Q2 2021 Hecla Mining Co Earnings Call

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Welcome to the Q2, 2021 Hecla mining company earnings Conference call.

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Thank you operator and welcome everyone. Thank you for joining us for Hecla second quarter, 2021 financial and operation results Conference call I'm on the top auto Hecla as assistant Treasurer, there are financial news results.

That was issued this morning, along with today's presentation are available on the Hecla's website on today's call. We have Phil Baker, Hecla's, President and CEO of Aten Drawbacks, Hecla Senior Vice President and Chief operating officer, and rest of low low Hecla Senior Vice President and Chief Financial Officer.

Any forward looking statements made today by the management team come on to the private Securities Litigation Reform Act and involve risks as shown on slides 2 and 3 in our earnings release on in our 10-Q on 10-Q filings with the SEC. These and other risks could cause results to differ from those projected in the forward looking statements.

Reconciliations of non-GAAP measure of sighted in the skull and related slides are also found in those documents with that I will pass the call to fill the Baker. Thanks, Cynthia Good morning, everyone and thanks for joining our call Hecla. This quarter has delivered near record results on many fronts, we reported our second highest <unk>.

Revenues.

Gross profit cash flow from operations and adjusted EBITDA in our history and as we capitalize on the higher commodity prices with our continued strong production and focus on cost management, we reported record realized silver margin of $19.60 per ounce of silver.

As the silver was our dominant revenue contributor at 40% for the quarter.

At Greens Creek and for the company, we've now lowered our cash cost and all in sustaining cost guidance again for the year and lauren's going to speak to that in a minute are.

Our financial position continues to strengthen and along with it our financial flexibility our cash position has increased almost 2 and a half times from the prior year 2 of 181 million as a result of our free cash flow generation.

Our financial strength is not new to this quarter and the even for the past few years of this is now our 39th consecutive quarter of paying a dividend.

And the dividend that we just announced that will pay on Sept September will make it the 10 years.

And we have now returned to the shareholders $72 million in common dividends.

And then in the first 6 months of 2021 we paid 16 percentage of our free cash flow of dividends and as the silver price increases shareholders have the ability to participate in the.

The incremental free cash flow generation with our silver linked dividend and at the same time, we'll be maintaining our minimum dividend payments.

Now on the next slide I want to take a moment to talk about ESG.

Because we published earlier this quarter, our 'twenty 'twenty sustainability report, which is entitled small footprint large benefit then and if you haven't taken a look at this I would encourage you to do so.

Key to understanding Hecla's ESG and this is on the this is on the next slide is the fact that our minds of very small underground mines that had been the economic generator or driver.

Driver of communities for generations, and when I say small minds I mean small tonnage the large companies in our industry will mine as many tons on a day as we do on a year when I say economic drivers for communities. We've been the largest private employer for 30 plus years at all 3 of our operations.

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Cuz were small we use very little of energy and most of it is as hydro so our greenhouse gas emissions are extraordinarily low and I think the best in the industry.

Then in 'twenty 'twenty, we produced almost 2 and a half times more silver equivalent ounces per.

Per ton of emissions compared to peers and the amount of water. We use per silver equivalent ounces is 63% of what an average person in the United States consumes in a day. So when it comes to the environmental impact of Hecla think small, but when you think about the social impact think thing is the largest private employer in small.

Towns with jobs that exists for generations we.

We just earlier this summer we had a summer intern who started with us and that's he's the fifth generation to work at Hecla, So of shut out to Scott Hogan Meyer and his and his son and the.

The jobs that we provider jobs that debt provide more than the living wage. These are jobs that sustain and build communities and particularly during the pandemic.

The Alaska Chamber recognize this and named our Greens Creek operation as the large business of the year for the leadership work that we the we did in 2020 during the pandemic.

And it's not just providing jobs, we support communities and the special needs through multiple programs that we partially fund through our charitable foundation.

Looking at safety or our culture is safety culture is going on across all of our operations with Casa Berardi being awarded.

