Q4 2022 Hecla Mining Co Earnings Call
Hello, and thank you for standing by my name is Regina and I will be your conference operator today at this time I would like to welcome everyone to the Hecla mining company fourth quarter 2022 earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and.
And the answer session, if you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.
To withdraw your question Press Star one again I would now like to turn the conference over to Andrew <unk>. Please go ahead.
Good morning, Regina and thank you all for joining us for hip that's fourth quarter of 2022 financial and operations results Conference call women with a pocket that loves Vice president of Investor Relations and statutory financial.
Financial results news release that was issued this morning, along with today's presentation I'll go banner, but I'm surprised website on today's call. We have Phil Baker, Hecla's, President and CEO , Larry Roberts, Senior Vice President and Chief Chief Operating Officer, and Russell Sigler, Senior Vice President and Chief Financial Officer.
Any forward looking statements made today by the management team come under the private Securities Litigation Reform Act and involve risks that's shown on slides two and three in our earnings release and in our 10-K and 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.
non-GAAP measures cited in the school and related slides are found in the slides or the news release with that I'll pass the call to Phil. Thanks, Thanks, Andy and good morning, everyone. Thanks for joining our call.
<unk> is the world's fastest growing establish silver miner surprising for 130 year old company.
I'm on slide four.
There are four reasons that this is happening first hecla's commitment silver since our founding Hecla has always been a silver producer even when other metals and activities provided more margin when I joined Hecla in 2001 investors and others encouraged us to sell or close our silver assets.
But what I saw was that our large resource position could survive the ups and downs of the silver market and we needed to be committed because the silver market would improve and of course it did.
Because of silvers role as an energy metal, we think the silver market will strengthen further so I'm going to talk more about that at the end of our prepared remarks the.
The second reason for industry, leading growth is the foundation that came in 2008, when we purchased <unk>, 70% at Greens Creek, we didn't known.
This acquisition increased our silver reserves by two five times and provided the base and cash flow stream to further invest in the mines and in others into that mine and other mines, including the Lucky Friday.
And then the third reason is the investment in Lucky Friday has ultimately resulted in a new mining method. The underhand close bench or UCB that is transforming this 80 year old mine with a safer more productive mining method that with higher grades allows it to double its historic silver production.
Now the fourth reason for the growth as Keno Hill in just four months since the acquisition Keynotes reserves are third higher and will produce about $2 5 million silver ounces. This year in excess of $4 million next year.
Looking at the chart on the left silver reserves or almost five times, where they were at the start of 2008, despite having produced more than 200 million ounces. Since then.
Combining what he has been replaced with the increase in reserve Hecla has added 400 million ounces over the last 15 years. So we have ore bodies that grow.
To grow reserves and production.
Our strategy since 2008 has focused on large prospective land positions in the U S and Canada.
And for a long time the market didn't differentiate between jurisdictions, but we stayed the course with the strategy and today, whether the analyst reviews reflected the market clearly values being in the best jurisdictions and we are in the best jurisdictions.
Now looking at the chart on the right from 2008 2012, we produced about 9 million ounces per year, then we increased the average by about 50%, giving us a decade up about 12 5 million ounces and now we're having another 50% increase in silver production to 18 million ounces realize that we only show three.
Years, because we've not put together a long term plan for keno, but I expect that we'll stay at this 18 million ounces or more from from these three mines for at least a decade.
2022 had the highest production in our history in 2020 three 'twenty four 'twenty five I think are all going to set new production records.
For the company and this growth doesn't require significant capital investment Russell is going to talk about how we have the balance sheet and silver margins to achieve this and position us for even more growth Russell.
Thanks, Phil I'll start on slide six the double digit production growth. We see we expect to see is being funded by our industry, leading silver margins, which have averaged more than 50% of the realized price of silver over the past few years. The direct result of these margins as the significant free cash flow generation, we have seen over the past three years.
Where our minds have generated more than half a billion of free cash flow, including Casa Berardi is contribution of about $85 million from 2020 to 2022.
