Hecla Mining Company — Q3 2023 Form 10-Q Summary
Business context and reporting period
Hecla Mining Company is a precious-metals mining company producing silver, gold, lead and zinc from Greens Creek, Lucky Friday, Keno Hill, Casa Berardi and Nevada Operations. The filing covers the three and nine months ended September 30, 2023, compared with the corresponding 2022 periods. Keno Hill was acquired with Alexco in September 2022 and began mill ramp-up in the second quarter of 2023. Hecla completed the ATAC Resources acquisition in July 2023 for approximately $19.4 million, primarily through issuing Hecla common stock.
Financial performance and key metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Sales | $181.9 million | $146.3 million | $559.5 million | $524.1 million |
| Gross profit | $33.5 million | $8.4 million | $106.1 million | $91.1 million |
| Gross margin | 18.4% | 5.8% | 19.0% | 17.4% |
| Loss from operations | $(12.6) million | $(25.5) million | $(2.3) million | $(3.0) million |
| Net loss attributable to common stockholders | $(22.6) million | $(23.7) million | $(41.7) million | $(33.3) million |
| Loss per diluted share | $(0.04) | $(0.04) | $(0.07) | $(0.06) |
| Cash flow from operations | Not separately provided for the quarter | Not separately provided for the quarter | $74.6 million | $53.8 million |
| Capital expenditures | $55.4 million | Not clearly provided in the filing text | $161.3 million | $93.2 million |
- Silver production was 3.5 million ounces in Q3 and 11.4 million ounces year to date; gold production was 39,269 ounces in Q3 and 114,091 ounces year to date.
- Silver sales increased substantially, supported by higher realized silver prices and higher payable volumes. Q3 realized silver price was $23.71 per ounce versus $18.30 in the prior-year quarter.
- Q3 consolidated silver AISC after by-product credits was $11.39 per ounce, compared with $12.93 in Q3 2022. Year-to-date consolidated silver AISC increased to $10.52 from $9.49, primarily reflecting higher production costs and the inclusion of current operating conditions.
- Casa Berardi reported a Q3 gross loss of $9.9 million and a year-to-date gross loss of $27.5 million. Gold production declined to 24,259 ounces in Q3 and 67,846 ounces year to date.
- At September 30, 2023, cash and cash equivalents were $100.7 million, down from $104.7 million at December 31, 2022. Cash, cash equivalents and restricted cash totaled $101.8 million.
- Total assets were $3.0 billion and total liabilities were $983.4 million at September 30, 2023. Stockholders’ equity was $2.0 billion.
- Long-term debt, including finance leases, was $605.0 million. Principal debt included $475.0 million of 7.25% Senior Notes due 2028 and approximately $35.7 million of IQ Notes. The revolving credit facility had $80.0 million drawn at an 8.0% interest rate, plus $6.7 million of letters of credit; the company reported compliance with its covenants.
Material changes versus the prior comparable period
- Q3 sales increased 24% and year-to-date sales increased 7%, primarily due to higher silver, gold and lead prices and higher silver sales volumes.
- Q3 gross profit increased by $25.0 million, while the year-to-date increase was $14.9 million. Greens Creek was the principal contributor, with Q3 operating income of $31.2 million versus $1.4 million in the prior-year quarter.
- Q3 net loss attributable to common stockholders improved modestly by $1.1 million. Higher gross profit and lower exploration expense were largely offset by $15.9 million of additional ramp-up and suspension costs and higher fair-value losses.
- Year-to-date net loss attributable to common stockholders increased by $8.4 million. Additional Keno Hill ramp-up costs, Lucky Friday suspension costs, Casa Berardi suspension costs and higher general and administrative expense more than offset higher gross profit, lower exploration expense and insurance proceeds.
- Lucky Friday operations were suspended in August 2023 following a fire in the unused portion of the #2 shaft, which serves as a secondary egress. Management expects the mine to remain suspended through the remainder of 2023 while a new secondary egress is developed.
- Casa Berardi is transitioning from combined underground and open-pit mining to an open-pit-only operation. The lower-margin east underground operation closed in July 2023, and most underground activity is expected to cease by mid-2024.
- Capital spending increased significantly, particularly at Keno Hill, Casa Berardi and Lucky Friday. Keno Hill incurred $32.1 million of capital additions year to date while continuing its production ramp-up.
Outlook, commentary, risks and unusual items
- Management estimates 2023 capital expenditures of approximately $225 million to $235 million, including $161.3 million incurred through September 30, 2023. Exploration and pre-development spending is estimated at approximately $32.5 million, including $25.5 million incurred year to date.
- Management expects existing cash, operating performance, potential ATM equity proceeds and available credit capacity to fund obligations and anticipated cash requirements for the next 12 months and beyond, but notes that plans may change with metal prices, operating costs and liquidity conditions.
- Keno Hill remains in ramp-up. Infrastructure delays, camp constraints and crusher modifications have slowed development and production. The filing does not provide a clear full-year production or profitability guidance figure for Keno Hill.
- Casa Berardi is expected to produce at lower volumes as the mine transitions to open-pit operations. Management forecasts no Casa Berardi production-related cash flow from 2028 through 2030 during a planned production gap, with open-pit mining expected to resume in 2030.
- Hecla recorded $48.7 million of ramp-up and suspension costs in the first nine months, including $20.4 million for Keno Hill, $12.0 million for Lucky Friday and $2.2 million for Casa Berardi.
- Casa Berardi recorded product inventory net-realizable-value write-downs of $3.3 million in Q3 and $10.8 million year to date. Nevada Operations recorded a $57,000 gross loss year to date related to stockpiled material write-downs.
- Environmental and reclamation liabilities totaled approximately $120.0 million. Hecla accrued $10.1 million for the Johnny M Mine remediation, but stated that additional liabilities could be material. Other Superfund matters, Lucky Friday environmental issues and litigation related to the Klondex acquisition remain unresolved and cannot be reliably quantified.
- The company had $193.4 million of surety bonds and $6.7 million of letters of credit supporting reclamation, self-insurance and employee-benefit obligations.
- Commodity prices, foreign exchange rates, inflation in energy, labor and consumables, mine-safety events, permitting, environmental obligations and operational interruptions remain significant risks. A 10% change in the USD/CAD exchange rate would have affected net foreign-exchange gain or loss by approximately $11.2 million based on the filing’s sensitivity analysis.
- On November 1, 2023, after the reporting period, Hecla invested CAD$10 million, or approximately US$7.3 million, in Dolly Varden Silver Corporation.
Most important facts for investors to verify
- Whether Lucky Friday resumes operations on the expected timetable and whether insurance proceeds are recovered under the reported $50.0 million underground coverage sub-limit.
- Actual Keno Hill ramp-up progress, production volumes, infrastructure completion and cash-cost trajectory.
- Casa Berardi’s transition costs, future production profile, expected production gap and potential impairment or write-down exposure.
- Cash generation relative to the remaining 2023 capital-spending plan, debt service and the $80.0 million revolving-credit draw.
- Exposure to silver, gold, lead and zinc prices, including the effect of hedging and provisional concentrate settlements.
- Potential cash costs from environmental remediation, Superfund matters, Lucky Friday regulatory issues and Klondex-related litigation.
- The sustainability of dividends and possible future ATM equity issuance, given continuing net losses and elevated capital requirements.