Hecla Reports First Quarter 2021 Results
Record cash margin and adjusted EBITDA and second highest revenue in 130-year history
COEUR D’ALENE, IDAHO–(BUSINESS WIRE)–Hecla Mining Company (NYSE:HL) (Hecla or the Company) today announced first quarter 2021 financial and operating results.
HIGHLIGHTS
- Sales of $210.9 million, second highest in the 130-year history, a 54% increase over prior year.
- Gross profit of $64.8 million, an increase of $53.4 million over prior year.
- Cash provided by operating activities of $37.9 million and $16.5 million of quarterly free cash flow1.
- Silver production of 3.5 million ounces, a 7% increase over prior year period.
- Net income applicable to common shareholders of $18.8 million, or $0.04 per share (basic).
- Adjusted net income applicable to common stockholders of $30.6 million, or $0.06 per share.2
- Record Adjusted EBITDA of $86.1 million; net debt/adjusted EBITDA (last 12 months) of 1.4x.4
- Strong liquidity with quarter-end cash position of $139.8 million and undrawn revolving credit facility.
- Increased the silver -linked dividend at the $25 per ounce silver price threshold by 50% to $0.03 annually. Board has also increased each level of the silver-linked dividend by $0.01 per year.
- Greens Creek AISC6 in the first quarter of $1.59 per silver ounce and a new estimate for the year of less than $7.25.
- Ratings upgrade from Moody’s with Corporate Family Rating (CFR) upgraded to B2 from B3.
- Continued safe management of COVID-19 across all our operations.
- Sustainability report outlining our 2020 ESG performance and exploration results to be released in conjunction with the Company’s Annual Meeting of Shareholders on May 19, 2021.
“The strong performance Hecla has had in five of the last six quarters continued in the first quarter of 2021 with the second highest sales in our history, a new record for EBITDA and gross profit on sales that is about a third higher than the next closest quarter,” said Phillips S. Baker, Jr., President and CEO. “Free cash flow generation was the most Hecla has had in the first quarter in a decade. Since the first quarter is typically our smallest quarter, we anticipate cash flow increasing over the rest of the year. Therefore, the Board has increased the silver-linked dividend at the $25 price threshold by 50% to $0.03 per share annually.”
Mr. Baker continued, “The backdrop for silver remains very positive with improving industrial demand due to global policies that support green energy where silver is a key component, strong investment demand and tight supply. Hecla is in a key position as the United States’ largest silver producer, mining more than a third of all U.S. production, which should increase as our U.S. silver production is anticipated to be 15 million ounces by 2023 with the Lucky Friday’s silver production expected to increase to 5 million ounces by then.”
FINANCIAL OVERVIEW
|
| First Quarter Ended | |||||
| HIGHLIGHTS | March 31, 2021 | March 31, 2020 | ||||
| FINANCIAL DATA (000s except per share) |
|
| ||||
| Sales (000) | $ | 210,852 |
| $ | 136,925 |
|
| Gross profit (000) | $ | 64,812 |
| $ | 11,372 |
|
| Income (loss) applicable to common stockholders (000) | $ | 18,833 |
| $ | (17,323) |
|
| Basic income (loss) per common share | $ | 0.04 |
| $ | (0.03) |
|
| Diluted income (loss) per common share | $ | 0.03 |
| $ | (0.03) |
|
| Cash provided by operating activities (000) | $ | 37,936 |
| $ | 4,927 |
|
Income applicable to common shareholders for the first quarter was $18.8 million, or $0.04 per share, compared to a loss of $17.3 million, or ($0.03 per share), in the first quarter of 2020, and was impacted by the following factors:
- Gross profit increased by $53.4 million due primarily to higher metal prices and production of silver, lead, and zinc. Production increased due to higher grades and Lucky Friday being in full production. Profit also improved due to lower treatment charges at Greens Creek. Casa Berardi also contributed with strong gold production from higher grades, recovery, and improved throughput in the current period.
