Hecla Reports Second Quarter 2013 Results
Hecla Reports Second Quarter 2013 Results
Silver production up 64%, gold production up 68%;
Significant capital and operating cost reductions
For the Period Ended June 30, 2013
COEUR D'ALENE, Idaho--(BUSINESS WIRE)-- Hecla Mining Company (NYSE:HL) today announced a second quarter net loss applicable to common shareholders of $25.0 million, or $0.08 per basic share, and a loss after adjustments applicable to common shareholders of $10.2 million, or $0.03 per basic share.1 Second quarter silver production was 2.2 million ounces at a Total Cash Cost, Net of By-product Credits, per Silver Ounce of $5.56.2
The Company reported a 64% increase in second quarter silver production to 2.2 million ounces compared to a year ago, with strong production from Greens Creek and the re-opening of the Lucky Friday silver mine. In addition, gold production increased by 68% to 22,226 ounces, following the June 1 acquisition of Aurizon, the owner of the Casa Berardi gold mine in Quebec.
HIGHLIGHTS AND SIGNIFICANT ITEMS
Completed the acquisition of Aurizon Mines Ltd. on June 1, 2013.
Issued $500 million of 6 7/8% Senior Notes due in 2021.
Produced 2.2 million ounces of silver, a 64% increase over the same period in 2012 and an 18% increase over the first quarter of 2013.
Produced 22,226 ounces of gold, a 68% increase over the same period in 2012, with only one month of production from Casa Berardi.
Total Cash Cost, Net of By-product Credits, per Silver Ounce was $5.56, a 21% decrease over the first quarter, and Total Cash Cost, Net of By-product Credits, per Gold Ounce was $1,1522 at Casa Berardi for June (the first month following the acquisition).
Sales of $85.3 million, a 27% increase over the same period in 2012.
Negative provisional price adjustment of $15.1 million, of which $12.90 was due to silver, resulting in a $16.27 realized silver price.
Expenses related to the Aurizon acquisition totaled $20.3 million.
Net loss applicable to common shareholders of $25.0 million, or $0.08 per basic share.
Loss after adjustments applicable to common shareholders of $10.2 million, or $0.03 per basic share.
Adjusted EBITDA of $31.5 million3, about $4.0 million more than the same period in 2012.
Reduced capital, exploration and pre-development expenditures 13%, 28% and 35%, respectively, from original 2013 budgets.
Cash and cash equivalents of $296 million at June 30, 2013.
(1) | Earnings (loss) after adjustments applicable to common shareholders is a non-GAAP measure; a reconciliation of which to net income applicable to common shareholders (GAAP) can be found at the end of the release. | |
(2) | Total Cash Cost, Net of By-product Credits, per Silver and Gold Ounce is a non-GAAP measurement; a reconciliation of which to total cash costs, before by-product credits, to cost of sales and other direct production costs and depreciation, depletion and amortization (GAAP) can be found at the end of this release. | |
(3) | Adjusted EBITDA is a non-GAAP measurement; a reconciliation of which to net income (GAAP) can be found at the end of this release. | |
"The acquisition of Aurizon and associated financing was a pivotal event for Hecla, despite the associated costs resulting in a loss for the second quarter. With Greens Creek operating well, the Lucky Friday ramping up and Casa Berardi in the final quarters of completing major improvements, we are in a strong operating and financial position," said Hecla's President and Chief Executive Officer Phillips S. Baker, Jr. "However, in response to lower precious metals prices we have significantly scaled back capital, exploration and pre-development expenditures from original plans this year. As we plan for next year, we will continue to monitor metals prices and further adjust our plans accordingly with the goal of spending within EBITDA. With mines that have operated as long as 70 years and a company that has been in existence over 120 years, we have operated in significantly lower price environments than we have today. Our operations are low cost and have significant revenue from lead and zinc that we have largely hedged. This hedging is approximately the equivalent of one year's operating costs, and we are now hedging all metals once they have been shipped, to reduce the variability in our realized price. In addition, our balance sheet is strong with almost $300 million of cash.
"The combination of our properties' locations in great mining jurisdictions, their long lives and low costs along with our financial strength we believe positions Hecla to be among the few precious metals mining companies that can prosper in lower price environments. We will look for opportunities to not only deliver value for shareholders in the short term but position the company for long term success," Mr. Baker added.
