Q4 2020 Hecla Mining Co Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Q4 and you're in 'twenty and 'twenty Hecla Mining Company earnings Conference call.
At this time all participants are in a listen only mode. After the.
The speaker's presentation, there will be a question and answer session. You asked a question during the session you will need the press star one on your telephone.
If you require any further assistance please press star zero and.
I would now like to hand, the conference over to Mr. Russell Waller. Thank you. Please go ahead Sir.
Thank you operator, this is Russell Waller Hecla Treasurer, and welcome everyone and thank you for joining us for Hecla as fourth quarter 2020 financial and operations of the results Conference call. Our financial results News release that was issued this morning, along with today's presentation are available on Hecla's website on today's call. We have Phil Baker, Hecla's, President and CEO Lindsay Hall Senior Vice.
President and Chief Financial Officer, Lauren Roberts, Hecla, Senior Vice President and Chief Operating Officer, Kurt Allen Director of exploration and Keith Blair Chief geologist.
Any forward looking statements made today by the management team come under the private Securities Litigation Reform Act and involve risks shown on slides two and three of our earnings release, and our 10-Q and 10-K filings with the SEC These and.
The other risks could cause results to differ from those projected and the forward looking statements reconciliations of non-GAAP measure of cited and this call and related slides of the cautionary language for our use of the true resource and set of reserves are also kind of those options.
With that and I will pass the call for Phil Baker, Thanks, Russell and good morning, everyone and thanks. Thank you for joining us for our call. This morning are we recognize theres a number of calls today sort of remarks are going to be brief to allow time for questions and I'm going to speak to slide four.
You all recognize the challenges of operating mines and the pandemic, our fast response, and our industry being considered essential and the U S allowed us to produce significantly more silver than we guided at the beginning of the year, So $1 4 million more ounces.
We produced and what we had guided.
So in a pandemic, we had our highest revenues fourth highest free cash flow and third highest reserves and our history reserves would have been even better if COVID-19 had and reduced our drilling by a third and slowed down and assaying the.
The COVID-19 didn't slow down our growth and U S. Silver production, we are now producing 50% more than we were three years ago. The.
It's growing U S silver production allowed us to generate $90 million of free cash flow and 2020, but over the last 18 months, we've generated $152 million, we now have $130 million and cash and $380 million and liquidity, our silver interest street, leading dividend policy the <unk>.
Dividends to the silver price along with the payment of a minimum base dividend returned 10% of our free cash flow to the shareholders. This year.
We accomplish this by recording our lowest all injury frequency rate of one point to two and our history and I think our safety culture is a big reason why we've responded so well to the impacts of the pandemic and.
And we've continued to help our communities with testing assistance contributions from our foundation and I think are a unique hecla Bucks program, which gives employees vouchers to spend and the local communities with all of that we've had to deal with 'twenty and 'twenty was a remarkable year and with that and then turn the call over to Lindsay to update.
And our financials, but before I do with Lindsay is retirement of months I want to thank him for his leadership, particularly in 'twenty and 'twenty.
We had the we had the need to refinance our debt, which he led and of course, we've had to deal with the pandemic, which he was instrumental in our success Lindsay.
Thanks, Phil and good morning, everyone. Turning on slide six we began 2020 with a refinancing of our senior notes and extending the maturity of our long term debt to 'twenty and 'twenty eight and ended the year with $130 million and cash as we generated robust free cash flows of $90 million aided by strong margins from the higher prices.
Our adjusted EBITDA of 224 million reduced our net leverage ratio at the 1.8, beating our target of less than two while providing the liquidity position of $380 million, our operations generated $53 million of free cash flow in the fourth quarter with Lucky Friday generating positive cash flow of $1 7 million as the mine the cheap pulp.
Production in the quarter.
Turning to the income statement Youll note. The two expense items for the year loss of derivatives of $22 million and ramp up costs of $24 million.
Included in that derivative losses around $15 million for gold and silver bullets, we acquired protect against downside price risks. However, based on the strength of our operations balance sheet and liquidity, we do not anticipate the need for such a program and the future and.
