HECLA MINING COMPANY Overview
Hecla Mining Company and our subsidiaries have provided precious and base metals to theU.S. and worldwide since 1891. We discover, acquire and develop mines and other mineral interests and produce and market concentrates, carbon material and doré containing silver, gold, lead and zinc. We produce lead, zinc and bulk concentrates and carbon material, which we sell to custom smelters, brokers and third-party processors, and unrefined doré containing gold and silver, which is sold to refiners or further refined before sale of the metals to traders. We are organized into five segments that encompass our operating and development units:Greens Creek ,Lucky Friday ,Casa Berardi ,San Sebastian and Nevada Operations. The map below shows the locations of our operating units, our exploration and pre-development projects, as well as our corporate offices located inCoeur d'Alene, Idaho andVancouver, British Columbia . [[Image Removed]] 33
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Our current business strategy is to focus our financial and human resources in the following areas:
• rapidly responding to the threats from the COVID-19 pandemic to protect our
workforce, operations and communities while maintaining liquidity;
• operating our properties safely, in an environmentally responsible manner, and
cost-effectively;
• improving operations at our units, which includes incurring costs for new
technologies and equipment that may not result in measurable benefits;
• expanding our proven and probable reserves and production capacity at our
units;
• conducting our business with financial stewardship to preserve our financial
position in varying metals price and operational environments;
• advancing permitting of the Rock Creek and Montanore projects;
• maintaining and investing in exploration and pre-development projects in the
vicinities of seven mining districts and projects we believe to be
under-explored and under-invested:
Coeur d'Alene Mining District; our
Island located near Juneau ; the silver-producing district near Durango,
Mexico ; the Abitibi region of northwestern Quebec, Canada ; our projects in
northern Nevada ; the Rock Creek and Montanore projects in northwestern
Montana ; and the Creede district of southwestern Colorado ; and
• continuing to seek opportunities to acquire or invest in mining properties and
companies.
The COVID-19 outbreak impacted our operations in the first half of 2020,
including curtailing our expected production of gold at Casa Berardi. In
addition, we have incurred additional costs of approximately $0.2 million per
week related to quarantining employees at Greens Creek , which started in late
March 2020 . See each segment section below for information on how those
operations have been impacted by COVID-19. To mitigate the impacts of COVID-19,
we have taken precautionary measures, including implementing operational plans
and practices and increasing our cash reserves through a draw-down of our
revolving credit facility. As long as they are required, the operational
practices implemented could continue to have an adverse impact on our operating
results due to deferred production and revenues or additional costs. There is
uncertainty related to the potential additional impacts COVID-19 could have on
our operations and financial results for the year. See Part II, Item IA. Risk
Factors - Natural disasters, public health crises, political crises, and other
catastrophic events or other events outside of our control may materially and
adversely affect our business or financial results in our Form 10-Q for the
quarter ended March 31, 2020 for information on how restrictions related to
COVID-19 have recently affected some of our operations.
A number of key factors may impact the execution of our strategy, including
regulatory issues and metals prices. Metals prices can be very volatile. As
discussed in the Critical Accounting Estimates section below, metals prices are
influenced by a number of factors beyond our control. The average realized
prices of silver and gold were higher, and the average prices for lead and zinc
lower, in the first six months of 2020 than their levels from the comparable
period last year, as illustrated by the table in Results of Operations below.
While we believe longer-term global economic and industrial trends could result
in continued demand for the metals we produce, prices have been volatile and
there can be no assurance that current prices will continue.
The total principal amount of our Senior Notes due February 15, 2028 ("Senior
Notes") is $475 million , and they bear interest at a rate of 7.25% per year. The
$469.5 million in net proceeds from the Senior Notes were used, along with cash
on hand, to redeem, in March 2020 , our previously-outstanding 6.875% Senior
Notes that were due in 2021 and had a principal balance of $506.5 million ("2021
Notes"). Also, as a precaution due to uncertainties of the duration, severity
and scope of the COVID-19 outbreak, we drew $210 million under our revolving
credit facility during the first quarter of 2020; however, we repaid $160
million of that amount in the second quarter of 2020, with the remaining $50
million outstanding as of the end of the quarter. Amounts drawn on the revolving
credit facility are subject to a variable rate of interest. In addition, in July
2020 we agreed to issue CAD$50 million (approximately USD$36.8 million at the
time of the transaction) in aggregate principal amount of senior unsecured notes
to Investissment Québec, a financing arm of the Québec government ("IQ Notes").
The IQ Notes mature in July 2025 and bear interest at a rate of 6.515% per year.
The IQ Notes will be issued at a premium of 103.65%, implying an effective
annual yield of 5.74% and an aggregate principal amount to be repaid of CAD$48.2
million . The IQ Notes will be issued in four equal installments of CAD$12.5
million in July, August, September and October 2020 , with the first installment
issued net of CAD$0.6 million in fees. The net proceeds from the IQ Notes will
be available for general corporate purposes, including for open market purchases
of a portion of the Senior Notes and to pay capital expenditures at our Casa
Berardi unit. Under the note purchase agreement for the IQ Notes and subject to
a force majeure event, we are required to invest in the aggregate CAD$100
million at the Casa Berardi unit and other exploration and development projects
in Quebec over the four-year period commencing on July 9, 2020 . See Note 9 of
Notes to Condensed Consolidated Financial Statements (Unaudited) for more
information on our debt arrangements. As discussed in the Financial Liquidity
and Capital Resources section below, we believe that we will be able to meet the
obligations associated with the Senior Notes, IQ Notes and amounts drawn on our
revolving credit facility; however, a number of factors could impact our ability
to meet our debt obligations and fund our other projects.
