Business Context and Reporting Period
Hecla Mining Company filed its Form 10-K for the fiscal year ended December 31, 2023. The filing is annual; it includes fourth-quarter results but does not present a separate Q4-only summary. Hecla operates the Greens Creek, Lucky Friday, Keno Hill, Casa Berardi and Nevada segments and produces silver, gold, lead and zinc concentrates, doré and carbon material.
2023 Financial and Operating Metrics
| Metric | 2023 | 2022 |
|---|---|---|
| Sales | $720.2 million | $718.9 million |
| Gross profit | $112.9 million | $116.2 million |
| Gross margin | 15.7% | 16.2% |
| Loss from operations | $44.7 million | $12.4 million |
| Net loss | $84.2 million | $37.3 million |
| Net loss applicable to common stockholders | $84.8 million | $37.9 million |
| Loss per common share | $0.14 | $0.07 |
| Cash provided by operating activities | $75.5 million | $89.9 million |
| Capital expenditures, excluding non-cash lease additions | $223.9 million | $149.4 million |
| Cash and cash equivalents | $106.4 million | $104.7 million |
- Production totaled 14.3 million ounces of silver, 151,259 ounces of gold, 40,347 tons of lead and 60,579 tons of zinc.
- Realized prices increased for silver, gold and lead, while the realized zinc price declined. Average realized prices were $23.33 per silver ounce, $1,939 per gold ounce, $1.03 per pound of lead and $1.35 per pound of zinc.
- Consolidated silver Cash Cost, After By-product Credits, was $3.23 per ounce, and consolidated silver AISC, After By-product Credits, was $11.76 per ounce. These are non-GAAP measures and are not reported for Keno Hill because it had not reached commercial production.
- Segment sales were $384.5 million at Greens Creek, $116.3 million at Lucky Friday, $35.5 million at Keno Hill, $177.7 million at Casa Berardi and $1.0 million at Nevada Operations.
- Total assets were $3.0 billion and properties, plants, equipment and mineral interests, net, were $2.7 billion at December 31, 2023.
Debt, Liquidity and Cash Flow
- Total long-term debt, including finance leases, was $653.1 million at year-end. Principal debt consisted primarily of $475.0 million of 7.25% Senior Notes due February 2028 and approximately $36.5 million of IQ Notes due July 2025.
- The $150 million revolving credit facility had $128.0 million drawn and $6.9 million used for letters of credit, leaving approximately $15.1 million available. The facility may be increased by up to $75 million, subject to conditions.
- Financing activities provided $156.3 million in 2023, including $128.0 million of net revolver borrowings and $56.7 million of net ATM equity proceeds.
- Management states that cash balances, operating performance, metals prices, potential ATM proceeds and credit availability are expected to support obligations for the next 12 months. The filing also warns that the company is dependent on revolver borrowings and could remain in a negative cash position during 2024 absent stronger metal prices or additional financing.
- Cash dividends paid on common and preferred stock totaled $15.7 million. The company sold 10.6 million common shares under its ATM program for $56.7 million net proceeds during 2023.
Material Changes Versus the Prior Comparable Period
- Sales were broadly stable, but net loss more than doubled, primarily because ramp-up and suspension costs increased to $76.3 million from $24.1 million.
- Keno Hill began mill ramp-up and production in June 2023, producing 1.5 million ounces of silver. It generated $35.5 million of sales but no gross profit, incurred $29.8 million of ramp-up costs and required $44.7 million of capital spending.
- Lucky Friday production was suspended after an August 2023 underground fire in the number 2 shaft, resulting in $25.5 million of suspension costs and materially lower production. Production resumed in January 2024, with ramp-up continuing. The company received $5.4 million of related insurance proceeds in February 2024 and expects additional proceeds, but the total amount and timing remain uncertain.
- Casa Berardi shifted from underground/open-pit operations toward open-pit-only mining. The East Mine underground operation closed in July 2023, production declined, and gross loss increased to $43.7 million from $13.8 million. The segment recorded a $12.7 million product inventory net realizable value write-down.
- Casa Berardi capital spending increased to $70.1 million from $39.7 million, primarily for surface fleet equipment and tailings facilities. Greens Creek spending increased to $43.5 million, Lucky Friday spending to $65.3 million and Keno Hill spending to $44.7 million.
- ATAC Resources was acquired in July 2023 for approximately $19.4 million, primarily adding mineral interests and a 19.9% interest in Cascadia Minerals.
Guidance, Outlook, Risks and Unusual Items
- Management expects Keno Hill to reach commercial production before the end of 2024, subject to safety, environmental, infrastructure and permitting execution.
- Estimated 2024 capital expenditures are approximately $190 million to $210 million, before lease financing, and exploration and pre-development expenditures are expected to total approximately $32 million.
- Casa Berardi is expected to produce only from the 160 open pit after most underground activity ends in mid-2024. Management expects production to halt in 2027, with a projected production gap during 2028-2030 while additional pits are stripped and permitted.
- Greens Creek requires additional tailings capacity to extend operations beyond the existing capacity, which is expected to support operations through September 2030. A final regulatory decision was expected in the second quarter of 2024 and could face litigation.
- Keno Hill received notices concerning alleged mining-license, hazardous-material storage and water-discharge violations. Lucky Friday received an EPA notice concerning alleged Clean Water Act violations. Potential penalties and outcomes were not determinable from the filing.
- Environmental and reclamation liabilities totaled $120.5 million, supported in part by $195.4 million of surety bonds and $6.9 million of letters of credit. The company expects approximately $13.5 million of 2024 environmental permit compliance and idle-property expenditures, plus approximately $5.5 million for reclamation at the former Troy Mine.
- Additional principal risks include metals-price volatility, cost inflation, mine accidents, permitting and environmental compliance, reclamation obligations, foreign-exchange exposure, customer concentration, debt service and refinancing risk, and the possibility of impairments. No impairment was recorded for 2023, although Nevada and Casa Berardi remain subject to significant valuation assumptions.
- Management reported no material cybersecurity incidents in 2023, and the company and its auditors concluded that internal control over financial reporting was effective as of December 31, 2023.
Most Important Facts for Investors to Verify
- Whether Keno Hill reaches commercial production in 2024 and whether safety, environmental and permitting issues cause further delays or capital overruns.
- The pace and cost of Lucky Friday’s post-fire production ramp-up and the amount and timing of insurance recoveries.
- Casa Berardi’s declining production profile, open-pit transition, projected 2028-2030 cash-flow gap and permitting progress for future pits.
- Available liquidity after revolver draws, letters of credit, capital spending, debt service and potential ATM equity issuance.
- Exposure to silver, gold, lead and zinc prices, including outstanding forward contracts and provisional concentrate settlements.
- The resolution and potential financial impact of Keno Hill, Lucky Friday, Montana and other environmental or legal matters.
- The sensitivity of reserves, asset carrying values, taxes and reclamation liabilities to metal prices, operating costs, exchange rates and permitting assumptions.