarter, which impacted revenue and cash flow generation. The shipments had not been provisionally hedged, and subsequent higher metals prices could increase the expected cash flow in the second quarter when sales of these ounces settle. Due to the high value of each shipment, timing can influence quarterly financial results.
The Company reaffirms its prior estimates for 2020 silver production of 8.9 to 9.3 million ounces of silver and 46 to 48 thousand ounces of gold. The estimate for cost of sales is $205 million, cash cost, after by-product credits, AISC after by-product credits, per silver ounce is $6.00-$6.75 and $9.50-$10.00, respectively, with the cost increase a function of higher treatment charges, lower base metals price expectations as well as COVID-related expenses.
Casa Berardi Mine – Quebec
The Casa Berardi mine went back into partial production on April 16 after the government-mandated shutdown on March 23. The restart is expected to take about a month to reach full production.
The closure impacted first quarter production and financial performance of the mine due to reduced operating days and the inability to process and sell work-in-process inventory during the quarter. Lower gold production was also a result of lower ore grades and recovery, mainly due to delays in two long-hole stopes and higher-than-modeled underground dilution. The decrease in cost of sales was primarily due to lower sales volume. The increase in cash costs and AISC after by-product credits, per gold ounce, was principally due to lower gold production as described above. The mill operated at an average rate of 3,644 tpd in the first quarter, approximately the same throughput as the first quarter of 2019. However, when the days lost from the government-mandated shutdown are removed, the daily run rate for the plant was 4,011 tpd, an increase of 9% compared to the first quarter of 2019, reflective of our process improvement initiative.
Process improvement activities will continue in 2020 in an effort to improve mill reliability, throughput, and recovery. These efforts are expected to lead to reduced costs and increased cash flow when complete but are somewhat delayed by the COVID-19 restrictions on worker movement. Over the remainder of the year, slightly more production is expected to come from the underground which is about 30% higher grade compared to the first quarter, as production starts in the 148 zone of the east mine.
The Company is lowering its estimates for annual gold production to 119 to 124 thousand ounces because of the downtime and subsequent ramping up of the mine due to government-mandated COVID-19 closure. The cost of sales is now estimated to be $185 million, cash cost, after by-product credits, and AISC, after by-product credits, per gold ounce is $900-$975 and $1,225-$1,275, respectively. The projected costs per ounce are higher due to the lower production estimates.
San Sebastian Mine – Mexico
In late March, the Government of Mexico issued an order to the mining industry to reduce operations to a minimum level until April 30 in response to COVID-19, and the order was subsequently extended until May 30, although it could be relaxed earlier for areas with few cases, such as Durango. Hecla’s operations at San Sebastian have been suspended during this time. The closure is not expected to have a material impact on full-year production as long as the mine restarts operations in the second quarter because of planned partial year of production.
Lower silver and gold production was due to expected lower grades and resulted in lower cost of sales. The cash cost, after by-product credits, per silver ounce, decreased due to higher by-product gold price. The lower AISC, after by-product credits, per silver ounce, was principally due to the higher by-product credits along with lower capital and exploration spending.The mill operated at an average of 390 tpd in the first quarter, a 21% decrease over the first quarter of 2019.
The Company continues to study the Hugh Zone sulfide and El Toro oxide opportunities. The remaining work on the Hugh Zone is focused on the ability to generate a third saleable concentrate (copper) from the ore, which has a significant impact on the potential return of the project. Hecla continues to evaluate how the two deposits could be sequenced. Depending on positive results from the work on producing three concentrates, the mine could potentially restart production in 2021 or 2022.
The Company is lowering its production estimate by 200 thousand ounces to 0.6 million to 0.8 million ounces due to projected lower grade in the remaining blocks to be mined. The cost of sales is now estimated to be $25 million, cash cost, after by-product credits, and AISC, after by-product credits, per silver ounce is $6.25-$8.00 and $8.00-$10.75, respectively. The costs are higher due to the lower production estimates. These estimates assume that the mine returns to production before the end of the second quarter.
Nevada Operations
The Nevada operations have continued operating during the pandemic as an essential business in Nevada. There has been limited impact to activities at the mine.
For the Nevada operations, higher gold production was due to higher grades, partially offset by lower mill throughput. The cost of sales decreased $4 million due to the suspension of production activities at Hollister, the Midas mine and Aurora mill which are reclassified as suspension costs. Cash cost, after by-product credits, per gold ounce, decreased as a result of the higher gold production. The AISC, after by-product credits, per gold ounce, was substantially lower than the prior year period, due to higher gold production and almost no sustaining capital. Approximately 7,000 ounces of gold was held as inventory on loaded carbon at the end of the quarter. The mill, which is being operated on a batch basis, processed at an average of 190 tpd in the first quarter, a 59% decrease over the prior year period.