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We generated positive cash flows atSan Sebastian each year from 2016 through the first half of 2020. However, that mine currently is expected to end production in the fourth quarter of 2020, and there can be no assurance that we will be able to develop and operateSan Sebastian beyond the known mine life as anticipated. As further discussed in The Lucky Friday Segment section below, the union employees at Lucky Friday were on strike fromMarch 13, 2017 until the strike ended onJanuary 7, 2020 . Re-staffing of the mine has been substantially completed, with a return to full production expected by the end of 2020. However, the ramp-up to full production could take longer or be more costly than anticipated, so there can be no assurance we will operate as currently anticipated. We strive to achieve excellent mine safety and health performance. We seek to implement this goal by: training employees in safe work practices; establishing, following and improving safety standards; investigating accidents, incidents and losses to avoid recurrence; involving employees in the establishment of safety standards; and participating in theNational Mining Association's CORESafety program. We attempt to implement reasonable best practices with respect to mine safety and emergency preparedness. We work with MSHA, theCommission of Labor Standards ,Pay Equity and Occupational Health and Safety inQuebec , and theMexico Ministry of Economy and Mining to address issues outlined in its investigations and inspections and continue to evaluate our safety practices. Achieving and maintaining compliance with regulations will be challenging and may increase our operating costs. See Item 1A. Risk Factors - We face substantial governmental regulation, including the Mine Safety and Health Act, various environmental laws and regulations and the 1872 Mining Law in our annual report filed on Form 10-K for the year endedDecember 31, 2019 . Another challenge for us is the risk associated with environmental litigation and ongoing reclamation activities. As described in Item 1A. Risk Factors in our annual report filed on Form 10-K for the year endedDecember 31, 2019 and in Note 4 of Notes to Condensed Consolidated Financial Statements (Unaudited), it is possible that our estimate of these liabilities (and our ability to estimate liabilities in general) may change in the future, affecting our strategic plans. We are involved in various environmental legal matters and the estimate of our environmental liabilities and liquidity needs, as well as our strategic plans, may be significantly impacted as a result of these matters or new matters that may arise. We strive to ensure that our activities are conducted in compliance with applicable laws and regulations and attempt to resolve environmental litigation on terms as favorable to us as possible. Results of Operations
Sales of products by metal for the three- and six-month periods ended
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 2020 2019 2020 2019
Silver $ 61,756 $ 36,298 $ 99,328 $ 81,804
Gold 89,212 78,166 179,906 157,845
Lead 12,454 6,670 18,874 15,695
Zinc 21,455 22,948 38,762 47,703
Less: smelter charges (18,522 ) (9,910 ) (33,590 ) (16,258 )
Sales of products $ 166,355 $ 134,172 $ 303,280 $ 286,789 The fluctuations in sales for the second quarter and first six months of 2020 compared to the same periods of 2019 were primarily due to:
• Higher average realized prices for silver and gold, partially offset by lower
realized prices for lead and zinc, in the second quarter and first half of
2020 compared to the same periods of 2019. These price variances are
illustrated in the following table:
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Three Months Ended Six Months Ended
June 30 , June 30,
2020 2019
2020 2019
Silver - London PM Fix ($/ounce)
Realized price per ounce
Realized price per ounce
Realized price per pound
Realized price per pound
Average realized prices typically differ from average market prices primarily because concentrate sales are generally recorded as revenues at the time of shipment at forward prices for the estimated month of settlement, which differ from average market prices. Due to the time elapsed between shipment of concentrates and final settlement with the customers, we must estimate the prices at which sales of our metals will be settled. Previously recorded sales are adjusted to estimated settlement metals prices each period through final settlement. For the second quarter and first six months of 2020, we recorded net positive price adjustments to provisional settlements of$7.0 million and$9.6 million , respectively, compared to net negative price adjustments to provisional settlements of$1.2 million and$0.7 million , respectively, in the second quarter and first six months of 2019. The price adjustments related to silver, gold, zinc and lead contained in our concentrate shipments were partially offset in the 2020 periods, and largely offset in the 2019 periods, by gains and losses on forward contracts for those metals. See Note 11 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information. The gains and losses on these contracts are included in revenues and impact the realized prices for silver, gold, lead and zinc. Realized prices are calculated by dividing gross revenues for each metal (which include the price adjustments and gains and losses on the forward contracts discussed above) by the payable quantities of each metal included in concentrate, doré and carbon material shipped during the period. The average realized silver price for the second quarter of 2020 was higher than the average market price for the same period, as silver sales atGreens Creek occurring in March were exposed to changes in prices from the end of the first quarter until their final settlement in the second quarter; the silver price increased during that time, resulting in gains recognized in the second quarter of 2020.
• Higher quantities of silver, lead and zinc sold as a result of higher
production of those metals, partially offset by lower gold volume, in the
second quarter and first half of 2020. See The Greens Creek Segment, The Lucky
Friday Segment, The Casa Berardi Segment, The San Sebastian Segment and The
Nevada Operations Segment sections below for more information on metal
production and sales volumes at each of our operating segments. Total metals
production and sales volumes for each period are shown in the following table:
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Silver - Ounces produced 3,403,781 3,018,765 6,649,250 5,941,896
Payable ounces sold 3,348,639 2,418,586 5,930,918 5,316,669
Gold - Ounces produced 59,982 60,768 118,774 120,789
Payable ounces sold 51,398 59,127 108,501 120,063
Lead - Tons produced 8,977 5,515 14,870 11,299
Payable tons sold 8,026 3,963 12,156 8,811
Zinc - Tons produced 17,855 13,315 30,702 27,259
Payable tons sold 11,989 9,823 21,825 19,356
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The difference between what we report as "ounces/tons produced" and "payable ounces/tons sold" is attributable to the difference between the quantities of metals contained in the concentrates we produce versus the portion of those metals actually paid for by our customers according to the terms of our sales contracts. Differences can also arise from inventory changes incidental to shipping schedules, or variances in ore grades which impact the amount of metals contained in concentrates produced and sold.
• In addition, treatment costs at
and first half of 2020 by approximately
respectively, compared to the same periods of 2019, primarily as a result of
unfavorable changes in smelter terms.
We recorded losses applicable to common shareholders of $14.2 million ($0.03 per
basic common share) for the second quarter of 2020 and $31.5 million ($0.06 per
basic common share) for the first six months of 2020, compared to losses
applicable to common shareholders of $46.7 million ($0.10 per basic common
share) and $72.3 million ($0.15 per basic common share) for the second quarter
and first six months of 2019, respectively. The following factors contributed to
the results for the second quarter and first six months of 2020 compared to the
same periods in 2019:
• Higher gross profit at our
million, respectively, in the second quarter and first half of 2020. Gross
profit at our
respectively, in the second quarter and first half of 2020 compared to the
same periods of 2019. Gross profit at our
half of 2020 compared to the same periods in 2019. Gross profit at our Greens
Creek unit was higher in the second quarter of 2020 by
lower in the first half of 2020 by
in 2019. Gross profit was substantially unchanged at our
See The Greens Creek Segment, The Lucky Friday Segment, The Casa Berardi
Segment, The San Sebastian Segment and The Nevada Operations Segment sections
below.