In 2022, we made the decision to deploy this free cash flow and capital projects and larger equipment at the Lucky Friday mine, where we invested approximately $50 million the acquisition of <unk> in which we made equity investments in alone earlier in the year of about $35 million and then an additional $20 million in development at the Keno Hill mine after the acquisition.
We also invested $46 million in exploration and pre development programs. In 2022, we did this while remaining committed to a strong balance sheet on slide seven revenue for 2022 was $719 million, 39% from gold, 34% from silver 27% from base metals revenue in 2022 to <unk>.
Find year over year, due to lower silver prices and lower gold production with our Nevada operations on care and maintenance. Despite the lower realized prices free cash flow generation from the three mines was approximately $110 million for the year, while our 202022, adjusted EBITDA declined $280 million to $218 million due to the lower revenue and inflation driven costs.
Our net leverage ratio continued to be below our target of two times. We ended the year with a strong balance sheet with $105 million in cash. We also monetize some long term zinc hedges for approximately $17 million of zinc prices declined in the fourth quarter, our strong balance sheet gives us flexibility in executing our plans I will now.
I'll turn the call tomorrow.
Thanks, Russell I will start on slide nine.
Greens Creek had another remarkable year the mine produced $9 7 million ounces of silver exceeding our guidance.
Record throughput of 2500 tonnes per day was achieved in the fourth quarter.
And the time since we acquired full ownership of Greens Creek in 2008, the minds throughput has increased 20% from 2000 tonnes per day to $24 15 tons per day.
You can really impressive is that the recovery rate for each metal also increased during this period.
Looking forward, we will continue our production ramp up during the year and expect to achieve 2600 tonnes per day in the fourth quarter.
Fourth quarter, ASIC was higher compared to the third quarter due to higher treatment and freight cost because the silver concentrate shipment was deferred from the third quarter to the fourth quarter, we conducted some seasonal maintenance activities to prepare for winter.
The mine generated $120 million in free cash flow and nearly $1 9 billion in free cash flow since the mine started operations of $19 89.
Silver production guidance for 2023 is in line with 2022 and nine to $9 5 million ounce silver cash costs are expected to be lower at zero to 25 per ounce, while the silver all in sustaining cost is higher at six to 675 per ounce, primarily due to equipment purchases and increase.
Development is we target 2600 tonnes per day.
Moving to slide 10, Lucky Friday reported a record year as the mine achieved operational milestones, including record tonnes processed and the highest silver production in the past 20 years.
We also ratified a six year contract with the Union, which reflects our strong working relationship and gives us the stability to continue to optimize combined for further production growth.
Silver production for the year was $4 4 million ounces.
UCB mining method is delivering impressive safety performance and production milestones at the mine.
In 2022, we saw a 25% reduction in all incident frequency rate and 11% increase in ore tonnes.
<unk> and.
And a new all time record for feet of development by company crews.
Mel also is performing extremely well delivering new all time quarterly and annual throughput records as well as the largest every year of zinc production.
Just to put things in perspective, there has been a 68% increase in ore production since 2016, which was the last full year of production using the previous mining method.
The mine is expected to produce four five to 5 million ounces silver in 2023 at all in sustaining cost of $850 to $9 50 per ounce capital spend for the year will be in the range of 48% to $51 million relate.
Related to our remaining growth capital associated with the production expansion and infill drilling to support the UCB production method.
2020 to Mark many significant milestones for the transformation of this mine, which began more than a decade ago with the thinking of the number four shaft taxis to high grade ore remaining today.
Bracken Dixon of this success is coming from our peers as well Lucky Friday as a recipient of the 2022 Society of mining Engineers Marie Innovation Award for the pioneering UCB method.
As I look ahead, I am more convinced than ever that the best decade of this 80 year old mine is ahead of it and I could not be more proud of the team leading this effort.
I am very grateful for the scores of others, who have contributed to it over the years.
Turning to slide 11, Casa Berardi produced approximately 31000 ounces of gold for the quarter and 128000 ounces during the year the.
The mill continues to perform very well achieving new throughput records.
