Hecla Reports First Quarter 2013 Results
Aurizon Shareholders Vote in Favor of the Hecla Acquisition
For the Period Ended March 31, 2013
For Release: May 10, 2013
COEUR D'ALENE, Idaho--(BUSINESS WIRE)-- Hecla Mining Company (NYSE:HL) (Hecla or the Company) today announced first quarter net income applicable to common shareholders of $11.0 million, or $0.04 per basic share, and earnings after adjustments applicable to common shareholders of $3.4 million, or $0.01 per basic share.1 First quarter silver production was 1.9 million ounces at a cash cost of $7.02 per ounce, net of by-products.2
In addition, on May 9, 2013, Aurizon Mines Ltd. (Aurizon) shareholders voted in favor of the Hecla acquisition. Hecla expects to complete the acquisition of Aurizon during the second quarter upon receipt of Investment Canada regulatory approval. Aurizon's core asset is the Casa Berardi gold mine in Quebec, Canada, with 2013 gold production estimated by Aurizon of 125,000 to 130,000 ounces. Also, subsequent to the first quarter, the Company completed a $500 million offering of 6.875% Senior Notes due 2021, which will partially fund the acquisition.
FIRST QUARTER 2013 HIGHLIGHTS
Sales of $76.5 million.
Net income applicable to common shareholders of $11.0 million, or $0.04 per basic share.
Earnings after adjustments applicable to common shareholders (a non-GAAP measure) of $3.4 million, or $0.01 per basic share.1
Operating cash flow of $11.4 million.
Adjusted EBITDA (a non-GAAP measurement) of $33.3 million.
Greens Creek production of 1.8 million ounces of silver in the first quarter, a 34% increase over last year's first quarter, at an average cash cost (a non-GAAP measure) of $5.02 per ounce. Higher per ounce cash costs are due in part to lower base metals prices and production.
Total silver production of 1.9 million ounces at a total cash cost (a non-GAAP measure) of $7.02 per ounce, net of by-products.2 Higher per ounce costs are due in part to production startup at Lucky Friday in February, which is expected to ramp up to normal production levels in the first half of the year. Cash costs per ounce are expected to decrease as production increases during this period.
Expenditures of $11.3 million on exploration and pre-development, 26% higher than the first quarter of 2012, to advance Hecla's major pre-development and exploration projects.
Exploration programs in the first quarter of 2013 succeeded in defining high-grade extensions to mineralization at San Sebastian and Greens Creek.
Cash and cash equivalents of $169 million at March 31, 2013.
Declaration of $0.0025 common stock dividend under the Company's dividend policy. Realized silver price was $28.86 in the first quarter.
(1)Earnings after adjustments applicable to common shareholders represents a non-U.S. Generally Accepted Accounting Principles (GAAP) measurement. A reconciliation of net income applicable to common shareholders (GAAP) to earnings after adjustments can be found at the end of the release.
(2)Total cash cost per ounce of silver represents a non-GAAP measurement. A reconciliation of total cash costs to cost of sales and other direct production costs and depreciation, depletion and amortization (GAAP) can be found at the end of this release.
"During the first quarter we recommenced production at the Lucky Friday mine, after a year of rehabilitation and enhancement, and expect the mine to produce more than 2 million ounces of silver this year and 3 million ounces of silver in 2014," said Phillips S. Baker, Jr., President and Chief Executive Officer. "My ongoing thanks to the team at the Lucky Friday who completed this work safely and efficiently, and the team at Greens Creek whose effort generates the cash flow that's carrying the Company through this period."
"We are very pleased that the Aurizon shareholders recognized the benefits of the acquisition by Hecla and voted in favor of the deal on May 9, 2013. Hecla remains the largest primary silver producer in the U.S., with, upon closing the Aurizon transaction, strong gold production from Canada. The gold and two silver mines in the new Hecla are all located in mining-friendly jurisdictions, and each has more than 10 years of mine life as well as organic growth potential. We expect to have low-cost silver and gold production, reserve growth and strong cash flows for many years to come," Mr. Baker added.
