8-K: Hecla Mining Reports Second-Highest Silver Reserves and Production in Company History Despite Lucky Friday Fire

Hecla Mining Company announced its fourth quarter and full year 2023 results, highlighting the second-highest silver reserves and production in company history, despite a fire impacting production at the Lucky Friday mine.

Summary

• Hecla Mining Company reported its fourth quarter and full year 2023 financial and operating results, achieving the second-highest silver reserves and production in its history.
• The company's silver reserves reached 238 million ounces, and silver production totaled 14.3 million ounces for the year.
• Total sales for 2023 were $720.2 million, also the second highest in the company's history.
• The Lucky Friday mine restarted production on January 9th after a fire caused a five-month suspension in 2023, with the first insurance proceeds received in February.
• Greens Creek achieved record throughput and generated $157.3 million in cash flow from operations and $121.6 million in free cash flow.
• Casa Berardi began transitioning to surface-only mining, exceeding expectations for tons and cost per ton.
• Keno Hill began silver production in the second half of the year, focusing on safety and environmental performance while completing major infrastructure projects.
• The company's All-Injury Frequency Rate (AIFR) was 1.45, lower than the national average, with Greens Creek and Lucky Friday recording their lowest AIFR of 0.29 and 0.66, respectively.
• Hecla expects silver production to increase by 15-20% in 2024 and 30% by 2026.
• The company drew on its revolving credit facility due to the Lucky Friday suspension and Keno Hill ramp-up, but expects to pay it down in 2024 with all four mines in operation and anticipated insurance proceeds of approximately $50 million.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to strong production and reserve figures, but tempered by the net loss, increased debt, and operational challenges at Lucky Friday and Keno Hill. The forward-looking statements are positive, but the current financial results are mixed.

Positives

• Hecla reported the second largest silver reserves, largest gold resource, and second highest silver production and revenues in its history.
• Greens Creek delivered strong and consistent performance with increased throughput.
• Casa Berardi exceeded expectations for tons and cost per ton from operating its own surface fleet.
• Keno Hill contributed significantly to silver production despite a slower ramp-up due to safety and environmental performance.
• The company expects to pay down its revolving credit facility in 2024.
• Hecla is well-positioned to leverage higher expected silver prices driven by increasing demand for solar energy.
• The company has hedged approximately 60% of forecasted Casa Berardi and Keno Hill CAD denominated direct production costs through 2026 at an average CAD/USD rate of 1.32.
• The company has also hedged approximately 26% of Casa Berardi and Keno Hill CAD denominated total capital expenditures through 2026 at 1.35.

Negatives

• Lucky Friday lost five months of production due to a fire.
• Net loss applicable to common stockholders for the year was $84.8 million, an increase over the prior year.
• Ramp-up and suspension costs increased by $52.1 million, reflecting the impact of the Lucky Friday suspension and the ramp-up of production at Keno Hill.
• A foreign exchange loss of $3.8 million was recorded, compared to a gain of $7.2 million in the prior year.
• Cash provided by operating activities decreased by $14.4 million from the prior year.
• Free cash flow for the year was negative $148.4 million, compared to negative $59.5 million in the prior year.
• Consolidated silver total cost of sales in 2023 increased by 9% from the prior year.
• Cash costs and AISC per silver ounce increased over the prior year due to lower by-product credits and lower silver production.
• Gold production declined due to Casa Berardi reducing underground production.
• The ratio of net debt to adjusted EBITDA increased to 2.6 due to higher net debt.

Risks

• The company's future performance is subject to gold, silver, and other metals price volatility.
• Operating risks, currency fluctuations, and increased production costs could impact results.
• Community relations, conflict resolution, and litigation pose potential risks.
• Exploration risks and results could affect mineral resource estimates.
• The failure of counterparties to perform their obligations under hedging instruments is a risk.
• Inflation could cause costs to rise more than expected.
• There is a risk of material impairment charges on assets.
• The company is subject to political, regulatory, labor, and environmental risks.
• There is no certainty that mineral resources can be upgraded to mineral reserves through continued exploration.