However, challenging underground mining conditions resulted in a high proportion of lower grade open pit ore to satisfy the mill.
All in sustaining cost for the year was $825 per gold ounce exceeding our guidance due to lower metal production and higher production costs driven by inflationary pressures.
Casa Berardi is more exposed to inflation that our other mines, because it moves and processes more material than all of our silver mines combined and their dose and there is no appreciable byproduct credit.
However, even with these challenges and capital investment in mind was near breakeven and cash flow.
Our 2023 gold production guidance for the mine is reduced to 110 to 115000 ounces of gold.
This change reflects adjustments made to cut off grades for inflation fewer underground tonnes and more open pit tonnes as per the mine plan.
All in sustaining costs from the mine are expected to be $19 75 to 2050 per ounce higher than 2022, primarily due to lower gold production and higher sustaining capital associated with the expansion of the tailings facility.
Casa Berardi remains an important asset in our portfolio that gives us scale exposure to gold production and exploration potential on a large and under explored land package on the Casa Berardi break.
At Keno Hill, we increased reserves by 33% to 49 million ounce of silver at 22 ounces per ton among the highest in the world.
<unk> will be the largest and highest grade primary gold star primary silver mine in Canada.
Element at the Bermingham and flame and moth deposits are on track with the mill starting in the third quarter and full production of 440 tons per day achieved by year end.
Our guidance for 2023 production is two five to 3 million ounces of silver at an all in sustaining cost of $12 25 to $14 75 per ounce.
Capital spend for the year is estimated to be $42 million to $44 million as we continue development receive more equipment and complete our mill in surface infrastructure projects.
While we are laser focused on development and getting Keno hill into full production our confidence in the exploration potential of this district continues to grow.
Moving to slide 13, we had significant exploration success drilling three of our many under explored targets.
Some highlights from the program include 101 silver ounces per ton over seven feet at coral Wigwam.
N ounces per ton over 11 feet at Hector Calumet, and they announced 19 ounces per ton over 11 feet at silver King. These results demonstrate the strong exploration and discovery potential of the district.
With this I'll pass the call back to Phil Thanks, Lauren just to comment on the exploration at Keno, Yeah, when we announced the <unk> acquisition <unk> asked us if they should continue to explore which they had a requirement to do so in either 'twenty two 'twenty three.
Because of floating funding and so while as Lawrence said, our first priority was getting the mine to full and consistent production. We allowed them to go ahead and continue that exploration program and then of course, we continued it once we close the acquisition, we're really glad that they went forward with the program because clearly.
Shows that keno has the potential to grow dramatically.
I will turn to slide 14 for our three year production guidance.
We expect our silver production this year to increase 18% over 'twenty, two and continuing to increase to as much as 20 million ounces in 2025, keno with production between two and a half and 3 million ounces in the Lucky Friday at four $5 million to $5 million drives the growth.
Our consolidated silver all in sustaining cost is expected to come in approximately $10 25 to 11 50. After byproduct credits. So that's consistent with where we were this past year.
At today's prices, we see about $150 million of free cash flow that we're going to invest in exploration pay dividends maintain our land positions and invest in cancer.
As Lauren noted we've made some hard decisions to change our underground mine plan at Casa Berardi.
You've increased the cutoff grade lower gold production.
But by mining less marginal material.
Lowering our costs.
So this year's gold production will be between 160, and 170000 ounces about 110 to 115000 ounces from Cassa.
And then we will have further declined to about 145000 ounces next year.
For the company.
With less production all in sustaining costs are expected to increase this year to around $2000 per gold ounce. So we're going to make an investment net of about $20 million into into cassette that negative cash free cash flow with cassa realize that in the past 10 years, we've only.
Had one other year that we've had negative.
Negative free cash flow. So this is just a period of time.
We're going to be investing in the tailings, we're going to be investing in surface mine infrastructure.
Before we put the higher grade pits into production, which is going to lower the HSA can make cancer free cash flow generating.
We changed the planet Cassa to improve the economics over five years not as good of economics, currently, but better economics over a longer period of time.
