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Hecla Reports Third Quarter 2021 Results

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Continued free cash flow generation as Casa Berardi achieves record quarterly throughput

COEUR D'ALENE, Idaho, November 04, 2021--(BUSINESS WIRE)--Hecla Mining Company (NYSE:HL) today announced third quarter 2021 financial and operating results.

HIGHLIGHTS*

  • Sales of $193.6 million, consistent with the prior year quarter.

  • Generated $42.7 million of cash provided by operating activities with $26.9 million of additions to properties, plant, equipment and mineral interests, resulting in $15.8 million of quarterly free cash flow reflecting increased exploration spend.1

  • Record quarterly exploration spend of $13.7 million.

  • Casa Berardi achieved record quarterly throughput of nearly 400,000 tons as the mill improvements delivered 13% higher gold production.

  • Testing at the Lucky Friday of a new drill and blast mining method called Underhand Closed Bench (UCB) is showing good performance in controlling seismicity and improving safety with the potential to increase productivity.

  • Strong balance sheet with $190.9 million in cash and over $420 million of available liquidity.

  • Purchased carbon credits and anticipate offsetting scope 1 and scope 2 emissions to have net zero emissions in 2021.

"Hecla’s results reflect our commitment to improve and innovate our operations while delivering free cash flow," said Phillips S. Baker Jr., President & CEO. "Casa Berardi achieved record quarterly throughput as our optimization programs in the mill increase recovery and ounce production. At the Lucky Friday, we continue to test our new drill and blast mining method, called Underhand Closed Bench, that allows improved management of seismicity which should increase safety and could possibly increase throughput. Greens Creek continued to lead the way because of its very low costs and despite staff shortages forcing a change in mine sequencing."

Baker continued, "This operational performance allowed us to enhance our silver-linked dividend for the second time this year and return about 20% of our free cash flow to shareholders, while having our largest exploration program in the company's history. In addition, while Hecla already has one of the industry’s lowest carbon footprints, we have taken the next step by investing in carbon credits that allows us to be net zero for our 2021 scope 1 and scope 2 emissions. We will continue our focus on reducing emissions as well as investing in credits in the future."

* All comparisons to the third quarter of 2020, unless stated

FINANCIAL OVERVIEW

Third Quarter Ended

Nine Months Ended

HIGHLIGHTS

September 30,

2021

September 30,

2020

September 30,

2021

September 30,

2020

FINANCIAL DATA

Sales (000)

$193,560

$199,703

$622,395

$502,983

Gross profit (000)

$35,228

$58,688

$164,560

$110,188

(Loss) income applicable to common shareholders (000)

($1,117

)

$15,142

$22,806

($12,976

)

Basic and diluted (loss) income per common share (in cents)

(0.2

)

2.9

4.3

(2.5

)

Cash provided by operating activities

$42,742

$73,439

$166,782

$115,892

Net loss applicable to common shareholders for the third quarter was $1.1 million, or 0.2 cent per share, compared to net income of $15.1 million, or 2.9 cents per share, for the same period in 2020. The lower third quarter results compared to the previous year were mainly due to the following items:

  • Lower gross profit due to lower realized silver and gold prices and Greens Creek’s lower grades based on mine sequencing impacted by staff shortages.

  • Exploration and pre-development expense increased by $12.9 million due to increased exploration at Midas, San Sebastian, Greens Creek, Casa Berardi and Kinskuch, and for drift development to the Hatter Graben area in Nevada.

  • An unrealized loss on investments in other mining companies of $2.9 million compared to a gain of $4.0 million.

  • $6.5 million payment in the third quarter of 2021 to settle a lawsuit related to a 1989 agreement for indemnification of certain environmental costs.

  • Suspension costs increased by $5.4 million due to placement of the Fire Creek mine and Midas mill on care-and-maintenance during the second quarter of 2021.

These items were partially offset by:

  • Gain on base metal derivatives contracts of $12.1 million compared to a loss of $6.7 million in the prior year period.

  • Gross profit at Lucky Friday increased by $6.9 million as a result of the return to full production beginning in the fourth quarter of 2020.

  • Foreign exchange gain of $4.0 million versus a loss of $2.2 million in the prior year.

Capital expenditures totaled $26.9 million for the third quarter 2021 compared to $23.7 million in the third quarter of 2020, with the increase due to the reduced utilization of lease financing for equipment purchases and higher expenditures at Lucky Friday. Capital expenditures at the operations were $12.4 million at Casa Berardi, $6.2 million at Greens Creek and $7.5 million at Lucky Friday.

