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Hecla Mining Company -- Moody's upgrades Hecla's CFR to B2; outlook is stable

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Rating Action: Moody's upgrades Hecla's CFR to B2; outlook is stableGlobal Credit Research - 16 Apr 2021New York, April 16, 2021 -- Moody's Investors Service, ("Moody's") upgraded the Corporate Family Rating of Hecla Mining Company ("Hecla") to B2 from B3, the probability of default rating to B2-PD from B3-PD and senior unsecured notes to B3 from Caa1. The Speculative Grade Liquidity Rating was upgraded to SGL-2 from SGL-3. The outlook is stable."The upgrade is supported by a substantial improvement in Hecla's credit metrics and liquidity, the Lucky Friday mine reaching full production and Moody's expectations that Hecla's operating performance will continue to strengthen over the next 12-18 months," said Botir Sharipov, Vice President and lead analyst for Hecla.Upgrades:..Issuer: Hecla Mining Company.... Corporate Family Rating, Upgraded to B2 from B3.... Probability of Default Rating, Upgraded to B2-PD from B3-PD.... Speculative Grade Liquidity Rating, Upgraded to SGL-2 from SGL-3....Senior Unsecured Regular Bond/Debenture, Upgraded to B3 (LGD4) from Caa1 (LGD4)Outlook Actions:..Issuer: Hecla Mining Company....Outlook, remains StableRATINGS RATIONALEThe upgrade acknowledges the meaningful improvement in the company's credit profile in 2020 notwithstanding the impact of the pandemic on its operations, and particularly, Casa Berardi mine in Quebec, where mining and processing activities were suspended for a few weeks in Q2 2020. The upgrade also recognizes the successful ramp-up of the Lucky Friday mine to full production in Q4 2020, continued strong performance at the company's flagship Greens Creek mine and cost-reduction initiatives at Casa Berardi which are expected to improve the operating performance in 2021.Hecla's B2 CFR reflects its modest scale, exposure to volatile gold, silver, zinc and lead prices, relatively high cost position of its gold mine and moderate leverage. Hecla's credit profile is supported by its good liquidity position and favorable geopolitical footprint with assets located in the US, Canada and Mexico. The rating also benefits from the long mine life at key operations, ample organic growth opportunities, significant mineral reserves and geologically attractive exploration portfolio of assets. The rating is constrained by currently still high, albeit falling, asset concentration risk, given that its Greens Creek mine in Alaska generated most of the company's operating earnings and free cash flow in 2020.Hecla's gold all-in sustaining costs after by-product credits (AISC) were $1,302/oz in 2020 and are expected to decline in 2021 with a significant room for improvement at the Casa Berardi mine. The company's silver AISC remained low despite rising in 2020 to $11.89/oz from $10.13 in 2019 on higher Green Creek costs and the inclusion of operating costs at the Lucky Friday mine. While the company is guiding for higher silver cash costs and AISC for the Greens Creek mine in 2021, operating costs at Lucky Friday are expected to decline as the company finally puts the # 4 Shaft that was completed in 2016, to full use with the resulting full-year of mine production estimated to exceed of 3.4moz silver in 2021. Lucky Friday's silver production is expected to grow to above 5moz in the next few years benefitting from higher silver grades as the mine gets deeper. However, mining at depth poses some risk to operations given the history of seismic events at the mine. The Greens Creek mine is expected to deliver another year of strong operational performance and substantial free cash flow in 2021.Assuming gold price of $1,500/oz and silver price of $21/oz, the top end of Moody's price sensitivity ranges which are notably below spot prices, Moody's estimates that EBITDA, as adjusted by Moody's, will reach $180 million and leverage could increase to 2.8x in 2021. Under this scenario, free cash flow is forecast to be around $60 million in 2021. EBITDA could exceed $240 million and leverage could stay below 2.4x in 2021 if the company realizes gold and silver prices of or higher than $1,700/oz and $23/oz, respectively, and assuming lead and zinc prices do not decline materially from current levels. Hecla consistently hedges its longer dated zinc and lead production and as of 2020, the company had hedged 33% of its zinc production over 2021 and 2022 at $1.21/lb. and 39% of lead production for 2021 at $0.88/lb. Moody's would also expect the company to generate over $120 million in positive FCF under this price scenario in 2021.The stable outlook reflects Moody's expectations that Hecla will reduce operating costs at the Casa Berardi mine and position the Lucky Friday mine to safely grow silver production in the next few years, improving the overall cost structure and strengthening the company's ability to withstand, on a sustained basis, the volatility in prices of precious and base metals. The outlook also assumes that Hecla will maintain its good liquidity position.Hecla faces a number of ESG risks, typical for a mining company, including but not limited to environmental and asset retirement obligations, water management and water rights, social risks and litigation matters associated with Nevada operations.Hecla's SGL-2 rating reflects the company's good liquidity profile with $130 million in cash and cash equivalents as of 2020 year-end and $230 million (net of L/Cs) available under the undrawn $250 million revolving line of credit (RCF). The company generated $93 million in free cash flow in 2020 and is expected to remain substantially FCF positive in 2021. The RCF is secured by assets of some of Hecla's Nevada subsidiaries, Casa Berardi mine, the company's assets in the Greens Creek mine JV and equity interests in certain domestic subsidiaries. Moody's does not expect the company to draw on the revolver unless gold and silver prices decline materially and sustain at low levels for an extended period of time. Financial covenants include a senior leverage ratio (debt secured by liens/EBITDA) of no more than 2.5x, a minimum interest coverage ratio of 3x and a leverage ratio (total debt minus unencumbered cash/EBITDA) of no more than 4x. Moody's expects the company to remain in full compliance with the covenants.Under Moody's Loss Given Default for Speculative-Grade Companies methodology, the B3 rating on the senior unsecured notes, one notch below the CFR, reflects their lower priority position in the capital structure and their effective subordination to the RCF (unrated). The notes will be guaranteed on a senior unsecured basis by the majority of the company's subsidiaries. Non-guarantor subsidiaries represented about 5% of Hecla's FY2020 sales and total assets as of December 31, 2020.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSAn upgrade would be considered if the company improves operating performance and reduces costs at Casa Berardi mine as planned, demonstrates stability in its credit metrics and solidifies its ability to generate sustained positive free cash flow at various commodity prices. Quantitatively, Moody's would consider an upgrade if the company maintains an adjusted leverage of below 3.0x (debt/EBITDA) and EBIT margin of at least 8%.A negative rating pressure could develop if free cash flows are expected to be negative on a sustained basis or if the company experiences material operational issues at its mines which could result in lowered production and higher costs. Quantitatively, Moody's would consider a downgrade if the leverage ratio increases to and is sustained above 4x and (CFO - Dividends)/Debt) declines below 20% of outstanding debt. A significant reduction in borrowing availability or liquidity could also result in a downgrade.The principal methodology used in these ratings was Mining published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1089739. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Headquartered in Coeur d'Alene, Idaho, Hecla Mining Company ("Hecla") is primarily a silver and gold producer with zinc and lead by-products. The company operates mines in Alaska (Greens Creek), Idaho (Lucky Friday) and Quebec Canada (Casa Berardi) and owns Mexico (San Sebastian) and Nevada mines as well as multiple other exploration and pre-development properties, including the geologically attractive Hatter Graben vein system on its Hollister property in Nevada. For the twelve months ended December 31, 2020, Hecla generated revenues of $692 million.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Botir Sharipov VP - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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