Hecla Reports Third Quarter 2022 Results

Positive free cash flow generation from all operations for the first nine months

COEUR D'ALENE, Idaho, November 09, 2022--(BUSINESS WIRE)--Hecla Mining Company (NYSE:HL) today announced third quarter 2022 financial and operating results.

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Figure 1: Plan view showing drilling locations and areas where assays have been received in relation to the multiple ore zones at Greens Creek (Graphic: Business Wire)

THIRD QUARTER HIGHLIGHTS

• Record throughput at Greens Creek; Lucky Friday produced 1 million silver ounces for two consecutive quarters

• Consolidated silver production guidance increased, operating and capital cost guidance maintained

• Deferred approximately $24 million in sales at Greens Creek and Lucky Friday to the fourth quarter

• Keno Hill has completed 30% of total planned pre-production development as of October 31, 2022

• Net loss applicable to common stockholders of $(23.7) million or $(0.04) per share (basic), and adjusted net loss of $(12.0) million or $(0.02) per share¹

• Adjusted EBITDA of $26.6 million, net debt to adjusted EBITDA ratio of 1.9²

• All operations free cash flow positive year to date with total cost of sales for silver of $246.4 million and all-in sustaining cost (AISC) per silver ounce of $10.17

• $144.7 million in cash and cash equivalents with approximately $260 million in available liquidity

• Positive drilling results at Keno Hill and Greens Creek with intercepts in excess of 100 ounces of silver per ton at Keno Hill and wide high-grade intercepts at Greens Creek

• Strong safety performance with an all-injury frequency rate of 1.32 for the first nine months, 37% below the U.S. average and an improvement of 19% over the nine-month period in 2021

"Hecla reported another quarter of solid operational performance as Greens Creek achieved its best ever throughput and Lucky Friday's production exceeded 1 million ounces for the second consecutive quarter," said Phillips S. Baker Jr., President & CEO. "Free cash flow generation was lower for the quarter due to deferral of the sale of about a million ounces of silver and other metals, increased capital investment in our mines, and Alexco acquisition costs. All operations are free cash flow positive year to date and reflect the strong margins at our silver operations despite lower prices and an inflationary environment."

Baker continued, "Hecla is the United States’ largest silver miner, producing about 40% of all the silver mined. With Keno Hill's pre-production development on plan, we should become Canada's largest silver miner in the next few years."

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		Q3-2022				Q2-2022				Q1-2022				Q4-2021				Q3-2021				YTD-2022				YTD-2021
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Sales		$	146,339			$	191,242			$	186,499			$	185,078			$	193,560			$	524,080			$	622,395
Total cost of sales		$	137,892			$	153,979			$	141,070			$	131,837			$	158,332			$	432,941			$	457,835
Gross profit		$	8,447			$	37,263			$	45,429			$	53,241			$	35,228			$	91,139			$	164,560
(Loss) income applicable to common stockholders		$	(23,664	)		$	(13,661	)		$	4,015			$	11,737			$	(1,117	)		$	(33,310	)		$	22,806
Basic (loss) income per common share (in dollars)		$	(0.04	)		$	(0.03	)		$	0.01			$	0.02			$	—			$	(0.06	)		$	0.04
Adjusted EBITDA 2		$	26,554			$	70,474			$	58,202			$	58,249			$	49,414			$	155,230			$	220,531
Net Debt to Adjusted EBITDA2,*			1.9																								1.1
Cash (used in) provided by operating activities		$	(24,322	)		$	40,183			$	37,909			$	53,355			$	42,742			$	53,770			$	166,982
Capital Expenditures		$	(37,430	)		$	(34,329	)		$	(21,478	)		$	(28,838	)		$	(26,899	)		$	(93,237	)		$	(80,210	)
Free Cash Flow 3		$	(61,752	)		$	5,854			$	16,431			$	24,517			$	15,843			$	(39,467	)		$	86,772
Production Highlights
Silver ounces produced			3,549,392				3,645,454				3,324,708				3,226,927				2,676,084				10,525,917				9,660,313
Silver payable ounces sold			2,479,724				3,387,909				2,687,261				2,606,622				2,581,690				8,554,894				9,027,180
Gold ounces produced			44,747				45,719				41,707				47,977				42,207				132,173				153,350
Gold payable ounces sold			40,443				44,225				41,053				44,156				53,000				125,721				157,454
Cash Costs and AISC, each after by-product credits4,5
Silver cash costs per ounce		$	3.43			$	(1.14	)		$	1.09			$	1.69			$	2.49			$	1.11			$	1.26
Silver AISC per ounce		$	14.20			$	8.55			$	7.64			$	10.08			$	12.82			$	10.17			$	8.88
Gold cash costs per ounce		$	1,349			$	1,371			$	1,516			$	1,143			$	1,163			$	1,409			$	1,127
Gold AISC per ounce		$	1,738			$	1,641			$	1,810			$	1,494			$	1,450			$	1,729			$	1,349
Realized Prices
Silver, $/ounce		$	18.30			$	20.68			$	24.68			$	23.49			$	23.97			$	21.25			$	25.75
Gold, $/ounce		$	1,713			$	1,855			$	1,880			$	1,802			$	1,792			$	1,817			$	1,794
Lead, $/pound		$	0.95			$	0.97			$	1.08			$	1.13			$	1.02			$	0.98			$	1.00
Zinc, $/pound		$	1.23			$	1.44			$	1.79			$	1.74			$	1.35			$	1.47			$	1.34
*Reflects trailing twelve months ending September 30,2022. Reconciliations are available at the end of the release.