FINANCIAL OVERVIEW
Net loss applicable to common shareholders for the second quarter was $25.0 million, or $0.08 per share, compared to net income applicable to common shareholders of $2.4 million, or $0.01 per basic share, for the same period a year ago, and was impacted by the following items:
Costs expensed related to the acquisition of Aurizon were $20.3 million during the quarter excluding a foreign exchange gain of $0.5 million and a mark to market inventory adjustment resulting from the purchase price allocation of $0.5 million.
A $6.8 million tax benefit compared to a $0.7 million provision in the same period in 2012, as a result of higher pre-tax income in 2012.
Losses of $15.1 million on provisional price adjustments compared to losses of $1.5 million in the same period of 2012.
Interest expense, net of amount capitalized, increased to $6.5 million in the second quarter, compared to $0.5 million in the same period of 2012, as a result of the $500 million 6 7/8% Senior Notes.
Second Quarter Ended | Six Months Ended | |||||||||||||||||||
HIGHLIGHTS | June 30, 2013 | June 30, 2012 | June 30, 2013 | June 30, 2012 | ||||||||||||||||
FINANCIAL DATA | ||||||||||||||||||||
Sales (000) | $ | 85,330 | $ | 67,019 | $ | 161,780 | $ | 158,172 | ||||||||||||
Gross profit (000) | $ | 5,111 | $ | 23,968 | $ | 30,729 | $ | 72,170 | ||||||||||||
Income (loss) applicable to common shareholders (000) | $ | (24,996 | ) | $ | 2,386 | $ | (14,040 | ) | $ | 14,820 | ||||||||||
Basic income (loss) per common share | $ | (0.08 | ) | $ | 0.01 | $ | (0.05 | ) | $ | 0.05 | ||||||||||
Diluted income (loss) per common share | $ | (0.08 | ) | $ | 0.01 | $ | (0.05 | ) | $ | 0.05 | ||||||||||
Net income (loss) (000) | $ | (24,858 | ) | $ | 2,524 | $ | (13,764 | ) | $ | 15,096 | ||||||||||
Cash provided by (used in) operating activities (000) | $ | (1,085 | ) | $ | (10,186 | ) | $ | 10,275 | $ | 31,240 | ||||||||||
During the quarter, operating cash flow was ($1.1 million), due primarily to the unusual factors impacting net income this quarter, as described above.
Capital expenditures (including non-cash capital lease additions) at the operations totaled $34.2 million for the second quarter. Expenditures were $12.7 million at the Lucky Friday, $15.6 million at Greens Creek and $5.9 million at Casa Berardi. With the acquisition of Aurizon, Hecla's total capital expenditures for 2013 (excluding capitalized interest) are expected to be approximately $178 million, including $62.0 million at the Lucky Friday, $67.0 million at Greens Creek and $48.0 million at Casa Berardi. Planned capital expenditures have been reduced at the Lucky Friday and Greens Creek by about 13% for the year. The planned $26.0 million open pit expenditure at Casa Berardi has been deferred.
Exploration expenditures were $6.2 million in the second quarter. Most of the exploration was concentrated on surface and underground at Greens Creek ($2.3 million, or 40%) andSan Sebastian($1.1 million, or 19%). Year-to-date expenditures are $12.7 million, which is about the same as last year. Expected exploration expenditures for the year have been reduced about 28% to $22.0 million with about $9.0 million remaining for the second half of the year.
Pre-development expenses were $4.5 million in the second quarter with $3.5 million at the Bulldog Declineproject in Colorado. Expected pre-development expenditures for 2013 have been revised downward by 35% to about $16.0 million, with about $7.0 million remaining for the second half of the year.
For 2014, the Company expects capital, exploration and pre-development expenditures to be within Adjusted EBITDA.
Metals Prices
The average realized silver price in the second quarter was $16.27 per ounce, compared with an average realized price in the second quarter of 2012 of $27.05 per ounce.