The Company reached agreement with Nevada Gold Mines to process a 30,000-ton bulk sample of Fire Creek ore at one or more of their refractory ore processing facilities. The agreement makes it possible for the Company to move forward with a program to test larger scale long-hole stoping of Fire Creek’s Type 2 ore (refractory ore) and is expected to help establish recovery rates in their process. Mining of the bulk sample is planned over the rest of 2020 with processing of the ore continuing into early 2021. The test is a staged, low-risk way to investigate opportunities to lower Fire Creek’s cost structure in an effort to realize value from the existing approximately 543,000 ton inferred resource (0.512 oz/ton gold; 0.543 oz/ton silver). The bulk sample is expected to be self-funding.
In addition, the Company advanced studies in support of continuing production at Fire Creek. Results from the recently completed hydrology study suggest that the existing water rights, water related permits, and water treatment infrastructure may be adequate to support a conceptual mine plan being developed for the resource. Results from the bulk mining and processing test will be used to refine the conceptual mine plan and economic analysis in 2021.
Alternate carbon processing arrangements allowed the Company to idle the Aurora mill during the quarter. The Midas mill is expected to conclude operations in the third quarter as the developed oxide ore from Fire Creek is depleted.
The Company is affirming its production estimates of 24 to 29 thousand gold ounces this year. The cost of sales is now estimated to be $39 million, cash cost, after by-product credits, and AISC, after by-product credits, per gold ounce is $825-$1,000 and $850-$1,050, respectively. The 2020 estimates do not include the potential benefits from the bulk sample project.
Lucky Friday Mine – Idaho
The Lucky Friday operations have continued during the pandemic as an essential business in Idaho. Shoshone County, where the mine is located, has not had any reported cases.
Union workers at Lucky Friday ratified the collective bargaining agreement in January 2020, and the recall is complete. The Company is hiring new employees which it expects to complete by year end in order to be at full production rates.
The decrease of silver production compared to the prior year period was primarily due to focus shifting from production by the salary staff to ramp-up activities following the end of the strike.
The Company is reaffirming its prior estimates for annual silver production of 1.4 to 1.8 million ounces. The cost of sales during full production is now estimated to be $14 million, cash cost, after by-product credits, and AISC, after by-product credits, per silver ounce is $9.50-$10.25 and $14.00-$15.00, respectively.
EXPLORATION
Exploration expenses were $2.5 million for the first quarter, representing a 43% decrease from the prior year period as a result of decreased activity at all sites. At Greens Creek, core drilling operations were suspended on March 20 to reduce risk associated with the COVID-19 pandemic and are currently planned to resume by third quarter. At Casa Berardi, core drilling operations were suspended on March 26 due to the Quebec government pandemic order but resumed on a limited basis for in-stope definition drilling on April 21. Exploration drilling activities in Mexico were suspended on April 10 and tentatively scheduled to restart in June.
Greens Creek – Alaska
At Greens Creek, strong definition drilling assay results received in the first quarter have upgraded East Ore and 200 South zone resources. In the East Ore Zone, intersections targeting the middle portion of the zone along 600 feet of strike length, included 8.3 oz/ton silver, 0.13 oz/ton gold, 16.0% zinc and 5.0% lead over 21.6 feet, and 13.1 oz/ton silver, 0.54 oz/ton gold, 33.4% zinc and 9.1% lead over 10.0 feet. These results confirm previously modeled Inferred resource estimates. In the 200 South Zone, drilling intersections at the southern end of the 200 South Bench over 550 feet of strike length included 27.5 oz/ton silver, 0.11 oz/ton gold, 0.7% zinc and 0.4% lead over 20.2 feet, 16.2 oz/ton silver, 0.05 oz/ton gold, 1.3% zinc and 0.6% lead over 15.5 feet and 13.9 oz/ton silver, 0.05 oz/ton gold, 1.3% zinc and 0.6% lead over 20.0 feet. Once drilling operations resume, the planned activity in the second quarter of 2020 is to further define the East Ore and 200 South zones. More complete drill assay highlights from Greens Creek can be found in Table A at the end of the release.
Casa Berardi – Quebec
At Casa Berardi, drilling in the East Mine focused on defining continuity and expanding mineralization in the high-grade 148 Zone. Definition drilling in the 148 Zone targeted the eastern and western down-plunge extensions of the known high-grade resources of the 148-01 lens below current infrastructure within the East Mine. Intersections from this drilling included 0.52 oz/ton gold over 24.
Contacts
For further information, please contact:
Mike Westerlund
Vice President – Investor Relations
800-HECLA91 (800-432-5291)
Email: [email protected]
Website: www.hecla-mining.com