"Another transformational event for the Company was the recent $500 million Senior Notes offering, which was up-sized during the offering from $400 million, demonstrating market confidence not only in the merits of the Aurizon acquisition, but also in Hecla's diverse, North American asset base," Mr. Baker said. "Hecla's balance sheet remains very strong, which should allow for our continued growth through additional acquisitions as well as our organic growth projects as we advance towards our targeted goal of 15 million ounces of silver production by 2017."
"There has been significant weakness in precious metals prices this spring, which we are watching closely, but I am pleased to note the increase in demand for the physical metal, particularly in the Middle East and in Asia, that has emerged as a result of these lower prices," Mr. Baker concluded. "I believe that in these times of price volatility and uncertainty, those companies like Hecla with low costs, high margins and the flexibility to scale back or increase discretionary expenditures such as exploration, pre-development, capital and investments, will fare the best."
Net income applicable to common shareholders for the first quarter was $11.0 million, or $0.04 per share, compared to $12.4 million, or $0.04 per share, for the same period a year ago and was impacted by the following items:
Exploration and pre-development expense increased to $11.3 million in the first quarter from $9.0 million in the same period in 2012. This expense relates to exploration work at Greens Creek in Alaska, and exploration and pre-development work at San Sebastian in Mexico, at the San Juan Silver project in Colorado, and the Star complex in North Idaho's Silver Valley near the Lucky Friday mine.
Aurizon acquisition costs of $5.3 million in the first quarter of 2013.
A $21.5 million gain on base metal derivative contracts for the first quarter, compared to a $5.2 million loss for the same period in 2012. A summary of the quantities of base metals committed at March 31, 2013, is included on page 5 of this release.
Lucky Friday suspension-related costs of $1.5 million in the first quarter compared to $6.2 million in the same period of the prior year. The Lucky Friday resumed limited production in February 2013, with a return to full production levels anticipated in mid-2013.
Losses of $2.7 million on provisional price adjustments compared to gains of $5.1 million in the same period of 2012. The provisional price adjustment related to zinc and lead contained in our concentrate shipments was largely offset by net gains on forward contracts of $2.4 million for those metals, compared to a loss of $1.0 million during the comparable period last year.
First Quarter Ended
March 31, 2013
March 31, 2012
Gross profit (000)
Income applicable to common shareholders (000)
Basic income per common share
Diluted income per common share
Net income (000)
Cash provided by operating activities (000)
Capital expenditures (including non-cash capital lease additions) at the operations totaled $25.6 million for the first quarter ended March 31, 2013. Expenditures at the Lucky Friday were $14.4 million and expenditures at Greens Creek were $11.2 million. Capital expenditures at Greens Creek and Lucky Friday are expected to be $145 million for the year, a reduction of $7.0 million from estimates earlier in the year.
Pre-development expenditures totaled $4.8 million in the first quarter of 2013. Pre-development expenditures in 2013 are now expected to be approximately $21.0 million for infrastructure at the San Juan Silver property in Creede, Colorado, and the San Sebastian property in Mexico, a reduction of $3.0 million from estimates earlier in the year.
Exploration expenditures (on Hecla assets) for the first quarter of 2013 were $6.5 million. Exploration expenditures for 2013 are now expected to be approximately $21.0 million, a $6.0 million reduction from estimates earlier in the year.
Aurizon Mines Ltd. Acquisition
The acquisition of Aurizon is by a Plan of Arrangement, which is similar to a U.S. merger and requires two-thirds approval by Aurizon shareholders. On May 9, 2013, Aurizon's shareholders approved the transaction. The Casa Berardi gold mine, Aurizon's principal operating mine, is well-known to the Company as Hecla has followed it closely since 2006. Aurizon's expectation is that Casa Berardi will produce 125,000 to 130,000 ounces of gold in 2013 at a cash cost of $810 per ounce, with a total of CAD$102 million in capital spending at Casa Berardi and CAD$7.2 million of exploration during the year. The review process currently underway by Investment Canada can take up to 75 days from the application date, suggesting a decision is likely before June 5. Consideration for the acquisition is comprised of a maximum of approximately CAD$514 million cash and 57 million shares of Hecla common stock.
On May 2, 2013, Aurizon announced a minor discharge at the Casa Berardi tailings facility. Aurizon expects that operations will not be impacted. Observations from the Hecla team members that visited the site support this expectation. The Company awaits the findings of the Quebec Environment Ministry on the incident.