Metals Prices

The average realized silver price in the third quarter was $23.97 per ounce, 5% lower than the $25.32 in the third quarter of 2020. The average realized gold price was lower by 7%, at $1,792 per ounce. Average realized lead and zinc price increased 19% and 30%, respectively.

Three Months Ended

September 30,

Nine Months Ended

September 30,

2021

2020

2021

2020

Silver –

London PM Fix ($/ounce)

$

24.36

$

24.40

$

25.78

$

19.22

Realized price per ounce

$

23.97

$

25.32

$

25.75

$

19.72

Gold –

London PM Fix ($/ounce)

$

1,789

$

1,911

$

1,801

$

1,735

Realized price per ounce

$

1,792

$

1,929

$

1,794

$

1,745

Lead –

LME Final Cash Buyer ($/pound)

$

1.06

$

0.85

$

0.98

$

0.81

Realized price per pound

$

1.02

$

0.86

$

1.00

$

0.81

Zinc –

LME Final Cash Buyer ($/pound)

$

1.36

$

1.06

$

1.31

$

0.97

Realized price per pound

$

1.35

$

1.04

$

1.34

$

0.94

∗ Realized prices are calculated by dividing gross revenues for each metal (which include the price adjustments and gains and losses on the forward contracts discussed below) by the payable quantities of each metal included in products sold during the period.

Base Metals Forward Sales Contracts

The following table summarizes the quantities of base metals committed under financially settled forward sales contracts, other than provisional hedges (which address changes in prices between shipment and settlement with customers), at September 30, 2021.

Pounds Under Contract

(in thousands)

Average Price per Pound

Zinc

Lead

Zinc

Lead

Contracts on forecasted sales

2021 settlements

7,771

6,779

$1.26

$0.94

2022 settlements

60,043

63,769

$1.28

$0.98

2023 settlements

76,280

70,327

$1.29

$1.00

2024 settlements

43,762

$1.31

The contracts represent about 49% of the forecasted payable zinc production through 2024 at an average price of $1.29 per pound, and 40% of the forecasted payable lead production through 2023 at an average price of $0.99 per pound.

Foreign Currency Forward Purchase Contracts

The following table summarizes the Canadian dollars the Company has committed to purchase under foreign exchange forward contracts at September 30, 2021, which is roughly 72% of forecasted Canadian dollar direct production costs for the remainder of 2021, 48% for 2022, 37% for 2023, 18% for 2024 and 5% for 2025:

Currency Under Contract

(in thousands of CAD)

Average Exchange Rate

CAD/USD

2021 settlements

29,450

$1.33

2022 settlements

94,524

$1.31

2023 settlements

75,165

$1.31

2024 settlements

37,496

$1.31

2025 settlements

9,000

$1.28

OPERATIONS OVERVIEW

Overview

The following table provides the production summary on a consolidated basis for the third quarter and nine months ended September 30, 2021 and 2020:

Third Quarter Ended

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

PRODUCTION SUMMARY

Silver -

Ounces produced

2,676,084

3,541,371

9,660,313

10,190,621

Payable ounces sold

2,581,690

3,147,048

9,027,180

9,077,966

Gold -

Ounces produced

42,207

41,174

153,350

159,948

Payable ounces sold

53,000

51,049

157,454

159,550

Lead -

Tons produced

9,904

9,750

32,148

24,620

Payable tons sold

8,835

7,792

28,166

19,948

Zinc -

Tons produced

15,546

17,997

48,864

48,699

Payable tons sold

11,174

12,892

33,344

34,717

The following tables provide a summary of the (i) final production; (ii) cost of sales and other direct production costs and depreciation, depletion and amortization ("cost of sales"); (iii) cash cost, after by-product credits, per silver or gold ounce2; and (iv) all-in sustaining costs ("AISC"), after by-product credits, per silver or gold ounce3 for the third quarter and nine months ended September 30, 2021, with comparisons to the prior year periods:

Third Quarter Ended

Greens Creek

Lucky

Friday

Casa Berardi

Nevada Ops

September 30, 2021

Silver

Gold

Silver

Gold

Silver

Gold

Silver

Gold

Silver

Production (ounces)

2,676,084

42,207

1,837,270

9,734

831,532

29,722

7,012

2,751

270

Increase/(decrease)

(865,287

)

1,033

(797,166

)

(3,104

)

195,143

3,317

3,157

2,751

270

Cost of sales(000)

$78,784

$79,549

$55,193

$23,591

$58,164

$21,384

Increase/(decrease)