Overall second quarter 2013 realized metals prices were lower than those in the first quarter of 2013 and the second quarter of 2012, as a result of lower metals prices that led to negative adjustments to provisional settlements of $15.1 million compared to net negative price adjustments to provisional settlements of $1.5 million in the second quarter of 2012. The adjustment to provisional settlements is largely due to a decrease in silver prices in the time period between the shipment of concentrate and the final settlement. Compounding this effect was the fact that about 40% of the Company's silver production was sold in June, the month with a lower average silver price than the second quarter's. The provisional price adjustments were applied to 2.3 million silver ounces representing an approximate $6.00 per ounce adjustment. The provisional price adjustment related to zinc and lead contained in our concentrate shipments was largely offset by net gains on forward contracts of $0.4 million in the second quarter of 2013 for those metals.
Second Quarter Ended | Six Months Ended | |||||||||||||||||||||
June 30, 2013 | June 30, 2012 | June 30, 2013 | June 30, 2012 | |||||||||||||||||||
AVERAGE METAL PRICES | ||||||||||||||||||||||
Silver - | London PM Fix ($/oz) | $ | 23.11 | $ | 29.42 | $ | 26.59 | $ | 31.02 | |||||||||||||
Realized price per ounce | $ | 16.27 | $ | 27.05 | $ | 21.41 | $ | 32.37 | ||||||||||||||
Gold - | London PM Fix ($/oz) | $ | 1,414 | $ | 1,611 | $ | 1,522 | $ | 1,651 | |||||||||||||
Realized price per ounce | $ | 1,245 | $ | 1,588 | $ | 1,362 | $ | 1,675 | ||||||||||||||
Lead - | LME Cash ($/pound) | $ | 0.93 | $ | 0.90 | $ | 0.99 | $ | 0.92 | |||||||||||||
Realized price per pound | $ | 0.93 | $ | 0.87 | $ | 0.98 | $ | 0.94 | ||||||||||||||
Zinc - | LME Cash ($/pound) | $ | 0.83 | $ | 0.88 | $ | 0.88 | $ | 0.90 | |||||||||||||
Realized price per pound | $ | 0.84 | $ | 0.87 | $ | 0.88 | $ | 0.91 | ||||||||||||||
The Company has an active base metals hedging program in place to help manage the exposure to changes in prices of zinc and lead. To reduce the impact of changing metals prices on earnings in future quarters, the company is hedging all its metals exposure once the metal is shipped. The following table summarizes the quantities of base metals committed under financially settled forward sales contracts at June 30, 2013:
Metric Tonnes | Average Price | |||||||||||||||||
Under Contract | per Pound | |||||||||||||||||
Zinc | Lead | Zinc | Lead | |||||||||||||||
Contracts on provisional sales | ||||||||||||||||||
2013 settlements | 19,786 | 9,314 | $ | 0.85 | $ | 0.92 | ||||||||||||
Contracts on forecasted sales | ||||||||||||||||||
2013 settlements | 15,046 | 14,936 | $ | 0.96 | $ | 1.05 | ||||||||||||
2014 settlements | 60,516 | 47,619 | $ | 0.99 | $ | 1.05 | ||||||||||||
2015 settlements | 26,896 | 39,628 | $ | 0.98 | $ | 1.07 | ||||||||||||
OPERATIONS OVERVIEW
Second quarter Total Cash Cost, Net of By-product Credits, per Silver Ounce was $5.56, compared to $1.03 in the same period in 2012. The following table provides the production summary on a consolidated basis for the second quarter and six months ended June 30, 2013 and 2012:
Second Quarter Ended | Six Months Ended | |||||||||||||||||||||
June 30, 2013 | June 30, 2012 | June 30, 2013 | June 30, 2012 | |||||||||||||||||||
PRODUCTION SUMMARY | ||||||||||||||||||||||
Silver - | Ounces produced | 2,237,845 | 1,365,093 | 4,138,861 | 2,693,797 | |||||||||||||||||
Payable ounces sold | 2,314,025 | 1,133,764 | 3,907,774 | 2,560,951 | ||||||||||||||||||
Gold - | Ounces produced | 22,226 | 13,257 | 35,915 | 25,909 | |||||||||||||||||
Payable ounces sold | 22,018 | 10,252 | 32,010 | 22,112 | ||||||||||||||||||
Lead - | Tons produced | 7,204 | 4,873 | 12,745 | 9,727 | |||||||||||||||||
Payable tons sold | 6,960 | 3,629 | 11,317 | 7,798 | ||||||||||||||||||
Zinc - | Tons produced | 16,129 | 16,073 | 30,400 | 32,016 | |||||||||||||||||