"I believe the acquisition of Aurizon and the related financing will further transform Hecla into one of the world's lowest risk silver and gold miners," said Mr. Baker. "When this transaction closes as expected later this quarter, we will have added a third long-lived, low-cost operating mine in a mining-friendly jurisdiction while strengthening our balance sheet. I believe that in Hecla's 122-year history, we have never had such good prospects."
$500 Million Senior Notes Offering
On April 12, 2013, Hecla closed its offering of $500 million of 6.875% Senior Notes due 2021 (the Notes) to qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act of 1933, as amended (the Securities Act) and outside the United States pursuant to Regulation S under the Securities Act. The size of the offering represents an increase of $100 million from the $400 million amount originally proposed. The interest on the Notes will be payable in cash semi-annually in arrears. The Notes will mature on May 1, 2021. The gross proceeds from the offering of the Notes were deposited into a segregated escrow account, and Hecla intends to use the net proceeds ($490 million) to partially fund the acquisition of Aurizon. For more information about the Notes and the Aurizon acquisition, see Hecla's recent filings with the Securities and Exchange Commission.
TheBoard of Directors elected to declare a quarterly dividend of $0.0025 per share of common stock, payable on or about June 5, 2013, to shareholders of record on May 28, 2013. The realized silver price was $28.86 in the first quarter and therefore did not trigger a larger dividend under the Company's dividend policy.
The Board of Directors has also elected to declare the regular quarterly dividend of $0.875 per share on the outstanding Series B Cumulative Convertible Preferred Stock, on a total of 157,816 shares outstanding. This represents a total amount to be paid of approximately $138,000. The cash dividend is payable July 1, 2013, to shareholders of record on June 14, 2013.
Realized silver prices in the first quarter of 2013 were $28.86 per ounce, compared to the average realized price in the first quarter of 2012 of $36.59 per ounce.
Overall first quarter realized metals prices were slightly lower than those in the fourth quarter of 2012, resulting in negative adjustments to provisional settlements of $2.7 million compared to net positive price adjustments to provisional settlements of $5.1 million in the first quarter of 2012. The adjustment to provisional settlements is largely due to changes in prices in the time period between the shipment of concentrate and the final settlement. The provisional price adjustment related to zinc and lead contained in our concentrate shipments was largely offset by net gains on forward contracts of $2.4 million for those metals.
First Quarter Ended
March 31, 2013
March 31, 2012
AVERAGE METAL PRICES
London PM Fix ($/oz)
Realized price per ounce
London PM Fix ($/oz)
Realized price per ounce
LME Cash ($/pound)
Realized price per pound
LME Cash ($/pound)
Realized price per pound
The following table summarizes the quantities of base metals committed under financially settled forward sales contracts at March 31, 2013:
Base Metals Forward Sales Contracts
Pounds Under Contract (in thousands)
Average Price per Pound
Contracts on provisional sales
Contracts on forecasted sales
First quarter silver cash cost was $7.02 per ounce, net of by-products, compared to $2.24 per ounce in the same period in 2012. The consolidated costs include initial start-up costs from the Lucky Friday mine, which recommenced operations in February and is expected to produce more than 2 million ounces of silver in 2013. Including Greens Creek, full year 2013 consolidated cash costs, net of by-product credits, are expected to average approximately $5.00 per ounce of silver, a result that is dependent on base metal prices returning to higher levels.
The following table provides the production summary on a consolidated basis for the first quarter ended March 31, 2013 and 2012:
First Quarter Ended
March 31, 2013
March 31, 2012
Payable ounces sold
Payable ounces sold
Payable tons sold
Payable tons sold
Total cash cost per ounce of silver produced (1)
(1) See the attached schedule for a reconciliation to GAAP.
Greens Creek Mine - Alaska
Silver production at Greens Creek was 1.8 million ounces in the first quarter of 2013, 34% higher than the 1.3 million ounces in the same period in 2012. The increase in silver production year-over-year was due primarily to 20% higher tonnage and 15% higher grades compared to last year.