• Exploration and pre-development expense decreased by
million in the second quarter and first half of 2020, respectively, compared
to the same periods in 2019. In the first half of 2020, exploration was
primarily at our San Sebastian and Casa Berardi units.
• Higher costs related to ramp-up at Lucky Friday and suspension of other
operations by
quarter and first half of 2020 compared to the same periods of 2019. The
increase was due to (i) higher costs at Lucky Friday due to the transition of
production between salary and hourly personnel and the recall, hire and
training of the returning hourly workforce there, (ii) placement of the Midas
and
(iii) the temporary suspension of operations at Casa Berardi and
in response to COVID-19, which lead to lower production at those operations.
See The Lucky Friday Segment, The Nevada Operations Segment, The Casa Berardi
Segment and The San Sebastian Segment sections below.
• Losses on base metal derivatives contracts of
quarter of 2020 and
of
2019. See Note 11 of Notes to Condensed Consolidated Financial Statements
(Unaudited) for more information.
• Net foreign exchange loss of
variances are primarily related to the impact of changes in the CAD-to-USD
exchange rate on the remeasurement of our net monetary liabilities in
During the first half of 2020, the applicable CAD-to-USD exchange rate
increased from 1.2989 to 1.3628, compared to a decrease in the rate from
1.3643 to 1.3087 during the first half of 2019.
• General and administrative expense decreased by
respectively, in the second quarter and first half of 2020 compared to the
same periods of 2019 primarily due to lower incentive compensation and timing
of issuance of shares to directors.
• A
of equipment at Nevada Operations determined to be held-for-sale compared to a
of exploration interests in
• In
million at the time of the gift to the
"Foundation"), and recognized expense for that amount in the second quarter of
2020. The Foundation is a 501(c)(3) entity established in 2007 to provide
grants and disburse funds for educational and charitable purposes to
qualifying organizations in order to promote the social, environmental and
economic sustainability and development of the communities where we have
operations and activities.
• Higher interest expense by
the first half of 2019, with the increase resulting from (i) interest
recognized on both the Senior Notes and 2021 Notes for an overlapping period
of almost one month, as the Senior Notes were issued on
the 2021 Notes were redeemed on
unamortized initial purchaser discount on the 2021 Notes recognized as expense
upon their redemption and (iii) higher interest related to amounts drawn on
our revolving credit facility.
• Unrealized gains on investments of $6.4 million and $5.4 million ,respectively, in the second quarter and first half of 2020 compared to losses
of
due to changes in the prices of shares in other mining companies held.
• Income tax provision of
benefit of
to income tax benefits of
the same periods in 2019. The benefits in the first half of 2020 and both
periods of 2019 are primarily the result of losses in
provision in the second quarter of 2020 is due to income in
losses in Nevada .
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The Greens Creek Segment
Dollars are in thousands (except per Three Months Ended Six Months Ended
ounce and per ton amounts) June 30, June 30,
2020 2019 2020 2019
Sales $ 84,890 $ 55,398 $ 138,724 $ 135,527
Cost of sales and other direct
production costs (44,684 ) (34,800 ) (81,436 ) (76,542 )
Depreciation, depletion and amortization (12,988 ) (10,850 ) (25,417 ) (23,220 )
Cost of sales and other direct
production costs and depreciation,
depletion and amortization (57,672 ) (45,650 ) (106,853 ) (99,762 )
Gross profit $ 27,218 $ 9,748 $ 31,871 $ 35,765
Tons of ore milled 215,275 209,370 414,079 416,195
Production:
Silver (ounces) 2,753,919 2,372,270 5,529,626 4,605,017
Gold (ounces) 13,104 13,257 25,377 27,585
Zinc (tons) 16,184 12,739 28,671 26,257
Lead (tons) 5,889 4,628 11,087 9,410
Payable metal quantities sold:
Silver (ounces) 2,753,736 1,738,377 4,847,456 3,979,549
Gold (ounces) 12,355 8,739 22,676 22,603
Zinc (tons) 10,650 9,462 20,302 18,995
Lead (tons) 5,233 2,810 8,693 7,154
Ore grades:
Silver ounces per ton 15.56 14.36 16.19 13.91
Gold ounces per ton 0.08 0.09 0.08 0.10
Zinc percent 8.2 % 6.8 % 7.6 % 7.1 %
Lead percent 3.3 % 2.8 % 3.2 % 2.8 %
Mining cost per ton $ 81.16 $ 80.41 $ 82.40 $ 79.62
Milling cost per ton $ 34.90 $ 35.10 $ 38.61 $ 35.48
Cash Cost, After By-product Credits, Per
Silver Ounce (1) $ 5.19 $ 2.38 $ 5.41 $ 1.46
All-In Sustaining Costs ("AISC"), After
By-Product Credits, per Silver Ounce (1) $ 7.11 $ 6.37 $ 7.51 $ 4.85 (1) A reconciliation of these non-GAAP measures to cost of sales and other
direct production costs and depreciation, depletion and amortization, the
most comparable GAAP measure, can be found below in Reconciliation of Cost
of Sales and Other Direct Production Costs and Depreciation, Depletion and
Amortization (GAAP) to Cash Cost, Before By-product Credits and Cash Cost,
After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before
By-product Credits and All-In Sustaining Cost, After By-product Credits
(non-GAAP).
Restrictions imposed by the State of Alaska beginning in late March in response
to the COVID-19 pandemic, including the requirement for employees returning to
Alaska to self-quarantine for 14 days, changed in June to 7 days, has caused us
to revise the normal operating procedures and incur additional costs for
staffing operations at Greens Creek . Restrictions could have a material impact
if they continue longer than anticipated or become broader.
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The$17.5 million increase in gross profit for the second quarter of 2020 compared to the second quarter of 2019 was due to higher metal sales volumes due to the timing of shipments, and also higher grades for silver, zinc and lead, and higher average realized silver and gold prices, partially offset by higher treatment costs and lower zinc and lead prices. The$3.9 million decrease in gross profit for the first six months of 2020 compared to the same period in 2019 was primarily the result of higher treatment costs and lower average realized zinc and lead prices, partially offset by higher metal sales volumes and higher silver and gold prices. Treatment costs were higher by$6.3 million and$14.9 million , respectively, for the second quarter and first half of 2020 compared to the same periods of 2019 primarily due to unfavorable changes in smelter terms. Treatment costs for the first quarter of 2020 were also impacted by failure by a metals trader customer to perform its obligation to purchase a spot sale of concentrate, for which we are seeking remedy, although there can be no assurance we will be successful.