Payable tons sold | 12,309 | 14,283 | 20,344 | 25,970 | ||||||||||||||||||
Total Cash Cost, Net of By-product Credits, per Silver Ounce (1) | $ | 5.56 | $ | 1.03 | $ | 6.23 | $ | 1.63 | ||||||||||||||
Total Cash Cost, Net of By-product Credits, per Gold Ounce (1), (2) | $ | 1,152 | N/A | $ | 1,152 | N/A | ||||||||||||||||
(1) | Total Cash Cost, Net of By-product Credits, per Silver and Gold Ounce represents a non-GAAP measurement; a reconciliation of which to total cash costs, before by-product credits to cost of sales and other direct production costs and depreciation, depletion and amortization (GAAP) can be found at the end of this release. | |
(2) | Cost of gold production at the Casa Berardi mine only. Total Cash Cost, Net of By-product Credits, per Gold Ounce represents a non-GAAP measurement; a reconciliation of which to cost of sales and other direct production costs and depreciation, depletion and amortization (GAAP) can be found at the end of this release. | |
Greens Creek Mine - Alaska
The performance of Greens Creek was very strong in the second quarter of 2013. A total of 2.0 million ounces of silver was produced at Greens Creek, a 48% increase over the 1.4 million ounces in the same period in 2012 and a 13% increase over the first quarter of 2013. Second quarter Total Cash Cost, Net of By-product Credits, per Silver Ounce was $2.71, a 54% reduction over the first quarter of 2013. The increase compared to $1.03 in the same period in 2012 was due in part to lower zinc grades as well as lower average gold and base metals prices. Mining costs per ton were up by 6% and milling costs per ton were up by 17% in the second quarter compared to the same period in 2012 due to higher power generation costs resulting from low availability of hydroelectric power. Production of gold, lead and zinc were up 13%, 19.5% and 10% over the first quarter, respectively.
Greens Creek is expected to produce between 6.0 and 7.0 million ounces of silver in 2013.
Lucky Friday Mine - Idaho
The Lucky Friday mine, which re-opened in February after a year of rehabilitation and enhancement work, produced 217,096 ounces of silver during the second quarter at a Total Cash Cost, Net of By-product Credits, per Silver Ounce of $32.19. These expected elevated costs were due to start-up costs and low silver production during ramp-up. A total of 23,226 tons of ore was milled during the second quarter. All production stopes that were previously operating are now in operation and the mill ran at 760 tons per day in July. The Company expects the mine to ramp up to its expected throughput rate of 900 tons per day in September and that Total Cash Cost, Net of By-product Credits, per Silver Ounce will decline significantly to approximately $9.50 per ounce by year end as a result.
Work continued in the second quarter on the No. 4 Shaft project, which is expected to help increase production levels beginning in 2017.
Lucky Friday is expected to produce approximately 1.3 million ounces in the second half of 2013.
Casa Berardi - Quebec
With the completion of the acquisition of Aurizon on June 1, only one month of gold production from Casa Berardi is recorded in the second quarter. Production of gold totaled 6,740 ounces of gold at a Total Cash Cost, Net of By-product Credits, per Gold Ounce of approximately $1,152 per ounce, which was impacted by lower grades and tons due to mine sequencing in June.
The mine is currently undergoing a shaft deepening project, designed to increase production and extend mine life, which is expected to be completed in the first quarter of 2014. Additional mine enhancements this year include the now completed and commissioned concrete plant and a new paste fill facility, both of which are expected to increase the efficiency of operations.
Casa Berardi is expected to produce approximately 60,000 ounces of gold in the second half of 2013, of which 2/3 is expected in the fourth quarter, within its expected long-term run rate of 125,000 to 150,000 ounces per year.