Mining and milling costs per ton were up by 13% and 16%, respectively, in the first quarter compared to the same period in 2012. The increase in milling costs was primarily due to diesel fuel costs related to the generation of more power on-site due to lower availability of less expensive hydroelectric power, as a result of lower precipitation levels in southeastern Alaska. Both mining and milling costs were impacted by an increase in labor costs as a result of higher costs of medical and other benefits and higher salary costs. Higher mining costs are also the result of higher maintenance costs.
Approximately $12.0 million in gross profit related to first quarter production has been shifted into the second quarter due to timing of a barge shipment.
The cash cost per ounce of silver increased to $5.02 per ounce, compared to $2.24 per ounce in the first quarter of last year, due primarily to lower by-product credits as a result of lower by-product production.
During the first quarter, crews finished the 200 South development and began rehabilitation of the 29 Ramp, as part of the East Ore project.
Lucky Friday Mine - Idaho
In February, the Lucky Friday recommenced production upon completion of the rehabilitation and enhancement project of the 6,100 foot Silver Shaft, the main access to the mine, and the 5900 bypass. In the first quarter, Lucky Friday produced 120,000 ounces of silver at a cash cost of $36.55 per ounce. The high cash costs are the result of the low production levels in the early phase of the mine restart. Two of seven production areas have restarted, and the Company anticipates a ramp-up in mine output during the first half of the year as additional production stopes come on line, with a return to full production levels expected in mid-2013. Full year production is expected to total more than 2 million ounces of silver with about 1.5 million ounces in the second half of the year.
The Company resumed sinking of the #4 Shaft in early 2013 upon completion of the Silver Shaft work and re-opening of the mine. Once complete, the #4 Shaft project, an internal shaft at the Lucky Friday mine, is expected to provide deeper access to higher grade material in order to extend the operational life and to increase silver production to 5 million ounces per year.
Total cash cost per silver ounce produced and cost per ton milled for the first quarter of 2013 were generally higher than historical periods of operating at full production. The higher per-unit costs are primarily due to lower production, as mine output is limited until production areas come on line. The Company anticipates the higher per-unit costs to continue until the mine returns to full production in approximately mid-2013.
In March, the Mine Safety and Health Administration (MSHA) officially notified the Company that the Lucky Friday mine will not be issued a potential pattern of violations (PPOV) notification, a possibility the agency had indicated late last year.
EXPLORATION AND PRE-DEVELOPMENT
In the first quarter of 2013, exploration programs succeeded in defining high-grade extensions to mineralization at San Sebastian and Greens Creek.
At San Sebastian, drilling of the Middle Vein has extended a shallow, very high-grade, gold-silver vein to the southeast. In-fill drilling of the resource continues to intercept high-grade veins in oxide mineralization near surface.
Very high-grade mineralization over good widths was drilled at Greens Creek at the Deep Southwest, 5250 Zones and Gallagher.
Exploration and pre-development expenses were $6.5 million and $4.8 million, respectively, in the first quarter. This is about a $0.9 million increase in exploration and $1.4 million increase in pre-development over the first quarter of 2012. Exploration at San Sebastian was about one-third of the exploration total and advancing the decline at the Bulldog represented about 80 percent of the pre-development expense.
Full year exploration and pre-development expenses on Hecla assets are expected to be about $9.0 million lower than estimates earlier in the year, or $42 million, excluding Aurizon exploration programs.
Greens Creek - Alaska
Greens Creek exploration made significant progress in defining high-grade extensions to mineralization along the Deep Southwest, 5250 and Gallagher ore trends. Deep Southwest is a recently discovered zone which lies below and further west of the Southwest Zone. The geometry of this body is currently being defined but it is open down dip and to the southwest along strike. Significant intersections include 27.1 oz/ton silver, 0.39 oz/ton gold, 13.3% zinc and 6.1% lead over 8.6 feet (Deep Southwest); 21.5 oz/ton silver, 0.31 oz/ton gold, 8.9% zinc and 4.1% lead over 10.5 feet (Deep Southwest) and 21.9 oz/ton silver, 0.05 oz/ton gold, 5.8% zinc and 2.8% lead over 24.6 feet (5250 Zone). (See additional drill assay highlights in tables at the end of the release.) Drilling will continue in an effort to define and expand the Deep Southwest further southwest and the 5250 Zone to the south; however, the emphasis is expected to shift to in-fill drilling of the 200 South in an effort to convert resources to reserves and exploration drilling to the south and west that could extend mineralization beyond the current high-grade resources.