In addition in 'twenty and 'twenty, one of our cast of care and maintenance costs are expected to be approximately 40% of less than the cost incurred in 'twenty and 'twenty due to the Lucky Friday mine being in full production.
And with lower cash inflows and outflows the outflows for care and maintenance expenses and no anticipated outflows for put premium payments and the higher silver prices. We expense, we expect our 21 free cash flow generation to growth from our 'twenty and 'twenty performance.
Before turning it over to Loren and I would let the thank Phil and the board for giving me the opportunity to be the CFO of the last five years would also like to think of the finance team, who supported me and when do you Louie who has been with me for many years and then lastly, very excited the Russell will take over my responsibilities of CFO.
With that I'll turn it over to Loren.
Thank you Lindsay.
First and foremost is our focus on safety. Despite the challenging year marked by the pandemic. Our teams continued their exemplary safety performance.
Our all injury frequency rate in 'twenty and 'twenty was one point to two which is the reduction of 80% since implementing our revised safety and health management system and 2012 mm.
And I am very appreciative of the hard work and focus our operations teams to deliver on these objectives.
At the Greens Creek mine, we produced $2 3 million ounces of silver.
And the less than 11000 ounces of gold at an all in sustaining cost of $12 five per ounce for the quarter.
Fourth quarter was impacted by a significant weather event in December and southeast Alaska was battered by high winds and heavy range the cause significant damage and the surrounding area and communities.
The rapid response of our team at Greens Creek and minimize the effects of the significant weather event is a testament to their professionalism and resiliency.
'twenty and 'twenty silver production at Greens Creek was $10 5 million ounces at an all in sustaining cost of $8 57 per ounce.
The increase and silver production of over 2019 was primarily due to higher grades and we'd expect <unk> 'twenty 'twenty, one production and cost guidance to be similar to 'twenty and 'twenty.
Greens creek's rock solid performance combined with these high silver prices generates very strong free cash flow.
And the third quarter, we partnered with the Covid lab to provide real time testing services for our employees the services, helping to shorten the quarantine period and reduces the burden on our employees.
Lucky Friday of cheap oil production and the fourth quarter and produced 2 million ounces in 2020 more than doubling the prior year's production.
2021, silver production at the mine is expected to be and the range of three point for two to $3 8 million ounces.
We anticipate the grades to improve as we mine deeper increasing the projected production to around 5 million ounces annually over the next three to five years no.
And no significant planned capital outlays required to achieve these goals.
In addition, we are pursuing various mining method changes and other initiatives to improve safety, while increasing the productivity of the mine.
At Casa Berardi, we had a strong fourth quarter with production of 37 6000 ounces of gold at an all in sustaining cost of <unk>.
1000, and $330 per ounce.
For 'twenty and 'twenty Casa Berardi produced more than 121000 ounces in line with our Covid adjusted guidance at an all in sustaining cost of 1004 hundred $36 per ounce.
Our investments and the mill to improve reliability and recovery are yielding great results as the mill broke monthly throughput records with greater than 90% availability for three consecutive months of late in the year.
Our ongoing focus to improve productivity and reduce cost is underpinned by multiple factors and some of those are highlighted on slide 12.
We realize the 10% increase and the underground act of time reduce the equipment maintenance backlog by two and a half weeks and launch training for underground the operators to increase equipment of reliability.
These and other efforts increase of the high grade underground of word delivered to the mill by more than 20% and Q4.
The team is targeting of 10% reduction and support costs through a combination of restructuring and <unk>.
Women 80, non value, adding work and negotiated and key vendor contracts, including open pit contract mining explosive support services and similar categories.
These efforts are well advanced and we were starting to see a downward trend and Acer.
All of these factors together with the others and the pipeline.
Our positioning Casa berardi to deliver consistent production at lower costs are.
Our 2021 guidance for Casa Berardi exceeds 125000 ounces.
1000, 1100, and 85 to 1000 and $275 per ounce ASIC.
And the middle of 2019, we concluded that our approach to fire Creek was not going to get the results we wanted.
All of this development to generate free cash flow and to gather the knowledge necessary for the long term.
