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Hecla Reports First Quarter 2022 Results

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8th consecutive quarter of free cash flow generation

The Period Ended: March 31, 2022
For Release: May 10, 2022

COEUR D’ALENE, Idaho, May 10, 2022--(BUSINESS WIRE)--Hecla Mining Company (NYSE:HL) (Hecla or the Company) today announced first quarter 2022 financial and operating results.

FIRST QUARTER HIGHLIGHTS

Operational

  • Silver production of 3.3 million ounces, a 3% increase over fourth quarter 2021.

  • The Company's silver mines reported total cost of sales of $78.9 million and cash cost and AISC per silver ounce (each after by-product credits) of $1.09 and $7.64 respectively.1,2

Financial

  • Sales of $186.5 million, a slight increase over fourth quarter 2021.

  • Cash provided by operating activities of $37.9 million and $16.4 million of quarterly free cash flow after semi-annual interest payment of $18.5 million on outstanding long-term debt.3

  • Income applicable to common shareholders of $4.0 million, or $0.01 per share (basic).

  • Returned 21% of free cash flow to our common and preferred shareholders through dividends.

  • Credit ratings upgraded to B1 and B+ by Moody’s and S&P, respectively.

"All of our mines generated positive free cash flow despite inflationary cost pressures, slow supply chains, and some COVID-19 related labor challenges," said Phillips S. Baker Jr., President and CEO. "Hecla, the largest silver producer in the U.S., is also the country’s third largest zinc miner, and by-products contributed to the silver mines’ strong performance and help offset inflationary pressure. Over the last eight quarters, we have generated $434 million in cash flow from operations and this quarter marked our eighth consecutive quarter of free cash flow, with $232 million generated over that period. This strong, consistent performance has strengthened our balance sheet and led to credit rating upgrades."

Baker continued, "With strong grades and our innovative mining method at the Lucky Friday, we expect the mine’s quarterly silver production for the rest of the year to exceed one million ounces contributing to our increasing silver production profile. Growing U.S. silver production is particularly rewarding as demand for silver to generate green energy is growing and the need for domestically sourced metals is being understood because of the pandemic and the Ukrainian war."

FINANCIAL OVERVIEW

"Total cost of sales" as used in this release is comprised of cost of sales and other direct production costs and depreciation, depletion and amortization.

In Thousands unless stated otherwise

Q1-2022

4Q-2021

3Q-2021

2Q-2021

1Q-2021

FY 2021

FINANCIAL AND PRODUCTION HIGHLIGHTS

Sales

$

186,499

$

185,078

$

193,560

$

217,983

$

210,852

$

807,473

Total cost of sales

$

141,070

$

131,837

$

158,332

$

156,052

$

143,451

$

589,672

Gross profit

$

45,429

$

53,241

$

35,228

$

61,931

$

67,401

$

217,801

Income (loss) applicable to common shareholders

$

4,015

$

11,737

$

(1,117

)

$

2,610

$

21,313

$

34,543

Basic income (loss) per common share (in dollars)

$

0.01

$

0.02

$

$

0.05

$

0.04

$

0.06

Adjusted EBITDA 4

$

58,199

$

58,249

$

49,414

$

84,507

$

86,610

$

278,780

Net Debt to Adjusted EBITDA4,*

1.2

1.1

Cash provided by operating activities

$

37,909

$

53,355

$

42,742

$

86,304

$

37,936

$

220,337

Capital Expenditures

$

(21,478

)

$

(28,838

)

$

(26,899

)

$

(31,898

)

$

(21,413

)

$

(109,048

)

Free Cash Flow 2

$

16,431

$

24,517

$

15,843

$

54,406

$

16,523

$

111,289

Silver ounces produced

3,324,708

3,226,927

2,676,084

3,524,783

3,459,446

12,887,240

Silver payable ounces sold

2,687,261

2,606,622

2,581,690

3,415,464

3,030,026

11,633,802

Gold ounces produced

41,642

47,977

42,207

59,139

52,004

201,327

Gold payable ounces sold

41,053

44,156

53,000

47,168

57,286

201,610

*Reflects trailing twelve months ending March 31, 2022. Reconciliations are available at the end of the release.

Income applicable to common shareholders for the first quarter was $4.0 million, or $0.01 per share, compared to $11.7 million, or $0.02 per share, in the fourth quarter of 2021 ("the prior quarter"), and was impacted by the following factors:

  • Gross profit decreased by $7.8 million due primarily to higher mining costs at Casa Berardi resulting from inflationary pressures and increased used of contractors.

  • An income tax provision of $5.6 million for U.S. and foreign jurisdiction income and mining taxes impacted by non-recognition of net operating losses in Nevada compared to a benefit of $25.6 million in the prior quarter primarily due to the release of the valuation allowance on the Hecla U.S. group deferred tax assets.

  • A net foreign exchange loss of $2.0 million versus a net gain of $0.4 million in the prior quarter primarily due to strengthening of the Canadian dollar against the U.S. dollar.

  • Higher general and administrative expense by $1.7 million due to higher incentive compensation accruals.

These decreases were partially offset by:

  • Net gains from fair value adjustments of $6.0 million versus net losses of $25.1 million in the prior quarter primarily due to unrealized losses on base metal derivatives contracts incurred prior to their designation as hedges for accounting purposes effective November 1, 2021.

