Hecla Mining Company - Q1 2009 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2009. Hecla Mining Company operates two primary segments: the Greens Creek unit (Alaska) and the Lucky Friday unit (Idaho). The company ceased reporting the San Sebastian unit (Mexico) as a separate segment due to reduced activity and the sale of its Velardeña mill. Venezuelan operations (La Camorra unit) were sold in July 2008 and are reported as discontinued operations.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Revenue (Sales of Products) | $54.7 million | $37.5 million |
| Gross Profit | $9.9 million | $18.7 million |
| Net Income | $7.3 million | $15.5 million |
| Income Applicable to Common Shareholders | $3.9 million | $12.1 million |
| Diluted EPS | $0.02 | $0.10 |
| Cash and Cash Equivalents | $62.6 million | $36.5 million (Dec 2008) |
| Total Debt (Long-term + Current) | $116.1 million | $161.7 million (Dec 2008) |
| Operating Cash Flow | ($0.5) million | $11.6 million |
Material Changes vs. Prior Period
- Revenue Increase: Sales rose 46% year-over-year, driven primarily by the full consolidation of the Greens Creek mine (100% ownership since April 2008) and higher production volumes, despite lower average metal prices.
- Profit Decline: Net income applicable to common shareholders dropped 68% due to significantly higher interest expense ($4.6 million vs. $0.04 million) related to the Greens Creek acquisition debt, and the absence of $1.9 million in income from discontinued Venezuelan operations.
- Non-Cash Gains: Results were bolstered by a $9.0 million non-cash gain from terminating an employee benefit plan and a $6.2 million pre-tax gain from the sale of the Velardeña mill in Mexico.
- Debt Reduction: The company repaid its $40 million bridge facility and reduced its term loan by approximately $8 million using proceeds from a $71 million equity offering in February 2009.
Guidance, Outlook, and Risks
- Production Outlook: Management estimates 2009 silver production between 10 and 11 million ounces.
- Liquidity: The company believes cash, investments, and operating cash flow will be adequate for the next 12 months. Sustaining capital expenditures are estimated at $25–$28 million for the remainder of the year.
- Environmental Liabilities: Significant contingent liabilities exist regarding the Bunker Hill Superfund site and the Coeur d'Alene River Basin. Accrued liabilities for these matters total approximately $68.8 million ($3.2 million for Bunker Hill and $65.6 million for the Basin). Potential total liability for the Basin could range from $65.6 million to $93.6 million, excluding natural resource damages.
- Market Risk: The company faces exposure to volatile metal prices. Average prices for silver, gold, zinc, and lead were lower in Q1 2009 compared to Q1 2008. The company currently holds no commodity hedging positions.
Investor Verification Checklist
- Debt Covenants: Verify compliance with the amended credit facility, specifically the requirement to maintain an unencumbered cash balance of at least $20 million.
- Environmental Accruals: Monitor the status of the Coeur d'Alene River Basin litigation (Phase II) and the Bunker Hill Superfund site, as final liability could exceed current accruals.
- Preferred Stock Obligations: Review the terms of the 12% Convertible Preferred Stock issued to lenders, including the mandatory redemption date of February 10, 2014, and cumulative dividend requirements.
- Asset Valuation: Assess the impact of fluctuating metal prices on the valuation of mineral reserves and potential future asset impairments.
- Equity Dilution: Note the issuance of 36.8 million common shares and 18.4 million warrants in February 2009, which significantly increased the share count.