- Ramp-up and suspension costs decreased by $8.7 million primarily due to Lucky Friday’s return to full production in the fourth quarter of 2020.
- Lower interest expense by $5.6 million due to the following items in the first quarter of 2020: (i) interest recognized on both the 7.25% Senior Notes due 2028 and since-redeemed 2021 Notes for an overlapping period, (ii) $1.7 million in unamortized initial purchaser discount on the 2021 Notes recognized as expense upon their redemption, and (iii) amounts drawn on our revolving credit facility.
- Provision for closed operations and environmental matters increased by $3.2 million due to an increase at an historic site.
- Exploration and pre-development expense increased by $3.6 million. In the first quarter of 2021, exploration was primarily at our San Sebastian, Casa Berardi and Nevada Operations units.
- Higher other operating expense by $2.7 million due to operational improvement project costs at Casa Berardi.
- A gain on metal derivatives contracts of $0.5 million compared to a gain of $7.9 million in the first quarter of 2020.
- A net foreign exchange loss of $2.1 million versus a net gain of $6.6 million in the first quarter of 2020, with the variance primarily related to the impact of strengthening of the Canadian dollar relative to the U.S. dollar.
- An income and mining tax provision of $4.6 million compared to an income and mining tax benefit of $1.1 million in the first quarter of 2020 due to increased income at Casa Berardi and the inclusion of $3.1 million following reclassification of the Alaska mine license tax. Cash income and mining taxes paid for the first quarter totaled $2.5 million.
Cash provided by operating activities of $37.9 million increased $33.0 million compared to the first quarter of 2020, primarily due to higher gross profit, partially offset by negative working capital changes of $29.3 million related to lower accounts payable and accrued liabilities, the timing of payment of incentive compensation related to prior-year performance and higher accounts receivable due to the timing of concentrate shipments.
Adjusted EBITDA3 of $86.1 million increased 145% compared to the first quarter of 2020, primarily due to higher sales partially offset by lower gross margins at Nevada and San Sebastian. Adjusted EBITDA is $12 million more than any quarter in Hecla’s history.
Capital expenditures totaled $24.7 million compared to $20.0 million in the first quarter of 2020, with the increase primarily due to spending at Lucky Friday and Casa Berardi. Capital expenditures during the first quarter of 2021 at Casa Berardi, Greens Creek, Lucky Friday, and Nevada operations were $13.8 million, $4.9 million, $5.9 million, and $0.1 million, respectively.
Metals Prices
|
|
| Three Months Ended March 31 | ||||||
|
|
| 2021 |
| 2020 | ||||
| AVERAGE METAL PRICES |
|
|
| |||||
| Silver – | London PM Fix ($/oz) | $ | 26.29 |
|
| $ | 16.94 |
|
|
| Realized price per ounce | $ | 25.66 |
|
| $ | 14.48 |
|
| Gold – | London PM Fix ($/oz) | $ | 1,798 |
|
| $ | 1,583 |
|
|
| Realized price per ounce | $ | 1,770 |
|
| $ | 1,588 |
|
| Lead – | LME Cash ($/pound) | $ | 0.92 |
|
| $ | 0.84 |
|
|
| Realized price per pound | $ | 0.92 |
|
| $ | 0.78 |
|
| Zinc – | LME Cash ($/pound) | $ | 1.25 |
|
| $ | 0.96 |
|
|
| Realized price per pound | $ | 1.32 |
|
| $ | 0.88 |
|
∗ Realized prices are calculated by dividing gross revenues for each metal (which include the price adjustments and gains and losses on the forward contracts discussed below) by the payable quantities of each metal included in products sold during the period.
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 March 31, 2021.
|
| Pounds Under Contract (in thousands) |
| Average Price per Pound | |||
|
| Zinc | Lead |
| Zinc | Lead | |
| Contracts on forecasted sales |
|
|
|
|
| |
| 2021 settlements | 33,841 | 30,479 |
| $ 1.20 | $ 0.89 | |
|
|
|
|
|
|
| |
| 2022 settlements | 53,407 | 42,715 |
| $ 1.26 | $0.96 | |
|
|
|
|
|
|
| |
| 2023 settlements | 41,171 | — |
| $ 1.27 | — | |
The contracts represent 46% of the forecasted payable zinc production for the next three years at an average price of $1.25 per pound, and 45% of the forecasted payable lead production for the next two years at an average price of $0.93 per pound.