Future Outlook

Hecla expects silver production to increase by 15-20% in 2024 and 30% by 2026. Consolidated gold production is expected to decrease to 121-133 thousand ounces in 2024. The company anticipates paying down its revolving credit facility in 2024. The company expects all four of its mines to be in operation in 2024.

Management Comments

• Hecla reported the second largest silver reserves, largest gold resource, and second highest silver production and revenues in our history despite the Lucky Friday losing five months of production due to a fire, said Phillips S. Baker Jr, President and CEO.
• Greens Creek delivered another year of strong and consistent performance as we increased throughput.
• Casa Berardi exceeded our expectations for tons and cost per ton from operating our own surface fleet, and this strong performance is reflected in the updated technical report.
• At Keno Hill, we slowed the ramp-up of the mine due to the safety and environmental performance; however, with the silver grade over twice the grade of our other mines, it still contributed significantly to our silver production and, as the technical report shows, it will contribute even more in the future.
• Because of the suspension of production at Lucky Friday due to the fire and continued investment in ramp-up at Keno Hill, we have drawn on our revolving credit facility which we expect to pay down in 2024 with all four mines in operation and anticipated receipt of approximately $50 million of insurance proceeds.
• With Lucky Friday back in production and Keno Hill's continued ramp-up, we expect silver production to increase by 15-20% this year, and 30% by 2026, making Hecla one of the worlds fastest growing silver companies.
• 2023 was also a significant year in the energy transition as 75% of the worlds new renewable electric power generation capacity was solar, requiring 500,000 ounces per gigawatt of new installed capacity, which equates to as much as 190 million ounces of silver in solar demand.

Industry Context

The report highlights Hecla's position as the largest silver producer in the U.S. and soon Canada, and its potential to benefit from increasing demand for silver in solar energy, aligning with the broader trend of renewable energy growth and the associated demand for critical minerals.

Comparison to Industry Standards

• Hecla's silver production of 14.3 million ounces is a significant figure, placing it among the larger primary silver producers globally, although companies like Fresnillo and Pan American Silver often report higher annual production.
• The company's AISC for silver at $11.76 per ounce is competitive, but some lower-cost producers like First Majestic Silver have reported lower AISC in certain periods.
• Greens Creek's free cash flow of $121.6 million is a strong performance, comparable to other high-grade, low-cost operations in the precious metals sector.
• The ramp-up of Keno Hill is a key focus, and its projected 5-year average silver production of 4.4 million ounces would position it as a significant contributor to Hecla's overall output, although it is still in the development phase.
• The transition of Casa Berardi to surface-only mining is a strategic move to improve cost efficiency, similar to strategies employed by other gold producers to optimize operations.
• Hecla's focus on safety, as indicated by its lower-than-average AIFR, is in line with industry best practices and demonstrates a commitment to responsible mining.

Stakeholder Impact

• Shareholders will be impacted by the net loss and increased debt, but may be encouraged by the production growth outlook and dividend payments.
• Employees may be affected by the operational changes at Casa Berardi and the ramp-up at Keno Hill.
• Customers will benefit from increased silver production.
• Suppliers may see increased business opportunities as production ramps up.
• Creditors will be impacted by the increased debt levels, but may be reassured by the company's plan to pay down the revolving credit facility.

Next Steps

• Hecla will continue to ramp up production at Keno Hill.
• The company will focus on completing the transition of Casa Berardi to a surface-only operation by mid-2024.
• Hecla expects to pay down its revolving credit facility in 2024.
• The company will execute a safety action plan at Keno Hill.
• Hecla will provide guidance for cash costs and AISC per silver ounce at Keno Hill once the mine reaches commercial production.
• The company will file revised Technical Report Summaries for Casa Berardi and Keno Hill with its Annual Report on Form 10-K on February 15, 2024.

Key Dates

Keywords

silver, gold, mining, production, reserves, Greens Creek, Lucky Friday, Casa Berardi, Keno Hill, financial results, EBITDA, cash flow, exploration, capital expenditures