That decision resulted in $38 6 million of free cash flow with a bit more to come this year and a bulk sample of refractory ore.
Finding the bulk sample was completed in the fourth quarter with most of the material shipped two of third party processor by mid February.
The bulk test demonstrated the larger scale more productive methods could be applied successfully to this material.
All of the conditions were as good or better than expected and water and the test area was managed effectively.
Refractory ore is being processed and while the processing is not yet complete the recovery information to date is falling the grade recovery curve established through bench testing.
With the significant increase of metal prices. It is no longer attractive for the processor to displace their own feet.
And we've initiated discussions with another processor and hope to send around 10000 tonnes of stockpiled refractory ore to them for processing and the first half of 2021.
Fire Creek is expected to be placed on care and maintenance and the second quarter of 2021 once the previously developed oxide resources depleted.
We remain very excited about her and Nevada properties with the quarter the company's exploration budget being spent on Midas and Hollister Hatter graben.
Drilling targets at Fire Creek, and Aurora and May follow as prospective targets are defined.
With that I would like to return the call for Phil.
Thanks, Lauren so on slide 14, and it shows our consolidated production guidance for 'twenty and 'twenty, one 'twenty and 'twenty three so the first time that we're giving multiple year guidance.
And with the consistency of Greens Creek, and Lucky Friday, and full production our U S. Silver production is expected to reach rub.
Roughly 15 million ounces by 2023, which is almost double our 2018 U S silver production the.
And the combination of increasing silver production and higher prices should cause silver to be the biggest revenue contributor maybe as early as this year silver mines have always been our largest cash flow contributor. So that's just going to get bigger.
And with that I'd like to just remind you that we will have one on one calls available tomorrow.
With the with Lauren with.
Lindsay and Russell and with me from 11, 30 to 130 and you just need to.
Click the link on our press release now with that operator, I'd like to open the floor for questions.
As a reminder, if you would like to ask a question you may do so by pressing Star then the number one on your telephone keypad again that is one of you would like.
To ask a question.
Your first question is from Heiko Ihle of H C Wainwright.
Yeah.
And Eric Thanks for taking my questions guys.
Sure Heiko.
Hey, Hey, Phil you spend a decent amount of time talking about free cash flow earlier on this call and I mean, the the numbers are clearly impressive mines are operating while the silver price is fairly strong I mean, looking just all and all life is good.
Assuming 'twenty 'twenty one goes the weight of the loss. The 12 to 18 months went for you what should we see it in regards to incremental capex spend up to more esoteric are longer term projects at your mines and possibly in regards to some larger scale M&A.
Well look we've given guidance on our capital spending and for the coming years it'd be about $110 million. We also have $30 million of exploration and I think you can anticipate.
At these prices continue.
And that you won't see a significant difference to those numbers may be a slight increase I wouldn't anticipate anything of any significance. So what happens is our balance sheet gets stronger.
We're putting the position too to be stronger for larger capital developments and the future such as rock Creek, and mom and or.
And as far as M&A goes I E.
And it's certainly something that we will always consider but we don't feel compelled to to do any M&A given the growth profile that we have and with our silver production we think.
And with the operation of those mines will see that growth and we are looking at ways to enhance that.
Yeah, we've got a number of initiatives going on to try to try to further push the production growth.
M&A is possible, but it's not a priority.
Yeah.
Fair enough completely completely different questions. A question, there's been some stories and the recent use of other remote mining having some extensive travel restrictions the added due to COVID-19 or the.
The tier yards the what's the contingency planning for Greens Creek is travel to and from the site were to suddenly have to stop 100 per cent is your worst work force willing and able to support longer shifts the extra weeks, how would you cope with something like that it went down.
Yes, so so when the when.
When Covid started we actually had longer.
Rotations and then what we currently have.
And so we could go back to that sort of schedule if necessary, having said that I'm not anticipating that that's going to to occur I think we have demonstrated.
And the effectiveness of our protocols and protecting not just our workforce, but also the community and.
And and we've also provided a lot of support to the community in terms of the testing.
And we've now brought of lab to Juno, which and made that available.
The selectively to two government agencies and and Juno So.
So I am not anticipating that we're going to have that debt happy.