Foreign Currency Forward Purchase Contracts
The following table summarizes the Canadian dollars the Company has committed to purchase under foreign exchange forward contracts at March 31, 2021:
|
| Currency Under Contract |
| Average Exchange Rate | ||
|
| CAD |
| CAD/USD | ||
| 2021 settlements |
| 93,026 |
|
| 1.32 |
|
|
|
|
|
|
|
| 2022 settlements |
| 84,754 |
|
| 1.31 |
|
|
|
|
|
|
|
| 2023 settlements |
| 52,565 |
|
| 1.32 |
|
|
|
|
|
|
|
| 2024 settlements |
| 26,446 |
|
| 1.33 |
OPERATIONS OVERVIEW
The following table provides the production summary on a consolidated basis:
|
|
| First Quarter Ended | |||
|
|
| March 31, 2021 | March 31, 2020 | ||
| PRODUCTION SUMMARY |
| ||||
| Silver – | Ounces produced | 3,459,446 |
| 3,245,469 |
|
|
| Payable ounces sold | 3,030,026 |
| 2,582,279 |
|
| Gold – | Ounces produced | 52,004 |
| 58,792 |
|
|
| Payable ounces sold | 57,286 |
| 57,103 |
|
| Lead – | Tons produced | 10,704 |
| 5,893 |
|
|
| Payable tons sold | 8,668 |
| 4,130 |
|
| Zinc – | Tons produced | 16,107 |
| 12,847 |
|
|
| Payable tons sold | 11,027 |
| 9,836 |
|
The following table provides a summary of the production, cost of sales and other direct production costs and depreciation, depletion and amortization (referred to herein as “cost of sales”), cash cost, after by-product credits (“cash cost”), per silver or gold ounce, and All In Sustaining Cost, after by-product credits (“AISC”), per silver or gold ounce, for the quarters ended March 31, 2021 and 2020.
| First Quarter Ended March 31, 2021 |
|
|
| Greens Creek | Lucky | San Sebastian | Casa Berardi | Nevada | ||||||||||||||||||||||||||||
| Silver |
| Gold | Silver |
| Gold | Silver | Silver |
| Gold | Gold |
| Silver | Gold |
| Silver | |||||||||||||||||||||
| Production (ounces) | 3,459,446 |
|
| 52,004 |
| 2,584,870 |
|
| 13,266 |
| 863,901 |
| — |
|
| — |
| 36,190 |
|
| 10,675 |
| 2,548 |
|
| — |
| |||||||||
| Increase/(decrease) | 7 | % |
| (12) | % | (7) | % |
| 8 | % | 802 | % | (100) | % |
| (100) | % | 35 | % |
| 80 | % | (85) | % |
| (100) | % | |||||||||
| Cost of sales (000) | $ | 76,069 |
|
| $ | 69,971 |
| $ | 53,181 |
|
| $ | — |
| $ | 22,794 |
| $ | 94 |
|
| – | $ | 62,516 |
|
| $ | — |
| $ | 7,455 |
|
| – | ||
| Increase/(decrease) | 26 | % |
| 7 | % | 8 | % |
| N/A | 705 | % | (99) | % |
| N/A | 29 | % |
| N/A | (56) | % |
| N/A | |||||||||||||
| Cash cost per silver or gold ounce 5 | $ | 1.40 |
|
| $ | 1,052 |
| $ | (0.67) |
|
| – | $ | 7.62 |
| N/A |
| – | $ | 1,027 |
|
| – | $ | 1,416 |
|
| – | ||||||||
| Increase/(decrease) | (76) | % |
| (1) | % | (112) | % |
| N/A | N/A | (100) | % |
| N/A | (19) | % |
| N/A | 92 | % |
| N/A | ||||||||||||||
| AISC per silver or gold ounce6 | $ | 7.21 |
|
| $ | 1,284 |
| $ | 1.59 |
|
| – | $14.24 | N/A |
| – | 1,272 |
|
| – | $ | 1,461 |
|
| – | |||||||||||
| Increase/(decrease) | (35) | % |
| (1) | % | (80) | % |
| N/A | N/A | (100) | % |
| N/A | (21) | % |
| N/A | 81 | % |
| N/A | ||||||||||||||
Greens Creek Mine – Alaska