San Sebastian - Mexico
Re-examination of district potential near the past producing Francine Vein at San Sebastian led to the discovery of both precious metal-rich oxide and more base metal-rich sulfide mineralization at the Middle Vein in 2012. Drilling during the quarter was a combination of in-fill drilling to refine and upgrade the resource and exploration drilling that extended the very high-grade, near-surface oxide resource to the southeast. Recent drill intersections include 62.16 oz/ton silver and 0.34 oz/ton gold over 8.0 feet and 34.25 oz/ton silver and 0.22 oz/ton gold over 8.4 feet (Middle Vein). (See additional drill assay highlights in tables at the end of the release.) Drilling is expected to continue along the prospective Middle Vein trend, which is currently defined for approximately 3,000 feet along strike and to a depth of 1,000 feet and appears open for extension along strike to the southeast. Drilling is also planned for extensions to the Hugh Zone and Andrea Vein structures.
Pre-development expenditures in the first quarter were primarily for infrastructure and engineering and permitting studies at the San Sebastian project as part of the focus on optimizing the mining and processing of the veins. Scoping studies are in progress to determine the production viability, rate and sequencing of mining the three areas (Middle Vein, Hugh Zone and Andrea Vein) and are expected to be completed in the third quarter. Drilling in the core of the Hugh Zone for metallurgical samples has commenced and is expected to provide material to refine the metallurgical processing and mill design. Concurrent with the completion of the scoping studies, a ramp is being engineered for initial construction expected this year to allow access to both the Hugh Zone and Middle Vein. Hydrology and geotechnical studies are all advancing.
San Juan Silver - Colorado
Underground drilling in the Equity Vein system at the San Juan Silver property continued to outline multiple zones of high-grade, gold and silver-bearing veins near the intersection with the North Amethyst Vein. (See drill assay highlights in tables at the end of the release.) However, it did not generate sufficient tons to justify continuing at this time. Planned exploration for the remainder of the year will focus on the Bulldog Vein system.
Development of the Bulldog infrastructure is continuing with the 2800-foot long decline now advanced over 1,300 feet. The expected fourth quarter 2013 completion of the decline will access old workings and the ore body. This decline provides access for the confirmation of the resource and potential drill platforms for exploration. Scoping studies, resource updates and economic models related to the Bulldog continue to be advanced.
Silver Valley - Idaho
Exploration & Pre-Development
Drilling to follow-up on higher grade surface holes intersected narrow, high-grade veins at the You Like and the newly defined Midnight veins east of the current Star and You Like resources. (See drill assay highlights in tables at the end of the release.) Underground drilling is complete, and the Star underground infrastructure will be shut down until the Star data is integrated into the Lucky Friday optimization study.
Junior Exploration Investment Program
As part of the Company's junior exploration investment program initiated in 2012, Hecla has recently made an investment in Brixton Metals Corporation (Brixton). Brixton is a Canadian-based precious metals exploration company currently focused on the exploration of the Thorn Project located in the Atlin Mining District in northern British Columbia. Exploration results at the Thorn property show several different styles of precious metal mineralization that highlight the potential for a substantive discovery.
CONFERENCE CALL AND WEBCAST
A conference call and webcast will be held Friday, May 10, at 10:00 a.m. Eastern time to discuss these results. You may join the conference call by dialing toll-free 1-877-415-3182 or for international dialing 1-857-244-7325. The participant passcode is HECLA. Hecla's live and archived webcast can be accessed at www.hecla-mining.com under Investors or via Thomson StreetEvents Network.
Established in 1891, Hecla Mining Company is the largest and lowest-cost primary silver producer in the U.S. The Company has two operating mines and exploration properties in four world-class silver mining districts in the U.S. and Mexico.