Happen Heiko, but should it happen and we'll we'll be able to adjust.
No I mean, you've done clearly done many of the right things and your stock has almost doubled over the past 12 months. So thanks, Mike and thanks for taking the eats the questions I appreciate it I'll get back in queue.
Thanks Heiko.
Your next question is from Trevor Turnbull of Scotiabank.
Yeah, Thanks, guys and I appreciate you guys putting out the multiyear guidance I think that actually is very helpful to getting the story out there and and giving a bit more visibility longer term.
And I had a couple of questions I guess, the first one with respect to Greens Creek. It looks like you've got more silver coming through maybe a bit less gold and and then the the base metals have been changing a bit in terms of the amounts can you just maybe give us kind of a.
And of an overview of of how the metal mix is changing or going to we should expect it to change over the next couple of years at Greens Creek.
Well, we certainly are in a period of time, when we have higher grades of silver and we.
Gave that guidance a few years ago that with the change and our mine plan, we're able to access higher grade silver so.
I think you can anticipate the mix to be similar.
Two what you have seen in the past year.
I'm trying to remember, specifically and I'll, let I'll, let Mike, although neither lauren or or or one of my colleagues give the specifics but.
You mean, the long term objective we have at Greens Creek is to increase the throughput there.
Lawrence continuing to work on how do we we increased throughput notwithstanding the fact that we've gone from I think about 1800 tons. When we became the operator of the mine to 'twenty 300 tons now so loren and I'll throw it to you and if you don't have that readily available maybe one of our other colleagues can help.
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Thanks, Phil and Hi, Trevor.
Yeah. We you know we are mining higher grade silver zone silvers for the largest revenue contributor not the only one of course, but the largest and so we focus the overall mining sequence on silver.
You mentioned gold were actually expecting to see a modestly greater gold production of over the next several years as we move into some specific zones that we know have a bit more gold and.
And then other than that the the contribution of the byproduct metals zinc and lead.
And that varies with the pricing of those things, but we consider all of those when we develop our long range plan and then of course, we adjust that annually.
And as Phil says, we're looking at what we can do to put some more tonnes through that mill and it's free.
Early days, but we're pretty confident we can start creeping the production rate up.
Yeah, and maybe I I I've been looking at the numbers quickly, maybe I misunderstood a bit but I was I was kind of thinking I would've seen as well.
Well it seemed like we saw fewer buyer base metal byproducts kind of from Q3 into Q for but with silver creeping up I would normally think silver and base metals and they're gonna go hand in hand kind of going up together or is that a bit of a misconception.
And in terms of the ore body of the silver is as follows the lad and.
And then the zinc is a contributor so depending on on where we're focusing in order to deliver the highest N S. R to the mill and.
And that can vary.
Okay, and Trevor I would just emphasize to you the quarter to quarter, we have huge variability.
And this and this mining and after 20 years of looking at this it is and it.
And yet you just don't have that consistency quarter to quarter and we seem to average out okay over the course of the of a year, but I can tell you and monthly.
It's the variability is huge and you know and and then with the shipping our cash flows.
And particularly large the variability that we have.
Right.
Yeah. That's the good reminder, not to get too hung up on the quarter to quarter swings on the byproducts. The the other question I had was just on the Nevada stuff.
You've had some interesting exploration.
And I was wondering the stuff that you're working on there around Midas does that kind of fall under the plan of operations or is this more and greenfields and I'm asking from a permitting perspective is this something that will take a long time, if it works out or is it all kind of already taken care of.
And so everything that we've drilled is within the plan of operation.
We are modifying the the plan of operation.
Because we are we see this whole.
E scrub and target areas. There's a section of that that is not within the plan of operation and we want to drill and the.
That area, but at this point, it's a it's not slowing us down.
With the with what we're doing at the Green Racers Center, that's the that's a particularly interesting development.
Yeah and.
And then just final question out of curiosity, you talked about not being able to send some of the material for processing at your at the where you have been sending it I was just wondering does this mean you have to take it out of state or are you still looking at options within Nevada.
