HECLA MINING CO quarterly report, Q1 FY2024

Hecla Mining Company — Q1 2024 Form 10-Q Summary

Business context and reporting period

Hecla Mining Company is a precious-metals mining company producing silver, gold, lead and zinc. Its reportable operating segments are Greens Creek, Lucky Friday, Keno Hill and Casa Berardi; Nevada Operations are on care and maintenance and are included in “Other.” The filing covers the unaudited three months ended March 31, 2024, compared with the three months ended March 31, 2023.

Silver production was 4.2 million ounces and gold production was 36,592 ounces.
Lucky Friday restarted on January 9, 2024 after the 2023 underground fire and reached full production in March.
Keno Hill remained in ramp-up, producing 0.6 million ounces of silver and advancing underground development by 2,339 feet.

Financial performance and key metrics

Metric	Q1 2024	Q1 2023	Change
Sales	$189.5 million	$199.5 million	Down $10.0 million
Gross profit	$19.2 million	$34.9 million	Down $15.8 million
Income from operations	$5.1 million	$5.6 million	Down $0.5 million
Net loss	$5.8 million	$3.2 million	Loss increased $2.6 million
Net loss attributable to common stockholders	$5.9 million	$3.3 million	Loss increased $2.6 million
Loss per common share	$0.01	$0.01	Both periods reported a loss
Cash provided by operating activities	$17.1 million	$40.6 million	Down $23.5 million
Capital expenditures	$47.6 million	$54.4 million	Down $6.9 million

Metal sales were $185.1 million, compared with $199.0 million in the prior-year quarter. Silver and gold revenue benefited from higher realized prices, but lower sales volumes and weaker lead and zinc prices more than offset those gains. Environmental remediation services contributed $4.4 million of revenue, compared with $0.5 million.

Realized prices: silver $24.77 per ounce, gold $2,094 per ounce, lead $0.97 per pound and zinc $1.10 per pound.
Consolidated production: 4.2 million ounces of silver, 36,592 ounces of gold, 11,922 tons of lead and 16,389 tons of zinc.
Consolidated cash cost after by-product credits was $4.78 per silver ounce, compared with $2.14 in Q1 2023; consolidated AISC after by-product credits was $13.10 per silver ounce, compared with $8.96.
Greens Creek sales were $97.3 million and operating income was $26.2 million. Lucky Friday sales were $35.3 million and operating income was $23.0 million, including $17.4 million of insurance proceeds. Keno Hill had $10.8 million of sales and no gross profit during ramp-up. Casa Berardi generated a $17.0 million operating loss.

Liquidity, debt and cash flow

Cash and cash equivalents were $80.2 million at March 31, 2024, down from $106.4 million at December 31, 2023. Cash, restricted cash and cash equivalents totaled $81.3 million.
Total cash, cash equivalents and marketable equity securities were $113.1 million, compared with $140.1 million at year-end 2023.
Operating cash flow of $17.1 million was more than offset by $47.6 million of capital expenditures, resulting in a $26.2 million decrease in cash, cash equivalents and restricted cash.
Long-term debt, including finance leases, was $662.5 million. Principal debt included $475.0 million of 7.25% Senior Notes due February 2028 and approximately $35.6 million of IQ Notes due July 2025.
The revolving credit facility had $140.0 million drawn at an 8.0% interest rate and $6.8 million of letters of credit outstanding at March 31, 2024. The company stated that it was in compliance with applicable covenants.
On May 3, 2024, the credit facility was amended to increase borrowing capacity from $150 million to $225 million and extend maturity from July 2026 to July 2028. Maturity accelerates to August 2027 if the Senior Notes are not refinanced by then.

Material changes versus the prior comparable period

Revenue declined 5.0%, principally because lower metal sales volumes outweighed higher silver and gold prices.
Gross margin declined from approximately 17.5% to 10.1%, driven by lower volumes, higher production costs, higher depreciation, depletion and amortization, and weaker by-product pricing.
Depreciation, depletion and amortization increased to $48.9 million from $39.0 million, including accelerated amortization at Casa Berardi.
Operating cash flow declined 58%, reflecting working-capital consumption after Lucky Friday’s restart, higher accounts receivable and increased Keno Hill inventories.
Lucky Friday incurred $2.2 million of suspension costs and continued to experience higher unit costs while ramping back to full production.
Casa Berardi’s gross loss increased to $16.7 million from $12.0 million, including $5.1 million of product-inventory net realizable value write-downs.
Fair value adjustments changed from a $3.2 million gain to a $1.9 million loss, while foreign-exchange gains increased to $4.0 million from $0.1 million.

Guidance, outlook, risks and unusual items

Management expects 2024 capital expenditures of approximately $190 million to $210 million, before lease financing, and exploration and pre-development expenditures of approximately $32.5 million.
Management expects liquidity and capital resources to fund obligations for the next 12 months and beyond, but notes dependence on operating performance, metal prices, credit availability and potential equity issuance.
Casa Berardi is transitioning to open-pit mining. Production is expected to conclude no later than 2027, with a forecast production gap from at least 2028 through at least 2030. Open-pit mining is not expected to resume before 2030.
Lucky Friday’s insurance coverage has a $50.0 million underground sub-limit; $17.4 million had been received by quarter-end, with no assurance that the full limit will be collected.
Commodity prices, foreign exchange, inflation, labor and contractor costs materially affect results. A 10% change in relevant silver, gold and lead prices for provisional concentrate sales would change the value of those sales by approximately $9.6 million. A 10% change in the USD/CAD exchange rate would have affected the quarterly foreign-exchange gain or loss by approximately $7.3 million.
Environmental and regulatory matters include an accrued $10.1 million Johnny M Mine remediation liability, other potentially significant Superfund exposures, EPA allegations involving Lucky Friday water discharges, and Yukon proceedings involving Keno Hill. Several potential liabilities cannot be reasonably estimated.
Surety bonds totaled $195.3 million and letters of credit totaled $6.8 million, primarily supporting reclamation, closure, self-insurance and employee-benefit obligations.
The company reported no material off-balance-sheet arrangements and stated that disclosure controls and procedures were effective at March 31, 2024.

Important facts for investors to verify

Whether Lucky Friday sustains full production and whether additional insurance proceeds are received.
Keno Hill’s ramp-up pace, cash costs, capital requirements and timing to achieve positive operating economics.
Casa Berardi’s declining production profile, accelerated depreciation and expected 2028–2030 production gap.
Refinancing plans for the $475.0 million Senior Notes due in February 2028 and the effect of the amended credit facility’s acceleration provision.
Progress toward the $190 million–$210 million capital-spending plan and $32.5 million exploration and pre-development plan.
Exposure to silver, gold, lead, zinc and USD/CAD price movements, including the company’s derivative positions and potential collateral or cross-default obligations.
Potential costs and outcomes of environmental, regulatory and litigation matters, particularly the Johnny M Mine, Superfund sites, Lucky Friday, Keno Hill and Klondex-related litigation.
The filing’s non-GAAP cash-cost and AISC measures, which may not be comparable with similarly named measures reported by other mining companies.