Aurizon Acquisition
The acquisition of Aurizon Mines Ltd. was completed on June 1, 2013. Funding of the acquisition included the issuance of $500 million of 6 7/8% Senior Notes due on April 12, 2021. Under the terms of the transaction, Hecla acquired all the outstanding common shares of Aurizon for total consideration of approximately CAD$514 million and 56,997,790 common shares for a total cost of $714.5 million. The acquisition brought to Hecla the producing Casa Berardi gold mine, as well as various other exploration and development projects also located in Quebec, that could potentially generate future production growth.
EXPLORATION AND PRE-DEVELOPMENT
Greens Creek - Alaska
Greens Creek exploration made significant progress in defining three stacked high-grade folds that comprise the mineralization at 200 South. This resource has been drilled for over 700 feet of strike length and is open down dip and to the southwest along strike. Significant intersections include 32.4 oz/ton silver, 0.57 oz/ton gold, 4.3% zinc and 2.4% lead over 10.8 feet; 47.4 oz/ton silver, 0.12 oz/ton gold, 16.4% zinc and 7.5% lead over 7.5 feet; 41.1 oz/ton silver, 0.08 oz/ton gold, 11.2% zinc and 12.9% lead over 7.0 feet; and 43.0 oz/ton silver, 0.09 oz/ton gold, 8.3% zinc and 3.5% lead over 3.5 feet. (See additional drill assay highlights in tables at the end of the release.)
Surface drilling is being conducted on the Killer Creek area at Greens Creek, which is about 1.5 miles west-northwest of the mine portal. The five completed holes show broad zones up to 400 feet with stringer veins containing copper, zinc, lead and silver mineralization in the footwall rocks. In general the northern holes are more copper-rich with veins up to 7.0 feet wide.
Casa Berardi - Quebec
At Casa Berardi, five underground drills have been targeting the 113, 118, 123 and 124 Zones. Eleven holes have been completed and the most significant results include 1.7 oz/ton gold over 9.8 feet, 1.13 oz/ton gold over 16.4 feet, and 1.25 oz/ton gold over 26.6 feet. In-fill drilling on the 550 m level confirmed the ore continuity for the lenses 118-06 and 124-03.
At the 124 Zone Principale, eight definition holes have been completed to better define the continuity of the mineralization of the lenses 127-16 and 127-17 and have confirmed the continuity of the 27-116 lenses above the 280 m level. Drill results include 0.42 oz/ton gold over 12.1 feet, 0.24 oz/ton gold over 16.4 feet, 0.31 oz/ton gold over 23.0 feet, and 0.32 oz/ton gold over 16.4 feet. Only one drill was active on surface where extensions to two holes are in progress to evaluate a 42-foot thick quartz vein intersected in last year's drilling below the 123 Zone.
Lucky Friday - Idaho
At Lucky Friday, the first drill has begun definition drilling from the 6200-56 Ramp station on the east side of the resource. Strong intersections have been drilled in the 30, 80 and 90 Veins including 35.2 oz/ton silver, 10.5% lead and 3.4% zinc over 7.5 feet (30 Vein); 31.4 oz/ton silver, 24.0% lead and 2.3% zinc over 3.6 feet (80 Vein) and 12.1 oz/ton silver, 11% lead and 5.7% zinc over 6.7 feet (40 Vein). Diamond drilling from the 6400-55 Ramp is focused on upgrading the resource on the western-central region of the 30 Vein, above the 7300 level, from inferred to indicated categories.
San Sebastian - Mexico
Exploration
Drilling continued along the Middle Vein, which is currently defined for over 3,000 feet along strike and to a depth of 1,000 feet and appears to be open for extension along strike to the southeast. A combination of in-fill drilling to refine and upgrade the resource and exploration drilling that extended the very high-grade resource to the southeast was conducted in the quarter. Recent drill intersections include 65.2 oz/ton silver and 0.07 oz/ton gold over 1.6 feet; 33.6 oz/ton silver and 0.05 oz/ton gold over 2.6 feet and 16.0 oz/ton silver and 0.03 oz/ton gold over 2.4 feet. (See additional drill assay highlights in tables at the end of the release.)
Pre-Development
Pre-development expenditures were primarily directed towards scoping studies to determine the production viability, rate and sequencing of mining with the addition of the newly discovered Middle Vein to the Hugh Zone and Andrea Vein. Drilling for metallurgical samples is complete and results are being analyzed to refine the metallurgi