The chart below illustrates the factors contributing to the variances in Cash Cost, After By-product Credits, Per Silver Ounce for the second quarter and first six months of 2020 compared to the same periods of 2019.
[[Image Removed]]
The following table summarizes the components of Cash Cost, After By-product
Credits, per Silver Ounce:
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Cash Cost, Before By-product
Credits, per Silver Ounce $ 22.06 $ 20.83 $ 21.07 $ 21.11
By-product credits (16.87 ) (18.45 ) (15.66 ) (19.65 )
Cash Cost, After By-product
Credits, per Silver Ounce $ 5.19 $ 2.38 $ 5.41 $ 1.46
The following table summarizes the components of AISC, After By-product Credits,
per Silver Ounce:
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
AISC, Before By-product Credits,
per Silver Ounce $ 23.98 $ 24.82 $ 23.17 $ 24.50
By-product credits (16.87 ) (18.45 ) (15.66 ) (19.65 )
AISC, After By-product Credits, per
Silver Ounce $ 7.11 $ 6.37 $ 7.51 $ 4.85
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The increase in Cash Costs and AISC, After By-product Credits, per Silver Ounce for the second quarter and first six months of 2020 compared to 2019 was the result of higher treatment costs and lower by-product credits per ounce, partially offset by lower mining, milling and other costs on a per-ounce basis. For AISC, After By-Product Credits, per Silver Ounce, these factors were partially offset by lower capital spending.
Mining and milling costs per ounce decreased in the second quarter and first half of 2020 compared to 2019 on a per-ounce basis primarily due to higher silver production as a result of higher silver grades.
Other cash costs per ounce for the first six months of 2020 were lower compared to 2019 due to higher silver production, partially offset by higher expense forAlaska mine license tax. Treatment costs per ounce were higher in the second quarter and first six months of 2020 compared to 2019 as a result of unfavorable changes in terms and higher silver prices, partially offset by higher silver production, with costs in the first quarter of 2020 also impacted by failure by a metals trader customer to perform its obligation to purchase a spot sale of concentrate, as discussed above. Treatment costs include the value of silver not payable to us through the smelting process. The silver not payable to us is either recovered by the smelters through further processing or ultimately not recovered and included in the smelters' waste material. By-product credits per ounce were lower in the second quarter and first six months of 2020 compared to 2019 due to lower zinc and lead prices and the impact of higher silver production, which causes the by-product credits to be less on a per-silver ounce basis. For the six month period, by-product credits were also impacted by lower gold production in 2020 compared to 2019. The difference between what we report as "production" and "payable metal quantities sold" is attributable to the difference between the quantities of metals contained in the concentrates we produce versus the portion of those metals actually paid for by our customers according to the terms of our sales contracts. Differences can also arise from inventory changes incidental to shipping schedules, or variances in ore grades which impact the amount of metals contained in concentrates produced and sold. While revenue from zinc, lead and gold by-products is significant, we believe that identification of silver as the primary product of theGreens Creek unit is appropriate because:
• silver has historically accounted for a higher proportion of revenue than any
other metal and is expected to do so in the future;
• we have historically presented
based on the original analysis that justified putting the project into
production, and believe that consistency in disclosure is important to our
investors regardless of the relationships of metals prices and production from
year to year;
• metallurgical treatment maximizes silver recovery;
• the
high proportion of silver; and
• in most of its working areas,
in which silver is the metal targeted for highest recovery.
Likewise, we believe the identification of gold, lead and zinc as by-product
credits is appropriate because of their lower economic value compared to silver
and due to the fact that silver is the primary product we intend to produce. In
addition, we have not consistently received sufficient revenue from any single
by-product metal to warrant classification of such as a co-product.
We periodically review our revenues to ensure that reporting of primary products
and by-products is appropriate. Because we consider zinc, lead and gold to be
by-products of our silver production, the values of these metals offset
operating costs within our calculations of Cash Cost, After By-product Credits,
per Silver Ounce and AISC, After By-product Credits, per Silver Ounce.
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The Lucky Friday Segment
Dollars are in thousands (except per Three Months Ended Six Months Ended
ounce and per ton amounts) June 30, June 30,
2020 2019 2020 2019
Sales $ 11,455 $ 4,951 $ 14,285 $ 7,133
Cost of sales and other direct
production costs (9,561 ) (4,529 ) (12,091 ) (6,541 )
Depreciation, depletion and
amortization (1,894 ) (422 ) (2,196 ) (591 )
Cost of sales and other direct
production costs and depreciation,
depletion and amortization (11,455 ) (4,951 ) (14,287 ) (7,132 )
Gross profit $ - $ - $ (2 ) $ 1
Tons of ore milled 44,682 13,697 54,901 27,500
Production:
Silver (ounces) 469,537 127,147 565,285 300,774
Lead (tons) 3,088 887 3,783 1,889
Zinc (tons) 1,671 576 2,031 1,002
Payable metal quantities sold:
Silver (ounces) 424,348 177,266 525,449 264,111
Lead (tons) 2,793 1,153 3,463 1,657
Zinc (tons) 1,339 361 1,523 361
Ore grades:
Silver ounces per ton 10.99 10.12 10.78 11.73
Lead percent 7.33 % 7.19 % 7.31 % 7.58 %
Zinc percent 4.07 % 5.03 % 4.03 % 4.28 %
The increases in ore tonnage and metals production in the second quarter and
first six months of 2020 compared to the same periods in 2019 are the result of
a ramp-up in production following the strike that ended in January 2020
(discussed further below).
Many of the employees at our Lucky Friday unit are represented by a union, and
the previous collective bargaining agreement with the union expired on April 30,
2016 . The unionized employees were on strike from March 13, 2017 until January
7, 2020 , when the union ratified a new collective bargaining agreement. Salaried
personnel performed limited production and capital improvements from July 2017
until the end of the strike. Re-staffing of the mine commenced in the first
quarter of 2020, and we have substantially completed the re-staffing process.
We anticipate a return to full production by the end of 2020; however, the
ramp-up to full production could take longer or be more costly than anticipated.