  • Provision for closed operations and environmental matters decreased by $1.4 million reflecting an accrual for increased costs at the legacy Troy mine in the prior quarter.

Cash provided by operating activities of $37.9 million decreased $15.4 million compared to the prior quarter, primarily due to negative working capital changes of $17.8 million mostly due to interest payments on the outstanding long-term debt.

Capital expenditures totaled $21.5 million, $7.3 million less than the prior quarter due to lower spending at Greens Creek and Casa Berardi, which spent $3.1 and $7.8 million respectively this quarter while Lucky Friday spent $9.7 million.

The impact of inflationary pressures, supply chain challenges, and manpower constraints due to various factors, including COVID-19, impacted each operation differently. Overall, the Company’s silver assets operated as planned with Greens Creek outperforming due to higher grades while Lucky Friday saw some production impact due to delays in equipment delivery. Although all operations were impacted by inflation, AISC for consolidated silver assets declined over the prior quarter as higher by-product credits and higher silver production more than offset the inflationary cost pressures. Casa Berardi saw the largest impact because it mines the greatest volume of material (approximately 8 times that of Greens Creek annually) and processes the largest volume of ore (approximately 1.8 times that of Greens Creek), therefore increases in the cost of fuel, steel, reagents, and other consumables have a greater impact on the mine. Casa Berardi was also constrained by the lack of available manpower due to competition for skilled workers in the Abitibi. The Company is monitoring and attempting to proactively mitigate the impact that inflation, supply chain delays, and lack of available manpower has on production and per ounce costs, and if current by-product credits continue, believes that it can successfully navigate these challenges.

Forward Sales Contracts for Base Metals and Foreign Currency

The Company uses financially settled forward sales contracts to manage exposures to changes in prices of zinc and lead. At March 31, 2022, the Company had contracts covering approximately 60% of the forecasted payable zinc production (through 2024) at an average price of $1.30 per pound, and 50% of the forecasted payable lead production (through 2024) at an average price of $0.99 per pound.

The Company manages Canadian dollar (CAD) exposure through forward contracts. At March 31, 2022, the Company had hedged approximately 35% of forecasted CAD direct production costs through 2025 at an average CAD/USD rate of 1.30. The Company has also hedged approximately 27% of capital costs for 2022 at 1.29.

OPERATIONS OVERVIEW

Greens Creek Mine - Alaska

Dollars are in thousands except cost per ton

1Q-2022

4Q-2021

3Q-2021

2Q-2021

1Q-2021

FY 2021

GREENS CREEK

Tons of ore processed

211,687

221,814

211,142

214,931

194,080

841,967

Total production cost per ton

$

192.16

$

174.55

$

181.60

$

171.13

$

182.61

$

177.30

Ore grade milled - Silver (oz./ton)

13.84

12.60

11.14

14.52

16.01

13.51

Ore grade milled - Gold (oz./ton)

0.07

0.07

0.07

0.08

0.09

0.08

Ore grade milled - Lead (%)

2.76

2.61

2.68

3.14

3.06

2.87

Ore grade milled - Zinc (%)

6.56

6.28

7.05

7.57

7.62

7.11

Silver produced (oz.)

2,429,782

2,262,635

1,837,270

2,558,447

2,584,870

9,243,222

Gold produced (oz.)

11,402

10,229

9,734

12,859

13,266

46,088

Lead produced (tons)

4,883

4,731

4,591

5,627

4,924

19,873

Zinc produced (tons)

12,494

12,457

13,227

14,610

13,354

53,648

Sales

$

86,090

$

87,865

$

84,806

$

113,763

$

98,409

$

384,843

Total cost of sales

$

(49,638

)

$

(49,251

)

$

(55,193

)

$

(55,488

)

$

(53,181

)

$

(213,113

)

Gross profit

$

36,452

$

38,614

$

29,613

$

58,275

$

45,228

$

171,730

Cash flow from operations

$

56,295

$

50,632

$

40,626

$

68,521

$

44,345

$

204,124

Exploration

$

165

$

696

$

2,472

$

1,300

$

123

$

4,591

Capital additions

$

(3,092

)

$

(9,544

)

$

(6,228

)

$

(6,339

)

$

(1,772

)

$

(23,883

Free cash flow 2

$

53,368

$

41,784

$

36,870

$

63,482

$

42,696

$

184,832

Total cost of sales for the first quarter 2022 was $49.6 million compared to $49.3 million in the prior quarter. Cash cost and AISC per silver ounce (each after by-product credits) were $(0.90) and $1.90, respectively, decreasing over prior quarter due to higher by-product credits and higher silver production due to higher mined grades. 1,2

Lucky Friday Mine - Idaho

Dollars are in thousands except cost per ton

1Q-2022

4Q-2021

3Q-2021

2Q-2021

1Q-2021

FY 2021

LUCKY FRIDAY

Tons of ore processed

77,725

80,097

78,227

82,442

81,071

321,837

Total production cost per ton

$

247.17

$

198.83

$

190.66

$

199.48

$

190.54

$

191.50

Ore grade milled - Silver (oz./ton)

12.04

12.54

11.21

11.60

11.18

11.64

Ore grade milled - Lead (%)

8.16

8.11

7.22

7.55

7.51

7.60

Ore grade milled - Zinc (%)

3.61

3.33