If you look at our total capital.
For the company, it's about $200 million and it's split pretty evenly among the four operations. We also expect to invest more than $30 million in exploration and pre development with the focus on Greens Creek for for us to expand the reserves and resources.
Casa Berardi on the underground targets.
To identify higher grade mineralization and at Keno Hill, and lastly, we're going to be focused on pinos ramp up which we anticipate will cost approximately $9 million.
So before we end our prepared remarks I wanted to leave you all with a number one one trillion and this is on slide 15.
The reason this number is significant is it's the amount that has been invested this past year in fossil fuels.
And also the same amount has been invested in renewables and this isn't the first time ever. This has happened in the past fossil fuel investment eclipsed renewables no more 2022 is really the tipping point and since solar represents the fastest growing component of renewables and it takes half a million silver ounces for every.
Gigawatt of solar panels that are installed the appetite for silver is going to grow.
So finally I want to mention the remarkable safety performance. We had in 2022 are all in frequency rate was one two to among the lowest in our history and this operational and safety success is made possible only with the commitment and dedication of our employees and with that Regina I'd like to open the call to questions.
<unk>.
And at this time I would like to remind everyone in order to ask a question simply press Star then the number one on your telephone keypad. Our first question will come from the line of Lucas pipes with B Riley Securities. Please go ahead.
Yes. Thank you operator and good morning, everyone. This is Nick Charles asking a question on behalf of Lucas.
Can you speak to the cadence of cost throughout the year that it could be baked into your guidance.
All right.
If you're assuming any level of cost deflation or inflation.
The primary operations.
Specifically is the lower cost guidance.
Friday this fully attributable attributable to the higher production. Thank.
Thank you very much.
Sure so so.
You could almost every year at Hecla say that we're going to spend more capital more exploration in Q2 and Q3.
When.
Our operations are.
<unk>.
More favorable weather.
That's not going to change this year and then with respect to the Lucky Friday, yet it is all about the higher higher production.
Lauren anything to add on the Lucky Friday.
It is the higher production and higher grades that are coming with depth, that's driving that driving that.
Got it got it okay, that's very helpful.
And then just secondly, I wanted to ask about capital returns.
You noted in the release.
Ends were around 14% of cash flow in 2022.
What level in mind for 2023.
We just have our dividend policy, which.
We had in place there's been a few adjustments to it.
In terms of the levels since 2011 12.
When we first put in place.
And so we have the base dividend that we pay and then we have a dividend that's tied to the silver price.
Im not anticipating any changes in that in the near term, but clearly as we produced more silver relative to other models.
We clearly will have the ability to get to.
Raise the dividend over time, but.
That's not on the agenda at the moment.
Okay, great well I appreciate the comments and congrats on the progress so far and continued best of luck.
Thank you.
Your next question comes from the line of Joseph Reagor with Roth km. Please go ahead.
Hey, guys. Thanks for taking the questions.
Couple of a couple of things I guess first thing.
Just on on the income statement.
It seems like there was some elevated costs kind of across a couple of categories G&A ramp up costs.
And also you are closed operations costs.
Was there anything in particular that drove that or is that just quarterly fluctuations.
I think the biggest thing to realize is that with the acquisition of <unk> we.
<unk> saw an increase in costs associated with with that.
Brought people into our G&A costs.
Great Great group of people to add to add to the company.
It's will.
We'll see at somewhat higher costs. The other thing is there was as a result of meeting a number of targets there was a higher incentive comp that was accrued.
That falls into that category.
But basically all of our incentive comp falls into the G&A category are those would be the biggest drivers anything in G&A certainly thats ramp up costs, you mentioned, which is just the fact that Keno Hill as we spend money up there developing the capital there is some ramp up costs that run through the P&L and then.
<unk> closed operations Theres, just a true up of an accrual that we made in the fourth quarter on one of our closed operations.
Our noncash trip.
Okay Fair enough and then.
At Keno Hill.
Having difficulties kind of getting to the guide on the production compared to the startup of Q3.