Costs related to ramp-up activities totaled $2.9 million and $9.3 million in the
second quarter and first half of 2020, respectively, and suspension-related
costs during the strike in the second quarter and first half of 2019 totaled
$1.1 million and $3.0 million , respectively. These costs are combined with
non-cash depreciation expense of $2.3 million and $4.1 million for the second
quarter of first half of 2020, respectively, and $1.2 million and $2.1 million
for the second quarter and first half of 2019, respectively, in a separate line
item on our consolidated statements of operations. These restart and suspension
costs are excluded from the calculation of gross profit, Cash Cost, After
By-product Credits, per Silver Ounce and AISC, After By-product Credits, per
Silver Ounce, when presented.
See Note 4 of Notes to Condensed Consolidated Financial Statements (Unaudited)
for a contingency related to groundwater monitoring at the Lucky Friday mine in
prior periods.
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The Casa Berardi Segment
Dollars are in thousands (except per Three Months Ended Six Months Ended
ounce and per ton amounts) June 30, June 30,
2020 2019 2020 2019
Sales $ 50,005 $ 45,500 $ 96,177 $ 85,562
Cost of sales and other direct
production costs (28,301 ) (36,591 ) (60,229 ) (69,517 )
Depreciation, depletion and
amortization (17,281 ) (18,561 ) (33,678 ) (34,716 )
Cost of sales and other direct
production costs and depreciation,
depletion and amortization (45,582 ) (55,152 ) (93,907 ) (104,233 )
Gross profit (loss) $ 4,423 $ (9,652 ) $ 2,270 $ (18,671 )
Tons of ore milled 280,420 347,596 612,038 677,347
Production:
Gold (ounces) 30,756 31,270 57,508 63,069
Silver (ounces) 5,495 6,164 11,429 14,404
Payable metal quantities sold:
Gold (ounces) 28,754 34,647 57,836 65,260
Silver (ounces) 4,383 4,900 12,806 13,362
Ore grades:
Gold ounces per ton 0.13 0.11 0.12 0.12
Silver ounces per ton 0.02 0.02 0.02 0.03
Mining cost per ton $ 71.68 $ 76.35 $ 74.21 $ 81.11
Milling cost per ton $ 21.11 $ 18.28 $ 21.57 $ 17.06
Cash Cost, After By-product Credits,
per Gold Ounce (1) $ 919 $ 1,101 $ 1,081 $ 1,107
AISC, After By-product Credits, per
Gold Ounce (1) $ 1,077 $ 1,437 $ 1,327 $ 1,387 (1) A reconciliation of these non-GAAP measures to cost of sales and other
direct production costs and depreciation, depletion and amortization, the
most comparable GAAP measure, can be found below in Reconciliation of Cost
of Sales and Other Direct Production Costs and Depreciation, Depletion and
Amortization (GAAP) to Cash Cost, Before By-product Credits and Cash Cost,
After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before
By-product Credits and All-In Sustaining Cost, After By-product Credits
(non-GAAP).
Gross profit increased by $14.1 million and $20.9 million for the second quarter
and first half of 2020, respectively, compared to the same periods of 2019,
primarily due to higher average realized prices, partially offset by lower gold
volume resulting from reduced mill throughput. The lower mill throughput was due
to a government COVID-19-related order. In late March, the Government of Quebec
ordered the mining industry to reduce to minimum operations as part of the fight
against COVID-19, causing us to suspend our Casa Berardi operations from March
24 until April 15 , when mining operations resumed. As a result of the suspension
of operations, gold production was approximately 5,200 ounces lower in March
2020 and approximately 6,500 ounces lower in April 2020 than
previously-forecasted full production levels. Production may continue to be
adversely impacted by the COVID-19 mitigation practices in place until they are
no longer required. Suspension-related costs totaling $1.6 million for the first
half of 2020 are reported in a separate line item on our consolidated statements
of operations and excluded from the calculations of cost of sales and other
direct production costs and depreciation, depletion and amortization, mining and
milling cost per ton, and Cash Cost and AISC, After By-product Credits, per Gold
Ounce.
Mining costs per ton were lower by 6% and 9%, respectively, for the second
quarter and first half of 2020 compared to the same periods of last year
primarily due to reduced contractor costs, partially offset by lower ore
production. Milling costs per ton were higher by 15% and 26%, respectively, for
the second quarter and first half of 2020 compared to the same periods of last
year due primarily to lower ore production and higher contractor costs.
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The chart below illustrates the factors contributing to Cash Cost, After By-product Credits, Per Gold Ounce for the second quarter and first half of 2020 and 2019:
[[Image Removed]]
The following table summarizes the components of Cash Cost, After By-product
Credits, per Gold Ounce:
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Cash Cost, Before By-product Credits,
per Gold Ounce $ 922 $ 1,104 $ 1,084 $ 1,110
By-product credits (3 ) (3 ) (3 ) (3 )
Cash Cost, After By-product Credits,
per Gold Ounce $ 919 $ 1,101 $ 1,081 $ 1,107
The following table summarizes the components of AISC, After By-product Credits,
per Gold Ounce:
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
AISC, Before By-product Credits, per
Gold Ounce $ 1,080 $ 1,440 $ 1,330 $ 1,390
By-product credits (3 ) (3 ) (3 ) (3 )
AISC, After By-product Credits, per
Gold Ounce $ 1,077 $ 1,437 $ 1,327 $ 1,387
The decrease in Cash Cost and AISC, After By-product Credits, per Gold Ounce for
the second quarter and first half of 2020 compared to the same periods in 2019
was primarily due to lower mining costs, partially offset by lower gold
production. The decrease in AISC, After By-product Credits, per Gold Ounce was
attributed to lower capital and exploration spending.
The difference between what we report as "production" and "payable metal quantities sold" is mainly attributable to inventory changes incidental to the timing of sales of refined metals and shipping schedules.
We believe the identification of silver as a by-product credit is appropriate at
Casa Berardi because of its lower economic value compared to gold and due to the
fact that gold is the primary product we intend to produce there. In addition,
we do not receive sufficient revenue from silver at Casa Berardi to warrant
classification of such as a co-product. Because we consider silver to be a
by-product of our gold production at Casa Berardi, the value of silver offsets
operating costs within our calculations of Cash Cost, After By-product Credits,
per Gold Ounce and AISC, After By-product Credits, per Gold Ounce.