Well, we are we have and I think there's just a little bit left the 30000 tonnes, which was what we had agreed to is all going to the third party processor. So the we're doing what we both agreed to sell.
So the 10000 tons would be additional material that we had mined and had set aside.
And yes, it is within the state.
Okay, great. Thanks, Phil that's all I had.
Okay. Thanks Trevor.
Your next question is from Lucas pipes of B Riley security.
Hi, This is actually Matt key for them of B Riley asking the question for Lucas. Thank.
And thank you. Thank you for the detailed guidance for 2021 I was wondering if you could give maybe an early read on where you think costs will shake out in 2022 at least directionally compared to year 2000, and 'twenty one guidance would those unit costs I kind of naturally trend lower all things equal given kind of the higher expected volume you would expect and that year.
<unk>.
It's Matt is that right.
Correct, Yes, yes.
Yes, Matt, Matt and and you know.
And I'm not able to give you and the visibility with respect to 'twenty and 'twenty two.
I guess I would just generally say if you look at our at our total costs.
Those had been roughly the same.
Call it a half a billion dollars for better part of for five years.
It's when we acquired the Nevada assets went up a bit.
Depending on the activity, we have and Nevada will determine.
Whether it's higher or lower but.
I wouldn't I wouldn't.
Anticipate and and you've got Lucky Friday ramping up and you've got San Sebastian off and you've got to Nevada.
Off so I you know.
And we're going to we're going to be roughly and that half a billion dollar range.
So that's the way to think about it and that's including everything right. That's capital that's operating expense. That's that's the whole nine yards and if you look at our reconciliation I and if you look at it historically I think you'll find that's a pretty consistent number.
Got it that's the that's very helpful. All my other questions have been asked already so I'm going to I'm going to end. It here. Thank you and the best of luck thank for it.
Thanks, Matt and gets Lucas our regards we'll do.
As a reminder, if you'd like to ask a question. Please press star one.
Your next question is from John Tumazos of John Tumazos, very independent research.
John.
Everyone on the progress and have a good retirement, but maybe not where you want to retire.
And I don't want to retire.
Anyway.
Sure.
And <unk>.
12 on fire Creek.
And I looked up that you completed the acquisition in July of 'twenty.
And I know there were some hiccups at the beginning.
So from the <unk> from June 2019, after one year of possession and as the gold price began to rebound.
Had $38 6 million of free cash flow from the fire Creek part of contacts.
That's right.
So over the last eight east of Suez over the last day.
So over the last 18 months, we've had had debt how much depreciation do you have that number Russell.
And then.
And we'll look for the answer to that while it's true.
It's really a working acquisition now.
Yeah look it's.
Realize that what we did was we stopped development. So were just harvesting what has been developed.
Hence why we're we've we expect to go into care and maintenance unless we're able to work out of reasonable third party processing agreement.
It's the it's been cash flow positive. It's a you know that's and I don't know call. It.
510% of the acquisition cost that we've that we've recovered but.
It's the focus has always been at at the Nevada assets.
The exploration potential and that Hasnt changed fire Creek has great exploration potential of Aurora has great expertise exploration potential, but the priority is the exploration at Midas and at Hollister, Hatter, Graben, and and and and the aim has always been to try to use fire Creek to the knee.
And that well that didn't occur.
But where we're hot on the the exploration as we've indicated and the with the release.
Do you have that.
The depreciation I'll have to get the depreciation number to your to you John we don't have it handy.
Sorry to be too.
And the details.
For the three year production forecast and 2023 of the silver.
The gold falls of few ounces of silver over the course gains of about 1 million plus ounces is that just grades changing for mine to mine.
Well, it's less it's it's not assuming production at.
In Nevada is the biggest component of that and then the the remainder would be great changing at both cash and Greens Creek.
Super. Thank you, it's great to see all of the cash.
Thank you John.
At this time there are no other questions in queue do you all have any closing remarks.
Yeah, I'll just say thanks for coming on the call. We're certainly available if you want to call us individually, but the easiest way may be as to just sign up for one of the one on one calls with the with one of US. So thanks very much you guys have a good day with all of the with all of the reporting coming out today.
<unk>.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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Yes.
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