On the Quebec Maritimes Mine Safety Award. This is the first time in that mines 30 year history to win the war.

Finally, the metals that we mine are essential in this transformation to renewable energy and the Hecla produces 40 per cent of the United States Silver.

And our Montana assets host America's third largest undeveloped copper deposits with significant silver resources, both metals that are keys to green energy and with that I'm going to pass it over to Russell talk about the financial.

Condition of the company Thanks, Phil.

Turning to slide 7 propelled by strong production in sales from our silver mines at higher prices silver accounted for 40% of our revenues in the second quarter, followed by gold at 37%, while zinc and lead for a 23% our operations produced $3.5 million ounces of silver at an all in sustaining cost of $7.54 per ounce.

The resulting in a record margin of $19.60 per animals with production continuing to increase at Lucky Friday Hecla accounted for more day that more than 40% of the U S. Silver production in 2020.

Gold production totaled 59000 ounces at an all in sustaining cost of $419 per ounce for of cash margin of $406 per ounce with these margins on both silver and gold we expect to see continued strong free cash flow generation as we turn to slide 8 starting in the upper left hand corner, we ended the quarter with 181.

On a half million dollars on cash an increase of $41.7 million over the first quarter of 2021 moving to the right with our increasing cash position, we delivered a net debt to adjusted EBITDA ratio of 1.2 times well below our target of 2 times, while providing the liquidity position of $411 million in the bottom left you can see that our realized silver mark.

<unk> of continued to increase as cost are controlled and byproduct credits drive the on sustaining cost down margins are now twice what they were a year ago on similar to the first quarter. This margin combined with positive working capital management translates into free cash flow. This is reflected in the chart at the bottom right quadrant, which shows over the past 15 months, we have generated a total of free cash.

Cash flow of $175 million and if current prices continue we expect to continue our free cash flow generation aided by low cost and high margins with that I'll pass the call to learn for us to Loren to go through operations. Thanks, Russell I'll start on slide 10.

At the Greens Creek mine, we produced 2.6 million ounces of silver and 12.9 thousand ounces of gold at an all in sustaining cost of 68 cents per ounce for the quarter.

The mine generated $63.5 million in free cash flow on the quarter. The forest highest since Hecla acquired full ownership of the mine as it continues to benefit from higher silver lead and zinc prices.

In the trailing 15 months Greens Creek generated $255 million in free cash flow by operating safely and consistently throughout the pandemic.

Our workforces nearly 90 per cent vaccinated, and we're taking measured steps to return to normal operations.

We are lowering further of the cash cost on all in sustaining cost guidance due to the byproduct credits lower production cost and more favorable smelter terms.

Updated cash cost guidance for Greens Creek is lowered to negative $1 to 1 dollar per ounce.

And all in sustaining costs are lowered to $3.25 to $4 per ounce.

We also are increasing gold production guidance to 43 to 45000 ounces due to higher than modeled grades.

Moving to slide 11, Lucky Friday now is operating at historical production rates after a successful ramp up in 2020.

The mine produced 913000 ounces of silver and generated positive free cash flow of $14 million in the quarter.

We are tightening the cash cost guidance for the mine to $7.50 to $8.50 per ounce and all in sustaining cost are estimated at 14.25 to $16.25 per ounce and we remain on track to increase metal production to approximately 5 million ounces in 2020 theory.

No significant planned outlays required to achieve this goal as the increase was driven by improving grade as we mine deeper.

We continue to test and optimize the new mining method, which better manages the seismicity and has the potential to increase productivity at the mine.

Year to date, approximately 75 per cent of the production has come from the new method.

As with any change in method there is a learning curve, but we're really encouraged by the results to date.

At the Casa Berardi mine shown on Slide 12, we produced 31.3 thousand ounces of gold in the second quarter at an all in sustaining cost of 14.34 per ounce of.

Our focus on optimizing production has delivered results as we continue to see higher throughput availability of recovery in the mill.