$3,219

$11,851

$7,088

$2,091

$6,591

$7,507

Cash costs per silver or gold ounce 2

$2.49

$1,163

$0.74

$6.36

$1,175

Increase/(decrease)

$(0.92

)

$(235

)

$(2.26

)

$(223

)

AISC per silver or gold ounce 3

$12.82

$1,450

$5.94

$16.79

$1,476

Increase/(decrease)

$2.30

$(404

)

$(0.64

)

$(378

)

Nine Months Ended

Greens Creek

Lucky

Friday

Casa Berardi

Nevada Ops

September 30, 2021

Silver

Gold

Silver

Gold

Silver

Gold

Silver

Gold

Silver

Production (ounces)

9,660,313

153,350

6,980,587

35,859

2,608,727

97,245

25,604

20,246

45,395

Increase/(decrease)

(530,308

)

(6,598

)

(1,183,475

)

(2,356

)

1,407,053

13,332

10,320

(11,510

)

7,952

Cost of sales (000)

$238,243

$219,592

$163,861

$74,287

$172,760

$46,832

Increase/(decrease)

$30,689

$27,516

$10,365

$38,500

$31,867

$2,484

Cash costs per silver or gold ounce 2

$1.26

$1,127

$(1.03

)

$7.37

$1,127

$1,124

Increase/(decrease)

$(3.32

)

$73

$(5.48

)

$(54

)

$408

AISC per silver or gold ounce 3

$8.88

$1,349

$2.40

$15.00

$1,387

$1,167

Increase/(decrease)

$(1.21

)

$50

$(4.63

)

$(106

)

$380

Greens Creek Mine - Alaska

The Greens Creek Mine produced 1.8 million ounces of silver and 9,734 ounces of gold with the mill operating at an average of 2,295 tons per day (tpd). The decrease in silver production compared to the third quarter of 2020 was due to lower grades resulting from mine sequencing which was primarily driven by manpower scheduling issues as a result of COVID-19 and increased competition for labor. With limited personnel, production came partially from more easily accessible but lower grade areas. In the future, we anticipate adequate staffing which will allow mining higher-grade material, that is in deeper parts of the mine. Compared to 2020, cost of sales decreased by $7.1 million, due to lower production costs, driven partially by lower COVID-19 related costs. The per ounce silver cash cost and AISC decreased by $2.26 and $5.48, respectively, due to lower production costs as well as higher by-products credits resulting from higher by-product prices and lower treatment costs from favorable changes in smelter terms.2,3

The Company's estimated 2021 silver production is lowered to 9.2 - 9.5 million ounces to reflect lower production from the third quarter. Gold production guidance of 43 - 45 thousand ounces is unchanged. Estimated cost of sales for 2021 are maintained at $222 million and cash cost and AISC, each per silver ounce is also unchanged at ($1.00)-$1.00 and $3.25-$4.00, respectively.2,3

Casa Berardi Mine - Quebec

At the Casa Berardi Mine, 29,722 ounces of gold were produced compared to 26,405 ounces in the third quarter of 2020 due to higher mill throughput, partially offset by lower grades. The mill operated at an average of 4,328 tpd, which was 38% higher than the prior year period and achieved record quarterly throughput of 398,143 tons milled as the mill optimization continues to deliver results. Mill recoveries have continued to increase due to improvements in the grinding, gravity and CIL circuits. The increase in cost of sales was due to higher throughput, mill contractor maintenance costs, and underground maintenance costs resulting from repairs and replacements of major components for the production fleet. The decrease in cash cost and AISC per gold ounce for the third quarter of 2021 compared to 2020 was the result of the higher gold production, partially offset by higher production costs, with AISC also impacted by lower sustaining capital, partially offset by higher exploration spending.

In the 160 pit, 1.0 million tons of overburden and waste rock was removed during the quarter. Mining and processing of 160 pit ore is expected to commence during Q4 2021.

The Company is increasing 2021 gold production guidance to 130 - 135 thousand ounces. The estimate for 2021 cost of sales is increased to $230 million. Estimated cash cost per gold ounce is unchanged at $1,000-$1,125 per gold ounce as 72% of the direct production costs are hedged at an average USD/CAD exchange rate of 1.33.2 All-in sustaining cost guidance is increased to $1,350-$1,400 to reflect in the increased sustaining capital spend which is currently unhedged under the Company's foreign exchange hedging program.3

Lucky Friday Mine - Idaho

At the Lucky Friday Mine, 0.8 million ounces of silver were produced in the quarter, an increase of 31% compared to the third quarter of 2020, with the mine at full production. The mill operated at an average of 850 tpd. A new mining method, with a patent pending, called the Underhand Closed Bench (UCB), has been in testing for the past year with the third quarter mining 87% of tons with the method. The benefit of the method is better management of seismicity, increasing safety and potentially increasing production. With the success of this new drill and blast mining method, the Remote Vein Miner (RVM), a continuous rock cutting machine, will be tested at another property. Additionally during the quarter, the land needed for Lucky Friday’s planned tailings facilities was acquired.