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The San Sebastian Segment
Dollars are in thousands (except per Three Months Ended Six Months Ended
ounce and per ton amounts) June 30, June 30,
2020 2019 2020 2019
Sales $ 4,934 $ 10,993 $ 14,860 $ 23,593
Cost of sales and other direct
production costs (3,115 ) (9,295 ) (9,943 ) (19,887 )
Depreciation, depletion and
amortization (895 ) (1,848 ) (2,368 ) (3,608 )
Cost of sales and other direct
production costs and depreciation,
depletion and amortization (4,010 ) (11,143 ) (12,311 ) (23,495 )
Gross profit (loss) $ 924 $ (150 ) $ 2,549 $ 98
Tons of ore milled 21,647 45,869 57,123 90,344
Production:
Silver (ounces) 158,842 463,735 505,467 904,814
Gold (ounces) 1,331 3,547 4,133 7,077
Payable metal quantities sold:
Silver (ounces) 162,780 441,710 516,476 938,260
Gold (ounces) 1,220 3,410 4,044 7,140
Ore grades:
Silver ounces per ton 7.96 11.03 9.63 10.99
Gold ounces per ton 0.07 0.09 0.09 0.09
Mining cost per ton $ 31.01 $ 108.25 $ 67.59 $ 116.79
Milling cost per ton $ 51.68 $ 61.43 $ 58.95 $ 61.81
Cash Cost, After By-product Credits,
per Silver Ounce (1) $ 1.14 $ 9.22 $ 5.09 $ 10.20
AISC, After By-product Credits, per
Silver Ounce (1) $ 1.85 $ 15.50 $ 5.65 $ 16.02 (1) A reconciliation of this non-GAAP measure to cost of sales and other direct
production costs and depreciation, depletion and amortization, the most
comparable GAAP measure, can be found below in Reconciliation of Cost of
Sales and Other Direct Production Costs and Depreciation, Depletion and
Amortization (GAAP) to Cash Cost, Before By-product Credits and Cash Cost,
After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before
By-product Credits and All-In Sustaining Cost, After By-product Credits
(non-GAAP).
The $1.1 million and $2.5 million increases in gross profit (loss) for the
second quarter and first half of 2020, respectively, compared to the same
periods in 2019 are primarily due to higher average silver and gold prices and
lower costs, partially offset by lower metal volumes due to lower ore grades and
mill throughput.
Mining and milling cost per ton were lower by 71% and 16%, respectively, in the
second quarter of 2020 and lower by 42% and 5%, respectively, for the first half
of 2020, compared to the same periods of 2019. The decreases were mainly due to
lower contractor costs, partially offset by lower ore tonnage.
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The chart below illustrates the factors contributing to Cash Cost, After By-product Credits, Per Silver Ounce for the second quarter and first half of 2020 compared to the same periods in 2019:
[[Image Removed]]
The following table summarizes the components of Cash Cost, After By-product
Credits, per Silver Ounce:
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Cash Cost, Before By-product Credits,
per Silver Ounce $ 15.61 $ 19.23 $ 18.39 $ 20.42
By-product credits (14.47 ) (10.01 ) (13.30 ) (10.22 )
Cash Cost, After By-product Credits,
per Silver Ounce $ 1.14 $ 9.22 $ 5.09 $ 10.20
The following table summarizes the components of AISC, After By-product Credits,
per Silver Ounce:
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
AISC, Before By-product Credits, per
Silver Ounce $ 16.32 $ 25.51 $ 18.95 $ 26.24
By-product credits (14.47 ) (10.01 ) (13.30 ) (10.22 )
AISC, After By-product Credits, per
Silver Ounce $ 1.85 $ 15.50 $ 5.65 $ 16.02
The decrease in Cash Cost and AISC, After By-product Credits, per Silver Ounce
in the second quarter and first half of 2020 compared to the same periods of
2019 was primarily the result of higher by-product credits per ounce due to
higher gold prices, partially offset by lower silver production. The decrease in
AISC, After By-product Credits, per Silver Ounce in the second quarter and first
half of 2020 compared to the same periods of 2019 is also a result of lower
capital and exploration spending.
The difference between what we report as "production" and "payable metal quantities sold" is mainly attributable to inventory changes incidental to the timing of sales of refined metals and shipping schedules.
We periodically review our revenues to ensure that reporting of primary products and by-products is appropriate. We believe the identification of gold as a by-product credit is appropriate atSan Sebastian because of its anticipated lower economic value compared to silver over the life of the mine. In addition, we do not receive sufficient revenue from gold atSan Sebastian to warrant classification of such as a co-product. Because we consider gold to be a by-product of our silver production atSan Sebastian , the value of gold offsets operating costs within our calculations of Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce. 45
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In earlyApril 2020 , the Government ofMexico issued an order to the mining industry to reduce operations to a minimum level untilApril 30 in response to COVID-19, and the order was subsequently extended untilMay 30 . Our operations atSan Sebastian were suspended during that time. The closure is not expected to have a material impact on full-year production. Suspension-related costs totaling$1.0 million for the first half of 2020 are reported in a separate line item on our consolidated statements of operations and excluded from the calculations of cost of sales and other direct production costs and depreciation, depletion and amortization, mining and milling cost per ton, and Cash Cost and AISC, After By-product Credits, per Gold Ounce. We continue to study theHugh Zone andEl Toro opportunities atSan Sebastian .The Hugh Zone was discovered in 2005 and is the deeper sulfide extension of the past-producing Francine vein, andEl Toro is a near-surface oxide deposit discovered in 2019. The remaining work on theHugh Zone is focused on the ability to generate a third salable concentrate (copper) from the ore, which has a significant impact on the potential return of the project and how the two deposits should be sequenced. The mine currently is expected to end production in the fourth quarter of 2020. We believe the ability to produce a third concentrate, if achieved, could result in a restart of production in 2021 or 2022. The Nevada Operations Segment Dollars are in thousands (except per Three Months Ended Six Months Ended ounce and per ton amounts) June 30, June 30, 2020 2019 2020 2019 Sales$ 15,071 $ 17,330 $ 39,234 $ 34,974 Cost of sales and other direct production costs (7,192 ) (19,723 ) (15,041 ) (42,837 ) Depreciation, depletion and amortization (6,365 ) (17,796 ) (15,430 ) (26,129 ) Cost of sales and other direct production costs and depreciation, depletion and amortization (13,557 ) (37,519 ) (30,471 ) (68,966 ) Gross profit (loss)$ 1,514 $ (20,189 ) $ 8,763 $ (33,992 ) Tons of ore milled 10,686 58,417 27,984 99,782 Production: Gold (ounces) 14,791 12,694 31,756 23,058 Silver (ounces) 15,988 49,449 37,443 116,887 Payable metal quantities sold: Gold (ounces) 9,068 12,331 23,944 25,060 Silver (ounces) 3,392 56,333 28,731 121,387 Ore grades: Gold ounces per ton 1.519 0.259 1.232 0.276 Silver ounces per ton 2.07 1.63 1.7 1.99 Mining cost per ton$ 403.38 $ 129.75 $ 402.94 $ 164.08 Milling cost per ton$ 219.32 $ 75.44 $ 176.63 $ 90.74 Cash Cost, After By-product Credits, per Gold Ounce (1)$ 694 $ 1,274 $ 716 $ 1,502 AISC, After By-product Credits, per Gold Ounce (1)$ 769 $ 2,347 $ 787 $ 2,666
(1) A reconciliation of these non-GAAP measures to cost of sales and other
direct production costs and depreciation, depletion and amortization, the
most comparable GAAP measure, can be found below in Reconciliation of Cost
of Sales and Other Direct Production Costs and Depreciation, Depletion and
Amortization (GAAP) to Cash Cost, Before By-product Credits and Cash Cost,
After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before
By-product Credits and All-In Sustaining Cost, After By-product Credits
(non-GAAP).