Is this suggesting that there is some high grade material that's been stockpiled, that's well above.
Birmingham's average or.
Yeah.
What's the delta between if I take let's say 300 tonnes per day over the last two quarters and at 1100 grams I don't get to your guide.
Or even into a ballpark.
So it would be for Jack.
So Joe we don't have anything stockpile, but yes, there is higher grade material that is going to be going to the mill first and it's just.
And the way the mine plan is.
It's just where they work.
Centrally.
We're hitting that first and so you will see over time, the great great decline barring anything to add.
The explanation exactly that.
Okay and that $2 five is just to confirm is silver not silver equivalent alright, correct just silver.
This is.
Sure Keith is amazing with the grades that we have and the exploration is finding more of it. So we're very very excited with what we.
But we've got in hand, it is what we thought it would be.
Okay and then.
What's a good normalized expectation for capital spend across.
The four mines once youre done with some of these extra things Youre doing this year and with the Keno Hill ramp up.
Look I would say order of magnitude of $150 million to $170 million would be sort of normalized.
Hopefully would be closer to the 150, but yes.
Yes, we will certainly have things.
We look at and say Geez, we can get a better return if we make that investment.
Sort of that range.
Okay. Thanks, I'll turn it over.
Your next question will come from the line of Jeff <unk> with <unk>. Please go ahead.
Hello, So one of my questions about Hill has already been answered, but I had one about the castle Casa berardi. So.
This year, you will have higher all in sustaining costs.
But what's the plan because.
Last technical report.
Do you plan to.
The transition to open pit mining.
Only in open pit mining in 2017 2017.
Thanks.
Yes.
One 7 million.
Yes.
I'm not sure of the year that we add in the in the in the plan but.
But whether it's exactly that year to year before year. After I don't remember, but that is the plan unless we find more underground.
<unk> material.
We are very encouraged by the exploration that we have but.
Yes.
It's ongoing process.
It's hard to get more of them.
Three or four or five years.
Underground reserves in front of us.
You just don't have the development available.
To be able to put the drill platforms in place so.
Yes.
As more of a just in time process with respect to the underground.
And then do you have any other initiatives because most part of your all in sustaining cost are the cash costs.
Uh huh.
You said that you will probably find high grade materials that you kind of increase the production and well not this year, but the coming years after birth.
How do you have any other initiatives too.
Decreased operating costs.
The biggest the biggest initiative is getting to the pits.
The higher grade pit so the principal pit.
West mine Crown pillar pit, so both significantly higher grade than the 160, Pitt and so with that will come more production you can see that in the technical report.
That increase grade that we will be buying from those pits Lauren anything to add.
So I think that that captures it fill it.
Timing question, where were mining the underground material now and the 160 pit, which which are developed and ahead of us.
We will transition into the two larger higher grade pits as soon as.
One of the things that we've had to deal with it.
The need for permits for those pits.
And as we think.
Do the work.
And we uncovered things that we've got to.
Get all of the technical data in front of us in order to be able to get it.
Get the permits for that work has been done.
So we're in the process of getting those permits and that will allow us to open the principal pit, which is the highest grade of the two two remaining bits, but remember we have in front of us in a more than a decade from those from those pits once their once they become operational.
Thank you.
I will turn the call over.
Sure thing.
Your next question will come from the line of John Tumazos with John Tumazos very independent research. Please go ahead.
Congratulations on all the progress, especially in the Yukon.
So my question is.
When we will have.
Have the manpower capacity.
Digest.
More acquisitions.
It's an unusual time.
5% short term money a lot of the small pre production companies can't raise money at all.
Just looking at the last week, Cisco mining, which has a beautiful $7 4 million ounce deposit 10 grams is languishing, just say issue the equity.
<unk> silver which is.
Participates in a 20 million ounce silver mine.
So in equity and sold down and the companies that arent as big or good as those deposits Theres just no market for their stock.
You could go on a buying spree.
And warehouse some deposits for whenever.
Your engineers your board and need a new project to build.
Well, John I guess I'd make two comments one is.