While our production stayed strong we saw higher cost in the second quarter due to cost associated with the increased volume contractor cost related to maintenance and offered the optimization activities in the mill and higher underground mobile maintenance cost.

We are increasing our production guidance to 128 to 132000 ounces of gold for the year and our updated cash cost guidance for the mine is 1002 of 125 per ounce.

All in sustaining cost are expected to be in the range of 1200 to $1300.25 per ounce.

We remain focused on reducing and optimizing cost at the mine after seeing the positive results on optimizing production and throughput.

And the trailing 15 months Casa Berardi has generated a positive free cash flow of $68.4 million and our ongoing business improvement activities are expected to reduce cost and increase cash flow further over the next 2 years.

With that I would like to return the call to Phil Okay. Let's go to slide 14 in this set this takes the.

The cost and production guidance of that Lorne went through mine by mine shows what it is on the consolidated basis.

For 2021 to 'twenty 'twenty 3 of its first production.

So you can see how we've increased the gold production guidance to 191200.98000.

We lowered our consolidated silver cash cost and all in sustaining cost guidance and so now the cash cost guidance is.

Queen of dollar and $2 and the all in sustaining costs are estimated the 9 to $11 per ounce of silver. So at current prices, we would expect to generate roughly $15 per ounce of free cash flow from our silver operations.

We're also increasing our gold cash cost and all in sustaining cost at Casa Berardi slightly is as Lauren mentioned.

Our capital expenditures are expected to increase slightly and that reflects the repurchases of the royalties that were outstanding in Nevada and at Casa Berardi operations.

These were put in place for Hecla owned on them.

These assets and we did that in the second quarter.

Earlier in the quarter, we announced an increase in our exploration expenditures to 40 million in pre development to $8.5 million and what we will update our exploration activities in early September.

And before I open the line for questions I, just want to thank our employees for the commitment to safe operations, they've they've had during.

The this pandemic in being able to deliver very strong operational and financial results and so with that operator I'd like to open the line for questions.

As a reminder to ask a question you will need to price.

Star 1 on your telephone to withdraw your question press the pound or Husky. Please standby, while we compile the Q&A roster.

Your first question from the line of Heiko with H C Wainwright.

Hey, Phil and team. Thanks for taking my questions. I Hope you guys are all staying safe and well.

We are.

Good day in the release, you talk about the lower treatment charges and euro of 1 of the first to really put it black on white like that's nice to hear of miners talk about it but it leads to sort of follow up from an analyst point of view.

In your all in sustaining where conciliation it looks like your T..6 of gone from $23.2 million in Q4 of 20 to $15.5 in Q1, 'twenty 1 that now 13.6.

I assume the answer is yes, but just to make sure are you seeing the same thing going for it in Q3 and beyond or are there actually even more improvements for me. These are of very stark differences.

I'll, let Russell answer the question, Yeah, Heiko essentially what happened is.

A lot of our a lot of our concentrated.

Total debt benchmark terms and that gets negotiated on an annual basis the.

The the treatment charge, especially for zinc concentrate dramatically decreased from last year to this year and so youre seeing a large change most notably at Greens Creek, because it has quite a lot of Z concentrated in concentrate exposed to the zinc concentrate benchmark term. So I would say for the rest of the year, we'll likely see it kind of like what we've seen.

For the first half of the year with the exception if you recall in the first quarter. We highlighted there was 1 shipment that was made at kind of better than normal terms and so.

So we highlighted that a quarter ago. So the kind of folks don't carry that benefit forward, but I would suggest we'll see the treatment charges kind of continue as the kind of the Q2.2021 rate. The essentially there are also the sun concentrate parcels that are sold outside of the benchmark. So it can we can move a little bit based on the.

So it kind of round numbers it should be roughly what we see in Q2.

Got it that actually helps you given the Q2 was lower right.

Well yeah.

Theres factors such as the concentrate mixed debt.