Cost of sales for the second quarter was $23.6 million, and the cash cost per silver ounce was $6.36. AISC was $16.79 per silver ounce.2,3

The Company's estimated 2021 silver production of 3.4 - 3.8 million ounces is unchanged. Estimated 2021 cost of sales are $103 million and cash cost and AISC, each per silver ounce, are unchanged at $7.60-$8.50 and $14.25-$16.25, respectively.2,3

Nevada Operations

At the Nevada operations, 2,751 ounces of gold were produced from approximately 12,000 tons of previously stockpiled refractory material processed at a third-party autoclave facility. Total cost of sales for the third quarter was $21.4 million. Cash cost and AISC per gold ounce were $1,038 and $1,167, respectively, in the third quarter of 2021.2,3 The increase over the prior year period was primarily due to costs associated with the previously stockpiled material processed in the current period.

We anticipate production and sales from the remaining approximately 2,200 tons of previously stockpiled refractory material processed at the third-party autoclave facility will be recognized in the fourth quarter of 2021.

Hollister’s exploration drift to access the Hatter Graben is ongoing and drilling began in the fourth quarter while we continue surface drilling at Midas.

EXPLORATION

In the third quarter exploration expenditures were $13.7 million, an increase of $10.3 million compared to the third quarter of 2020, primarily due to increasing exploration activity at Midas, Greens Creek, Casa Berardi, San Sebastian, Heva-Hosco and Kinskuch since there were fewer limitations due to COVID. This is the largest quarterly exploration expense in the company’s history and about 50% more than the second quarter. For more details on Hecla’s exploration activities please see the Exploration Update provided on September 14th.

PRE-DEVELOPMENT

Pre-development spending was $3.4 million for the quarter, compared to $0.8 million for the third quarter of 2020. The increase is principally due to development of the decline at Hollister to allow drilling of the Hatter Graben to begin in the fourth quarter.

With the Federal District Court's ruling setting aside the federal agencies’ Record of Decision and related Biological Opinion for the Rock Creek project, Hecla will provide the next steps for both Rock Creek and Montanore by early 2022.

DIVIDENDS

Common

On September 8th, 2021, the Board of Directors added 1 cent per share for the annual silver-linked dividend component and approved a reduction in the minimum realized silver price threshold to $20 from $25 per ounce. On November 3, 2021, the Board of Directors declared a quarterly cash dividend of 0.625 cent per share of common stock, consisting of 0.375 cent per share for the minimum dividend component and 0.75 cent per share for the silver-linked component of our dividend policy. The common dividend is payable on or about December 3, 2021, to shareholders of record on November 19, 2021. The realized silver price was $23.97 in the third quarter satisfying the criteria for the silver-linked dividend component of the Company's dividend policy.

Preferred

The Board of Directors declared a quarterly cash dividend of 87.5 cent per share on the outstanding shares of Series B Cumulative Convertible Preferred Stock, payable on or about January 3, 2021, to shareholders of record on December 15, 2021.

2021 ESTIMATES4

The Company has updated its guidance for annual production and cost as follows:

2021 Production Outlook

Silver Production

(Moz)

Gold Production

(Koz)

Previous

Current

Previous

Current

Greens Creek *

9.5-10.2

9.2-9.5

43-45

43-45

Lucky Friday *

3.4-3.8

3.4-3.8

N/A

N/A

Casa Berardi

N/A

N/A

128-132

130-135

Nevada Operations

N/A

N/A

20-21

Total4

12.9-14.0

12.6-13.3

191-198

193-201

Silver equivalent production for 2021 is estimated at 42.0 – 43.5 million ounces while gold equivalent production is expected to be 469 – 485 thousand ounces.
* Equivalent ounces include Lead and Zinc production

2021 Cost Outlook

Cost of Sales

(millions)

Cash cost, after by-product

credits, per silver/gold ounce2

AISC, after by-product credits,

per produced silver/gold ounce3

Previous

Current

Previous