The increases in gross profit for the second quarter and first half of 2020
compared to the same periods of 2019 were primarily the result of higher average
gold prices and higher gold production, due to higher grades. In addition, cost
of sales and other direct production costs for the first half of 2020 included
write-downs totaling approximately $1.5 million of the values of stockpile,
in-process and finished goods inventory to their net realizable value, with no
portion of that amount recognized in the second quarter of 2020, compared to
$18.6 million and $28.3 million , respectively, in such write-downs for the
second quarter and first half of 2019. The write-downs in the 2019 periods were
primarily attributed to development costs incurred at the Fire Creek mine, which
were ceased in the second quarter of 2019 when the decision was made to limit
near-term production to areas of the mine where development was already
completed.
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Mining and milling costs per ton were higher by 384% and 191%, respectively, for the second quarter of 2020 and by 184% and 95%, respectively, for the first half of 2020 compared to the same periods of 2019. The increases were primarily the result of lower mill throughput.
The chart below illustrates the factors contributing to Cash Cost, After By-product Credits, Per Gold Ounce for the second quarter and first half of 2020:
[[Image Removed]]
The following table summarizes the components of Cash Cost, After By-product
Credits, per Gold Ounce:
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Cash Cost, Before By-product Credits,
per Gold Ounce $ 713 1,332 $ 736 1,580
By-product credits (19 ) (58 ) (20 ) (78 )
Cash Cost, After By-product Credits, per
Gold Ounce $ 694 $ 1,274 $ 716 $ 1,502
The following table summarizes the components of AISC, After By-product Credits,
per Gold Ounce:
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
AISC, Before By-product Credits, per
Gold Ounce $ 788 $ 2,405 $ 807 $ 2,744
By-product credits (19 ) (58 ) (20 ) (78 )
AISC, After By-product Credits, per Gold
Ounce $ 769 $ 2,347 $ 787 $ 2,666
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The decreases in Cash Costs and AISC, After By-product Credits, per Gold ounce in the second quarter and first half of 2020 compared to the same periods of 2019 were due to higher gold production resulting from increased grades, with the decreases in AISC, After By-product Credits, per Gold Ounce also attributed to lower exploration and capital spending. We believe the identification of silver as a by-product credit is appropriate at Nevada Operations because of its lower economic value compared to gold and due to the fact that gold is the primary product we intend to produce there. In addition, we do not receive sufficient revenue from silver at Nevada Operations to warrant classification of such as a co-product. Because we consider silver to be a by-product of our gold production at Nevada Operations, the value of silver offsets operating costs within our calculations of Cash Cost, After By-product Credits, per Gold Ounce and AISC, After By-product Credits, per Gold Ounce. Because total production and capital costs had exceeded sales since acquisition, we conducted a review of ourNevada operations during the second quarter of 2019. The review resulted in (i) a plan to limit near-term mining atFire Creek to areas where development has already been completed and (ii) suspension of production and development of the Hatter Graben project atHollister , resulting in lower anticipated near-term production and capitalized development costs. Production at the Midas mine and Aurora mill was suspended in late 2019. Suspension-related costs totaling$6.7 million for the first half of 2020 atHollister , Midas and Aurora, which are currently on care-and-maintenance, are reported in a separate line item on our consolidated statements of operations and excluded from the calculations of cost of sales and other direct production costs and depreciation, depletion and amortization, mining and milling cost per ton, and Cash Cost and AISC, After By-product Credits, per Gold Ounce. We determined this review and the resulting plans represented a triggering event requiring an assessment of recoverability of the carrying value of our long-lived assets ("carrying value assessment") inNevada as ofJune 30, 2019 . In our carrying value assessment, our estimate of undiscounted future cash flows and the estimated value of mineral interests exceeded the carrying value of theNevada assets, and we concluded impairment was not indicated. There were no subsequent events or changes in circumstances during the remainder of 2019 or the first half of 2020 that indicated the carrying value of our long-term assets inNevada was not recoverable. We have entered into a third-party ore processing arrangement for a bulk sample of ore, with the potential of establishing a long-term arrangement which could reduce transportation and milling costs. Mining of the bulk sample material commenced in the second quarter of 2020, with costs for mining the material totaling$4.3 million included in stockpiled ore inventory as ofJune 30, 2020 . Additionally, we have commenced studies of the assets in order to determine how to mine them at lower costs. Recoverability of carrying value will be contingent upon the favorable resolution of operational issues, including, but not limited to: (i) ore grade control, (ii) mill recoveries and reconciliation, (iii) the potential availability of third-party processing of ore produced at theFire Creek mine, (iv) availability of sufficient resources (including funding) to resume and complete necessary development work and drilling on a timely basis, (v) hydrological studies and (vi) permitting. Based on the current mine plan, mining atFire Creek in areas where development has already been performed is expected to be completed in the third quarter of 2020. Our estimates of undiscounted future cash flows for ourNevada assets are most sensitive to (i) changes in metal prices and (ii) estimates of metals to be extracted and recovered. If events or changes occur that adversely affect our estimate of undiscounted future cash flows from ourNevada assets, including (i) an increase in expected costs, (ii) a sustained decline in gold prices, or (iii) suspension of production and placement of ourNevada operations on care-and-maintenance due to the inability to resolve the operational issues identified in the preceding paragraph in a timely manner, or other factors, we may be required to again perform a carrying value assessment for ourNevada assets. If a future assessment indicates the carrying value of the assets exceeds the estimated undiscounted future cash flows, an impairment loss, which could be material, would be recognized for the difference between the carrying value and fair value of the assets. The estimate of potential impairment involves significant judgment and assumptions, and no assurance can be given as to whether we will recognize an impairment in the future or the amount of a potential impairment. The carrying value of our properties, plants, equipment and mineral interests inNevada as ofJune 30, 2020 was$483.9 million , consisting of the following (in millions):