Cautionary Statements to Investors on Forward-Looking Statements
Statements made which are not historical facts, such as anticipated payments, litigation outcome (including settlement negotiations), production, sales of assets, exploration results and plans, costs, and prices or sales performance are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "may", "will", "should", "expects", "intends", "projects", "believes", "estimates", "targets", "anticipates" and similar expressions are used to identify these forward-looking statements. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those projected, anticipated, expected or implied. These risks and uncertainties include, but are not limited to, metals price volatility, volatility of metals production and costs, litigation, regulatory and environmental risks, operating risks, project development risks, political risks, labor issues, ability to raise financing and exploration risks and results. Refer to the company's Form 10-K and 10-Q reports for a more detailed discussion of factors that may impact expected future results. The company undertakes no obligation and has no intention of updating forward-looking statements other than as may be required by law.
Qualified Person (QP) Pursuant to Canadian National Instrument 43-101
All disclosures of a technical or scientific nature in this press release have been reviewed and approved by Dean McDonald, P.Geo., Vice President - Exploration of Hecla Mining Company, who serves as a Qualified Person under National Instrument 43-101. Information regarding data verification, surveys and investigations, quality assurance program and quality control measures and a summary of analytical or testing procedures for the Greens Creek Mine are contained in a technical report titled "Technical Report for the Greens Creek Mine" dated March 28, 2013, and for the Lucky Friday Mine are contained in a technical report titled "Technical Report for the Lucky Friday Mine Shoshone County, Idaho, USA" dated March 28, 2013. Also included in these two technical reports is a description of the key assumptions, parameters and methods used to estimate mineral reserves and resources and a general discussion of the extent to which the estimates may be affected by any known environmental, permitting, legal, title, taxation, socio-political, marketing or other relevant factors. Copies of these two technical reports are available under Hecla's profile on SEDAR at www.sedar.com.
Cautionary Statements to Investors on Reserves and Resources
Reporting requirements in the United States for disclosure of mineral properties are governed by the SEC and included in the SEC's Securities Act Industry Guide 7, entitled "Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations" ("Guide 7"). However, the Company is also a "reporting issuer" under Canadian securities laws, which require estimates of mineral resources and reserves to be prepared in accordance with Canadian National Instrument 43-101 ("NI 43-101"). NI 43-101 requires all disclosure of estimates of potential mineral resources and reserves to be disclosed in accordance with its requirements. Such Canadian information is being included here to satisfy the Company's "public disclosure" obligations under Regulation FD of the SEC and to provide U.S. holders with ready access to information publicly available in Canada.
Reporting requirements in the United States for disclosure of mineral properties under Guide 7 and the requirements in Canada under NI 43-101 standards are substantially different. This document contains a summary of certain estimates of the Company, not only of proven and probable reserves within the meaning of Guide 7, which requires the preparation of a "final" or "bankable" feasibility study demonstrating the economic feasibility of mining and processing the mineralization using the three-year historical average price for any reserve or cash flow analysis to designate reserves and that the primary environmental analysis or report be filed with the appropriate governmental authority, but also of mineral resource and mineral reserve estimates estimated in accordance with the definitional standards of the Canadian Institute of Mining, Metallurgy and Petroleum referred to in NI 43-101. The terms "measured resources", "indicated resources," and "inferred resources" are Canadian mining terms as defined in accordance with NI 43-101. These terms are not defined under Guide 7 and are not normally not permitted to be used in reports and registration statements filed with the SEC in the United States, except where required to be disclosed by foreign law, as is the case here. Still, investors are cautioned not to assume that any part or all of the mineral deposits in such categories will ever be converted into proven or probable reserves. "Resources" have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of such a "resource" will ever be upgraded to a higher category or will ever be economically extracted. Investors are cautioned not to assume that all or any part of a "resource" exists or is economically or legally mineable. Investors are also especially cautioned that the mere fact that such resources may be referred to in ounces of silver and/or gold, rather than in tons of mineralization and grades of silver and/or gold estimated per ton, is not an indication that such material will ever result in mined ore which is processed into commercial silver or gold.
HECLA MINING COMPANY
Condensed Consolidated Statements of Income
(dollars and shares in thousands, except per share amounts - unaudited)
First Quarter Ended
March 31, 2013
March 31, 2012
Sales of products
Cost of sales and other direct production costs
Depreciation, depletion and amortization
Other operating expenses:
General and administrative
Other operating expense
Provision for closed operations and reclamation
Aurizon acquisition costs
Lucky Friday suspension-related costs
Income (loss) from operations
Other income (expense):
Gain (loss) on derivative contracts
Interest and other income (expense)