Greens Creek continued its strong performance with slightly lower silver grades due to normal variations in the ore body and produced 2.6 million ounces of silver and 13,266 ounces of gold compared to 2.8 million ounces of silver and 12,273 ounces of gold in the first quarter of 2020. The decrease in silver production was primarily due to lower grade, with the increase in gold production resulting from higher grade, as planned. Compared to 2020, cost per ounce decreased primarily due to $5.7 million in lower treatment costs as a result of favorable smelter terms, of which $4 million are nonrecurring, and the reclassification of the Alaska mine license tax to income and mining tax provision effective January 1, 2021. With higher by-product prices, the cash cost5 and AISC6, after by-product credits, per silver ounce decreased by $6.30 and $6.31 per ounce, respectively. The mill operated at an average of 2,156 tons per day (tpd) in the first quarter compared to 2,185 tpd in the first quarter of 2020.
The Company reaffirms estimated 2021 silver production of 9.5 – 10.2 million ounces of silver and 40 – 43 thousand ounces of gold. The estimate for 2021 cost of sales is $213 million. Estimated cash cost, after by-product credits5, and AISC, after by-product credits6, each per silver ounce is $1.50-$2.25 and $6.50-$7.25, respectively, with lower costs due to anticipated higher by-product credits, lower treatment charges, and the reclassification of mine license tax from production costs to income and mining tax provision effective January 1, 2021.
Casa Berardi Mine – Quebec
At the Casa Berardi Mine, 36,190 ounces of gold were produced compared to 26,752 ounces in the first quarter of 2020. This represents an increase of 35% due to higher tonnage, grades and recoveries. The mill operated at an average of 4,093 tpd in the first quarter of 2021 compared to 3,644 tpd in 2020. The increase in cost of sales was primarily due to higher sales volume. The decrease in cash cost and AISC, after by-product credits5,6, per gold ounce for the first quarter of 2021 compared to the first quarter of 2020 was primarily the result of higher gold production, with AISC also impacted by lower sustaining capital spending, partially offset by higher exploration spending.
Business improvement activities continued in 2021 and these efforts are expected to reduce costs and increase cash flow over the next two years.
Lucky Friday Mine – Idaho
At the Lucky Friday Mine, 0.9 million ounces of silver were produced in the first quarter of 2021. Lucky Friday returned to full production in the fourth quarter of 2020 with estimated annual production in excess of 3.4 million ounces of silver in 2021. The mill operated at an average of 901 tpd. We continue to test and optimize the new mining method to improve safety and increase productivity which could allow Lucky Friday to increase production beyond the 5 million ounces expected by 2023 due to grade.
The cost of sales for the first quarter was $22.8 million, and the cash cost, after by-product credits, per silver ounce5 was $7.62. AISC6, after by-product credits, was $14.24 per silver ounce.
Nevada Operations
At the Nevada operations, 2,548 ounces of gold were produced from 16,459 tons of a stockpiled bulk sample of refractory material processed at a third-party facility. Cost of sales for the first quarter were $7.5 million and cash cost5 and AISC6, after by-product credits, per gold ounce was $1,416 and $1,461, respectively in the first quarter of 2021. The increase over the prior year period was the result of the lower gold production.