Sales in the third quarter declined by $44.9 million compared to the second quarter of 2022 primarily due to lower realized prices for all metals, and lower revenue from the deferral of silver concentrate shipments from Greens Creek and Lucky Friday to the fourth quarter. Compared to the prior quarter, realized silver prices have declined 12%, gold has declined 8%, lead and zinc prices are lower by 2% and 15% respectively. In comparison to the same quarter last year, gold prices are relatively unchanged, while silver prices have declined by 24% with lead and zinc lower by 7% and 9% respectively. The deferral of approximately 1 million ounces of silver, 1,800 ounces of gold, and 1,300 tons of lead in the silver concentrate shipments at Greens Creek was to ensure adequate volumes of concentrate for cost-effective shipping. At Lucky Friday the deferral was due to a planned multi week shutdown of the Trail smelter for maintenance. This concentrate is being shipped to a new customer and represents approximately 5% of Lucky Friday's annual concentrate production.

Total cost of sales for silver were $76.7 million for the third quarter and were lower by $14.2 million over the prior quarter due to lower depreciation and higher product inventory. Cash costs and AISC (each after by-product credits) for silver were $3.43 and $14.20 per silver ounce respectively. Cash costs increased by $4.57 per ounce over the prior quarter primarily due to lower by-product credits attributable to lower lead and zinc production as well as lower prices. AISC increased by $5.65 per silver ounce over the prior quarter due to the factors affecting cash costs.^4,5

Total cost of sales for gold were $59.5 million and declined marginally over the prior quarter. Gold cash cost per ounce, after by-product credits, declined by $22 attributable to higher production. AISC increased by $97 per ounce due to higher sustaining capital and exploration spend partially offset by higher production.^4,5

Labor and the current inflationary environment are challenging at all operations. Labor availability remains constrained in the market with a shortage of skilled miners and maintenance workers. Inflationary pressures have led to a 10-15% increase in costs since the beginning of the year. Labor and input costs for steel, reagents, fuel, and other consumables continue to remain elevated impacting all the operations.

In the first half of the year, by-product credits helped offset the inflationary pressures for the silver segment due to strong by-product production as well as prices. However, lower base metal production and prices in the third quarter reduced the by-product credits. The inflationary environment is expected to remain challenging for the fourth quarter and into 2023.