Shift the of zinc vs led et cetera. So.

It's there's there's factors there too so there should be good and you can get a pretty good.

The feel on the second half of the year from just looking at our guidance.

Yes, they are.

Now in some of the reconciliation.

Yep.

On the biologics made pretty decent progress with Hatter graben at Hollister and then the the exploration of that Youre doing at Midas any idea of how much money you've invested in the area. This year, thus far and is there a breakdown of the money. That's been spent in Nevada that youre willing and able to provide maybe just a little bit of granularity.

Well, yeah, we can.

Russell can has done a little bit of work on that recently. So go ahead Russell with the you know the what what you were talking to me about low yet.

Excuse me, yeah, essentially from the from Nevada, the perspective of Nevada.

We've essentially the.

<unk> cash flow neutral I would say from the operational perspective, we've invested obviously hatter graben the development and the exploration.

You know I'm thinking about maybe a quarter to a third of that is the of the 40 million that we've guided here would probably be in Nevada.

And so we will you know from an operational perspective will kind of cover the cost that we have as well as some of the exploration cost, but we will invest in Nevada from that perspective.

So the point is.

HEICO that debt.

The cash flow negative that we generated early on in Nevada, we have recouped that.

With the exception of the expenditures that we're now making in exploration in and and the the ramp development.

So we were we're pleased with how things have have developed in Nevada.

Perfect and I promise Russell doesn't make me asked that question because you just work.

It's just you know I will get back in queue. Thank you guys.

Thanks Heiko.

Again, if you would like to ask a question press star 1.

Your next question comes the line of Mike <unk> with Bank of America.

Oh good morning, everyone.

So.

On behalf.

And just how the.

Question for Great News on Greens Creek workforce, nearly 90% of vaccinated.

And what about Lucky Friday, and Casa Berardi of 1 of our rates.

There are quite a bit lower in the case of Cassa. We're in the process of vaccination, it's really about.

On the.

The the availability of the vaccine in Quebec, and so that's there they're working.

Working you know they are above 50%.

With the fully vaccinated in the.

And the then and it's increasing in the case of in the case of the Lucky Friday, it's not dissimilar to the national average.

The U S National average.

It's out of around 50%.

Yeah, Yeah, I mean, when you consider vaccinations and people that have had COVID-19.

What kind of all steps of how quite taken to encourage lucky Friday employees of get vaccinated.

Good.

Well, it's a it's been an ongoing education process. That's the primary thing that we're able to do and then you know we have of all the protocols that people have to take.

The 2.

Again on and until we have of further vaccination. It's a it's really difficult to remove those protocols and that's 1 of the reasons why it at the Greens Creek I think the vaccination rate is so high is we had this quarantine period that people were required to go through with the vaccination rate is high.

As it is we're not having to do the same quarantine Lorne anything you want to add to our to this.

I would say at Lucky Friday.

Mike We've we've done some.

Work to encourage folks just through making vaccinations available at the mine site.

You know we've had the anybody who does get vaccinated. It gets a little a little bit of a of trinket on in appreciation.

So we've gone through those steps.

But I would also say reiterate what Phil said, it's pretty consistent with the certainly the Idaho average rates and we really haven't seen any spike or material impact from it because of the controls we've put in place and we would anticipate that to continue going forward.

Okay, well, thank you all of that tender.

Good luck.

Alright, Thanks, Mike.

There are no further questions I will turn the call over to Phil Baker.

Okay, well, thanks, very much I, just want to remind folks that we have available the ability to do a 1 on 1 call with us. So hopefully you saw that in the press release.

And that's open to.

I just share holders.

Analysts just anyone that's interested in and hecla, we'd be happy to.

To have these 1 on 1 calls and the and so I look forward to hearing from you and if it doesn't work out for today you can certainly talk to Russell and we can set something up for for some time next week. So thanks, everyone have a good day.

This concludes today's conference call. Thank you for participating you may now disconnect.

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