In the second quarter of 2021, the Company expects to process oxide material through the Midas mill. Over the remainder of the year, 22,000 tons of refractory material are expected to be processed in third-party facilities, roughly 12,000 tons in a roaster and 10,000 tons in an autoclave. Production for the remainder of the year is expected to be in the range of 17,000 to 19,000 ounces of gold. Fire Creek and the Midas mill are expected to be on care and maintenance by the end of the second quarter. Activities will be limited primarily to development at Hollister for Hatter Graben and exploration at Midas.
PRE-DEVELOPMENT
Pre-development spending was $0.7 million for the quarter, principally in connection with permitting of Rock Creek and Montanore. The Federal District Court’s recent ruling set aside the U.S. Forest Service’s 2018 Record of Decision and the U.S. Fish & Wildlife Service’s 2019 Supplement to the Biological Opinion for the evaluation phase of the Rock Creek project. While we await action by the Federal agencies on possible appeal of this decision, the Company will reconsider its evaluation plan for the Rock Creek project and continue to advance the Montanore evaluation project.
At Hollister, development of the decline to allow drilling of the Hatter Graben has commenced. The pre-development cost in 2021 is expected to be about $4 million.
2021 ESTIMATES7
The Company has updated its guidance for annual production, cost and expenditures as follows:
2021 Production Outlook
|
| Silver Production (Moz) | Gold Production (Koz) | Silver Equivalent (Moz) | Gold Equivalent (Koz) |
| Greens Creek * | 9.5-10.2 | 40-43 | 20.5-21.5 | 227-237 |
| Lucky Friday * | 3.4-3.8 | N/A | 6.2-6.4 | 67-70 |
| Casa Berardi | N/A | 125-128 | 11.5-11.7 | 125-128 |
| Nevada Operations | N/A | 20-22 | 1.8-2.0 | 20-22 |
| 2021 Total | 12.9-14.0 | 185-193 | 40.0-41.6 | 439-457 |
| 2022 Total | 13.7-14.5 | 173-181 | 41.0-42.5 | 448-465 |
| 2023 Total | 14.2-15.0 | 177-186 | 42.5-44.5 | 467-485 |
* Equivalent ounces include Lead and Zinc production
2021 Cost Outlook
|
| Cost of Sales | Cash cost, after by-product | AISC, after by-product credits, | |||
|
| Original
| Current | Original | Current | Original | Current |
| Greens Creek | $220 | $213 | $5.75-$6.25 | $1.50-$2.25 | $10.25-$11.00 | $6.50-$7.25 |
| Lucky Friday | $91 | $91 | $7.75-$9.75 | $7.75-$9.75 | $13.75-$16.50 | $13.75-$16.50 |
| Total Silver | $311 | $304 | $6.25-$7.25 | $3.25-$4.25 | $13.50-$15.00 | $10.75-$12.50 |
| Casa Berardi | $176 | $212 | $900-$975 | $900-$975 | $1,185-$1,275 | $1,185-$1,275 |
| Nevada Operations | $41 | $41 | $1,300-$1,425 | $1,300-$1,425 | $1,385-$1,525 | $1,385-$1,525 |
| Total Gold | $217 | $253 | $950-$1,050 | $950-$1,050 | $1,200-$1,300 | $1,200-$1,300 |
2021 Capital and Exploration Outlook
|
| (millions) | |
|
| Original
| Current |
| Capital expenditures | $110 | $110 |
| Exploration expenditures (including Corporate Development) | $30 | $30 |
| Pre-development expenditures | $4.5 | $8.5 |
CONFERENCE CALL AND WEBCAST
A conference call and webcast will be held Thursday, May 6, at 10:00 a.m. Eastern Time to discuss these results. You may join the conference call by dialing toll-free 1-833-350-1380 or for international dialing 1-647-689-6934. The Conference ID is 7584113. Please dial-in and provide the Conference ID number at least 10 minutes prior to the start time to join the call and mitigate any hold times.
Hecla’s live and archived webcast can be accessed at www.hecla-mining.com under Investors/Events & Webcasts (https://ir.hecla-mining.com/news-events/events-webcasts/default.aspx). The webcast will also be archived on the site.