Loss applicable to common stockholders for the third quarter was $(23.7) million, or $(0.04) per share, compared to a loss of $(13.7) million, or $(0.03) per share, in the second quarter of 2022, impacted by the following factors:

• Gross profit decreased by $28.8 million primarily due to lower revenues and higher per unit costs as described above

• Exploration and pre-development expenses increased by $3.9 million reflecting increased exploration and drilling activity across Hecla's mines and projects during the exploration season

• General and administrative expenses increased by $1.3 million reflecting incremental costs following the Alexco acquisition

Partially offset by:

• A net foreign exchange gain of $5.7 million versus $4.5 million in the prior quarter reflecting the appreciation of the U.S. dollar ("USD") against the Canadian dollar ("CAD") during the current quarter

• Lower unrealized losses on our investment portfolio of $10.6 million reflecting a smaller reduction in the fair value of the portfolio compared to the prior quarter

• An income tax benefit of $9.5 million versus a provision of $0.3 million in the prior quarter

Cash used in operating activities was $24.3 million, compared to cash provided by operating activities of $40.2 million in the prior quarter. However, cash provided before working capital changes increased over the prior quarter. Working capital changes in the third quarter were negative $36.7 million compared to $32.6 million in the prior quarter, and are primarily related to an increase in ending inventory from the deferral of silver concentrate shipments at Greens Creek and Lucky Friday to the fourth quarter and semi-annual interest payment on the outstanding debt.

Capital expenditures totaled $37.4 million, an increase of $3.1 million over the prior quarter as planned. Expenditures were at Greens Creek of $7.0 million, Lucky Friday of $16.1 million, Casa Berardi of $10.8 million, and Keno Hill of $3.6 million. Free cash flow for the quarter was negative $61.8 million, a decline of $67.6 million over the prior quarter due to the increase in working capital changes and higher capital spend.³

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 September 30, 2022, the Company had contracts covering approximately 39% of the forecasted payable zinc production (through 2025) at an average price of $1.32 per pound, and 38% of the forecasted payable lead production (through 2024) at an average price of $1.00 per pound. The fair value of the net metal derivative contracts on our forecasted hedges was an asset of $27.4 million, an increase of $11.3 million over the prior quarter.

The Company also manages CAD exposure through forward contracts. At September 30, 2022, the Company had hedged approximately 52% of forecasted CAD direct production costs for Casa Berardi through 2026 at an average CAD/USD rate of 1.31. The Company has also hedged approximately 32% of capital costs for Casa Berardi for 2022 at 1.33. At the Keno Hill, 66% of planned spend for the fourth quarter is hedged at an average CAD/USD rate of 1.34. The fair value of the net currency derivatives contracts is a liability of $10.8 million, an increase of $12.7 million over the prior quarter.

OPERATIONS OVERVIEW
Greens Creek Mine - Alaska
Dollars are in thousands except cost per ton		Q3-2022				Q2-2022				Q1-2022				Q4-2021				Q3-2021				YTD-2022				YTD-2021
GREENS CREEK
Tons of ore processed			229,975				209,558				211,687				221,814				211,142				651,220				620,153
Total production cost per ton		$	185.34			$	197.84			$	192.16			$	174.55			$	181.60			$	191.58			$	178.29
Ore grade milled - Silver (oz./ton)			13.6				14.0				13.8				12.6				11.1				13.8				13.8
Ore grade milled - Gold (oz./ton)			0.07				0.08				0.07				0.07				0.07				0.07				0.08
Ore grade milled - Lead (%)			2.4				3.0				2.8				2.6				2.7				2.7				3.0
Ore grade milled - Zinc (%)			6.3				7.2				6.6				6.3				7.1				6.7				7.4
Silver produced (oz.)			2,468,280				2,410,598				2,429,782				2,262,635				1,837,270				7,308,660				6,980,587
Gold produced (oz.)			11,412				12,413				11,402				10,229				9,734				35,227				35,859
Lead produced (tons)			4,428				5,184				4,883				4,731				4,591				14,495				15,142
Zinc produced (tons)			12,580				13,396				12,494				12,457				13,227				38,470				41,191
Sales		$	60,875			$	92,723			$	86,090			$	87,865			$	84,806			$	239,688			$	296,978
Total cost of sales		$	(52,502	)		$	(60,506	)		$	(49,636	)		$	(49,251	)		$	(55,193	)		$	(162,644	)		$	(163,861	)
Gross profit		$	8,373			$	32,217			$	36,453			$	38,614			$	29,613			$	...