As far as the the capacity with employees.
It depends on what it is youre acquiring.
Something that you are you are inventory does not require much much support so those things are relatively easy to do things that.
That we would need to develop obviously we have to.
Have it.
Compete with things that we already have as well as just acquisitions in general remember, we have a half dozen.
Silver.
Projects, plus we have another half dozen gold projects to explore and develop so we don't need to add to our inventory.
<unk> said that John I would agree with you we should look and consider what things.
Could be accretive to our capacity or capabilities.
And potentially try to bring them into the fold but.
But we don't feel compelled to do so.
We got we have growth we have growth with with what we have I mean this the growth that we have and its sustainable growth is.
Its something that <unk> not had.
Really in its history.
Okay.
Once again for any questions. Please press star one on your telephone keypad. Your next question will come from the line of Dalton Barreto with Canaccord. Please go ahead.
Thanks, Good morning team.
Billy I hate to beat the cash a horse to death here, but I do have a couple of questions I just want to make sure I fully understand it.
Sounds like Youre, just waiting on permits for the principal pit Ashish.
When do you expect to get that amendment.
Once you get them how soon can you be in there.
Lauren do you want to.
Answer the question sure. So we're in the process of.
Permitting Wm CP, the West mine Crown pillar pit.
So the next one in sequence.
And over the course of this year, we will.
The process is not <unk>.
Submitting a single permit application, it's a group of permit applications some of which are already in the balance of which will be in by.
Just.
And then it takes a little bit of time for that process.
And then we have a reasonable amount of pre strip and strip that needs to happen and so.
This should start delivering or into the system in about 2027 2028.
And the underground resource in FY <unk> 60, the current pit where mining curious too to that point in time.
Thank you so it sounds like it's reasonably long dated.
I just want to view that is there is there a set of conditions under which you would look at putting cash on care and maintenance until you make these investments that you get the permit.
With the plan that we have there's no need to do that we're able to.
With a modest amount of capital injection.
To put it in a position to.
We continue to operate that's part of the reason why we've gone to this plan, which slows down the production. So that we don't have to put it on care maintenance that would be.
Pretty costly exercise and.
Very disruptive to the workforce.
There is incredible amount of activity.
In Quebec and Ontario.
There is a material risk of going into care and maintenance of dose people going elsewhere absolutely.
That makes sense. Thank you and then maybe if I could just ask one last one.
Yes can we get an update on what's going on in Nevada, and whether you're actually making some investments there.
You're kind of approaching the hottest Robin now just anything that's going on there.
Sure so the <unk>.
Robin is the was the primary reason for the acquisition in Nevada, and what we have encountered as an IND.
Influx of water and we're having to do that was not anticipated was not identified we're having to.
Do hydrogeology to figure out.
How much water, we have and then a plan for how to deal with that water. So until that happens and we have the permits to be able to.
Two.
Deal with the water so until until that happens were.
Going slow in Nevada.
And we also have lots of.
Lots of opportunities elsewhere to put our exploration dollars. So so we're doing what we are we are advancing at Aurora, we're having to wait.
Until.
The Sage grouse.
What's the season call back.
Like the electing season booking season.
So that's that's done which is I.
I think in June and so youll see us do some drilling there, but otherwise were.
Where we're at.
Valuation.
Midas, we're evaluating the exploration that we've done we had some great initial results and then we have not seen the follow through so we're not going to.
Push things until we are convinced that we have a good plan for.
For the exploration of Midas Fire Creek.
So youre not going to see much expenditures there in 2023.
Great. Thank you for that so that's all for me.
Okay I appreciate it.
And we have no further questions at this time I will hand, the conference back over to management.
Okay, well, we appreciate you being on the call I just want to remind you that we have some times available with with management, if you'd like to have.
One on one call you'll find the information to that on the press release, so thanks very much.
Yeah.
Ladies and gentlemen that will conclude today's meeting we thank you all for joining you may now disconnect.
Please wait the conference will begin shortly.
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Okay.
Yes.
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Thanks.