ABOUT HECLA
Founded in 1891, Hecla Mining Company (NYSE:HL) is the largest U.S. silver producer with operating mines in Alaska and Idaho and is a growing gold producer with an operating mine in Quebec, Canada. The Company also has exploration and pre-development properties in seven world-class silver and gold mining districts throughout North America.
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) Free cash flow is a non-GAAP measure calculated as cash provided by operating activities less additions to properties, plants and equipment.
(2) Adjusted net income (loss) applicable to common stockholders is a non-GAAP measurement, a reconciliation of which to net income (loss) applicable to common stockholders, the most comparable GAAP measure, can be found at the end of the release. Adjusted net income (loss) is a measure used by management to evaluate the Company’s operating performance but should not be considered an alternative to net income (loss) as defined by GAAP. They exclude certain impacts which are of a nature which we believe are not reflective of our underlying performance. Management believes that adjusted net income (loss) per common share provides investors with the ability to better evaluate our underlying operating performance.
(3) Adjusted EBITDA is a non-GAAP measurement, a reconciliation of which to net income (loss), 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 (loss), 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.
(4) Net debt to adjusted EBITDA is a non-GAAP measurement, a reconciliation of adjusted EBITDA and net debt to the closest GAAP measurements of net income (loss) and debt can be found at the end of the release. It is an important measure for management to measure relative indebtedness and the ability to service the debt relative to its peers. It is calculated as total debt outstanding less total cash on hand divided by adjusted EBITDA.
(5) Cash cost, after by-product credits, per silver or 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. As a primary silver mining company, management also uses cash cost, after by-product credits, per silver ounce on an aggregate basis – aggregating the Greens Creek, Lucky Friday and San Sebastian mines – to compare performance with that of other primary silver mining companies. Gold, lead and zinc produced have been treated as by-product credits in calculating silver costs per ounce. With regard to Casa Berardi and Nevada Operations, management uses cash cost, after by-product credits, per gold ounce to compare its performance with other gold mines with a by-product credit recognized for the value of their silver production. Similarly, the statistic is useful in identifying acquisition and investment opportunities as it provides a common tool for measuring the financial performance of other mines with varying geologic, metallurgical and operating characteristics. In addition, the Company may use it when formulating performance goals and targets under its incentive program.
(6) All in sustaining cost (AISC), after by-product credits, is a non-GAAP measurement, a reconciliation of which to cost of sales and other direct production costs and depreciation, depletion and amortization, the closest GAAP measurement, can be found in the end of the release. AISC, after by-product credits, includes cost of sales and other direct production costs, expenses for reclamation and exploration at the mine sites, corporate exploration related to sustaining operations, and all site sustaining capital costs. AISC, after by-product credits, is calculated net of depreciation, depletion, and amortization and by-product credits.
Current GAAP measures used in the mining industry, such as cost of goods sold, do not capture all the expenditures incurred to discover, develop and sustain silver and gold production. Management believes that AISC is a non-GAAP measure that provides additional information to management, investors and analysts to help in the understanding of the economics of our operations and performance compared to other producers and in the investor’s visibility by better defining the total costs associated with production. Similarly, the statistic is useful in identifying acquisition and investment opportunities as it provides a common tool for measuring the financial performance of other mines with varying geologic, metallurgical and operating characteristics. In addition, the Company may use it when formulating performance goals and targets under its incentive program.
Other
(7) Calculations for 2021 include silver, gold, lead and zinc production from Greens Creek, San Sebastian, Casa Berardi and Nevada Operations converted using Au $1,525/oz, Ag $17/oz, Zn $1.00/lb, and Pb $0.85/lb.
Numbers may be rounded.
Cautionary Statements to Investors on Forward-Looking Statements
This news release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbor created by such sections and other applicable laws, including Canadian securities laws.
Contacts
Russell Lawlar
Senior Vice President, CFO and Treasurer
Jeanne DuPont
Senior Communication Coordinator
800-HECLA91 (800-432-5291)
Investor Relations
Email: [email protected]
Website: www.hecla-mining.com
