Hecla Mining Company — Q2 2021 Form 10-Q Summary
Business context and reporting period
Hecla Mining Company is a precious- and base-metals producer operating the Greens Creek, Lucky Friday, Casa Berardi, San Sebastian and Nevada Operations units in the United States, Canada and Mexico. The filing covers the three and six months ended June 30, 2021, and was filed August 5, 2021. Products contain silver, gold, lead and zinc.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Sales of products | $218.0 million | $166.4 million | $428.8 million | $303.3 million |
| Gross profit | $59.3 million | $34.1 million | $124.1 million | $45.5 million |
| Gross margin | 27.2% | 20.5% | 28.9% | 15.0% |
| Income from operations | $26.5 million | $10.6 million | $64.9 million | $(4.5) million |
| Net income attributable to common shareholders | $0.6 million | $(14.2) million | $19.5 million | $(31.5) million |
| Basic earnings per share | 0.1 cent | (2.7) cents | 3.6 cents | (6.0) cents |
| Cash flow from operations | Not separately provided | Not separately provided | $124.2 million | $42.5 million |
| Capital additions | Not separately provided | Not separately provided | $53.3 million | $30.7 million |
Six-month production increased for silver to 7.0 million ounces from 6.6 million, lead to 22,244 tons from 14,087 tons, and zinc to 33,318 tons from 30,702 tons. Gold production declined to 111,143 ounces from 118,774 ounces. Realized prices were higher for all four metals, including silver at $26.45 per ounce versus $16.75 and gold at $1,795 per ounce versus $1,658.
At June 30, 2021, cash and cash equivalents were $181.5 million, compared with $129.8 million at December 31, 2020. Cash, cash equivalents and investments totaled $192.6 million. Long-term debt was $508.6 million carrying value, consisting primarily of $475.0 million of 7.25% Senior Notes due 2028 and approximately $38.9 million of IQ Notes due 2025. No borrowings were outstanding under the $250 million revolving credit facility; $19.9 million of letters of credit were outstanding, leaving approximately $230.1 million available.
Material changes versus the prior comparable period
- Sales increased 31% in the second quarter and 41% year to date, primarily due to higher realized metal prices and higher silver and lead volumes.
- Operations improved materially versus the pandemic-affected 2020 period. Lucky Friday returned to full production in the fourth quarter of 2020, eliminating $5.2 million of second-quarter 2020 ramp-up costs and $13.3 million of first-half 2020 ramp-up costs.
- Greens Creek gross profit increased to $58.3 million in Q2 from $27.2 million, supported by higher metal prices and lower treatment costs.
- Casa Berardi generated a Q2 gross loss of $1.2 million versus $4.4 million of gross profit, reflecting higher production, maintenance and optimization costs; six-month gross profit nevertheless increased to $9.2 million from $2.3 million.
- Nevada Operations generated a Q2 gross loss of $9.5 million versus $1.5 million of gross profit. The 2021 period included approximately $9.4 million of second-quarter stockpile write-downs and $5.2 million of suspension-related costs.
- San Sebastian mining and milling were completed in 2020; 2021 activity is primarily exploration and evaluation, with $1.4 million of suspension-related costs in the first half.
- Exploration and pre-development expense rose to $17.9 million in the first half from $5.6 million. General and administrative expense increased to $19.1 million from $15.9 million.
- Derivative losses increased to $16.8 million in the first half from $6.1 million, primarily because of rising zinc and lead prices. Interest expense declined to $21.0 million from $28.1 million.
- The Company increased its silver-linked dividend policy. The Q2 dividend was 1.125 cents per common share, including a 0.75-cent silver-linked component.
Guidance, outlook, commentary and risks
Management estimated approximately $120 million of 2021 capital expenditures, including $49.0 million incurred by June 30, and approximately $48.5 million of exploration and pre-development expenditures, including $17.9 million incurred. Limited ore production from Casa Berardi’s 160 zone open pit was expected to begin in the fourth quarter of 2021. Management stated that available cash, expected operating performance, potential ATM equity sales and the revolving credit facility were expected to fund obligations for the following 12 months.
- COVID-19 procedures continued to create additional costs and could defer production or revenue if restrictions intensify.
- Metal prices, foreign exchange rates, operating costs and derivative positions remain significant sources of earnings and cash-flow volatility. A 10% change in relevant concentrate prices would affect the value of exposed provisional sales by approximately $12.3 million.
- A 10% change in the USD/CAD exchange rate would have affected net foreign-exchange gain or loss by approximately $10.8 million based on June 30 exposures.
- Environmental and reclamation liabilities totaled approximately $120.6 million. The Johnny M environmental accrual increased to $9.0 million, and the ultimate liability could be higher.
- Other environmental matters include the San Mateo Creek Basin, Carpenter Snow Creek and Barker-Hughesville sites. The filing states that potential liabilities for certain matters cannot be reasonably estimated.
- A putative shareholder class action related to the Nevada Operations disclosures remains pending; the Company cannot predict the outcome or estimate damages.
- The Company had $180.2 million of surety bonds and $19.9 million of letters of credit supporting reclamation, self-insurance and employee-benefit obligations.
- The filing reports effective disclosure controls and no material changes to internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether metal prices and realized prices remain sufficiently high to offset rising operating, sustaining-capital and exploration costs.
- Progress and cost performance at Casa Berardi’s 160 zone project and the operating outlook for Nevada Operations after stockpile processing and care-and-maintenance actions.
- Actual 2021 capital and exploration spending versus the stated $120 million and $48.5 million estimates.
- Derivative settlement losses, hedge exposures and the sensitivity of future cash flow to zinc, lead, silver, gold and USD/CAD movements.
- Liquidity after dividends, capital expenditures, debt service and potential environmental or litigation payments.
- Updates to the $9.0 million Johnny M accrual and other potentially material environmental contingencies.
- Whether COVID-19 restrictions, labor availability or mine-safety issues cause further production interruptions or additional costs.