Value beyond proven and probable reserves
41.5
Buildings and equipment 24.7
Development 19.0
Mineral properties 10.4
Asset retirement obligation asset 3.1
Land 3.0
Total $ 483.9
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See Item 1A. Risk Factors - Operation, Development, Exploration and Acquisition Risks in our annual report filed on Form 10-K for the year endedDecember 31, 2019 for a discussion of certain risks relating to our recent and ongoing analysis of the carrying value of theNevada assets. Corporate Matters Employee Benefit Plans Our defined benefit pension plans provide a significant benefit to our employees, but represent a significant liability to us. The liability recorded for the underfunded status of our plans was$59.5 million and$56.8 million as ofJune 30, 2020 andDecember 31, 2019 , respectively. InApril 2020 , we contributed$0.4 million in shares of our common stock to our defined benefit plans, and expect to contribute an additional approximately$10.0 million in cash or shares of our common stock in 2020, including$4.8 million to satisfy the remaining minimum funding requirement for the year. While the economic variables which will determine future funding requirements are uncertain, we expect contributions to continue to be required in future years under current plan provisions, and we periodically examine the plans for affordability and competitiveness. See Note 7 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information. Income Taxes Each reporting period we assess our deferred tax balance based on a review of long-range forecasts and quarterly activity. In 2018, through the acquisition ofKlondex Mines Ltd. , we acquired aU.S. consolidated tax group (the "Nevada U.S. Group ") that did not join the existing consolidatedU.S. tax group ofHecla Mining Company and subsidiaries ("HeclaU.S. "). We recognized a full valuation allowance on our HeclaU.S. net deferred tax assets at the end of 2017 based on results of tax law changes and maintain a full valuation allowance on HeclaU.S. net deferred tax assets atJune 30, 2020 . Our netU.S. deferred tax liability for theNevada U.S. Group atJune 30, 2020 was$35.1 million compared to the$38.3 million net deferred tax liability atDecember 31, 2019 . The$3.2 million decrease is for current period activity inNevada . The deferred tax liability is primarily related to the excess of the carrying value of the mineral resource assets over the tax bases of those assets forU.S. tax reporting. Our net Canadian deferred tax liability atJune 30, 2020 was$93.6 million , a decrease of$6.3 million from the$99.9 million net deferred tax liability atDecember 31, 2019 . The decrease was primarily due to the impact of weakening of the CAD relative to the USD on remeasurement of the deferred tax liability balance. The deferred tax liability is primarily related to the excess of the carrying value of the mineral resource assets over the tax bases of those assets for Canadian tax reporting. Our Mexican net deferred tax asset atJune 30, 2020 was$3.2 million , a decrease of$0.3 million from the net deferred tax asset of$3.5 million atDecember 31, 2019 . The decrease was primarily due to the impact of weakening of the MXN relative to the USD on remeasurement of the deferred tax asset balance. A$2.2 million partial valuation allowance remains on deferred tax assets inMexico . As a result of the Tax Cuts and Jobs Act enacted inDecember 2017 , our remaining Alternative Minimum Tax ("AMT") credit carryforward of$10.7 million became partially refundable through 2020 and fully refundable in 2021. An Alaska AMT refund of$0.5 million was received in the first half of 2020, leaving a net AMT credit receivable of$10.2 million as ofJune 30, 2020 . InMarch 2020 , theU.S. government issued the Coronavirus Aid, Relief and Economic Security Act, which allowed companies to claim immediate refunds of AMT credits. As a result, the remaining$10.2 million AMT credit is classified as a current receivable as ofJune 30, 2020 . Reconciliation of Cost of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP) The tables below present reconciliations between the most comparable GAAP measure of cost of sales and other direct production costs and depreciation, depletion and amortization to the non-GAAP measures of (i) Cash Cost, Before By-product Credits, (ii) Cash Cost, After By-product Credits, (iii) AISC, Before By-product Credits and (iv) AISC, After By-product Credits for our operations at theGreens Creek ,Lucky Friday ,San Sebastian ,Casa Berardi andNevada Operations units and for the Company for the three- and six-month periods endedJune 30, 2020 and 2019. 49
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Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce are measures developed by precious metals companies (including theSilver Institute and theWorld Gold Council ) in an effort to provide a uniform standard for comparison purposes. There can be no assurance, however, that these non-GAAP measures as we report them are the same as those reported by other mining companies. Cash Cost, After By-product Credits, per Ounce is an important operating statistic that we utilize to measure each mine's operating performance. We use AISC, After By-product Credits, per Ounce as a measure of our mines' net cash flow after costs for exploration, pre-development, reclamation, and sustaining capital. This is similar to the Cash Cost, After By-product Credits, per Ounce non-GAAP measure we report, but also includes on-site exploration, reclamation, and sustaining capital costs. Current GAAP measures used in the mining industry, such as cost of goods sold, do not capture all the expenditures incurred to discover, develop and sustain silver and gold production. Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce also allow us to benchmark the performance of each of our mines versus those of our competitors. As a silver and gold mining company, we also use these statistics on an aggregate basis - aggregating theGreens Creek ,Lucky Friday andSan Sebastian mines - to compare our performance with that of other silver mining companies, and aggregatingCasa Berardi and Nevada Operations for comparison with other gold mining companies. Similarly, these statistics are useful in identifying acquisition and investment opportunities as they provide a common tool for measuring the financial performance of other mines with varying geologic, metallurgical and operating characteristics. Cash Cost, Before By-product Credits and AISC, Before By-product Credits include all direct and indirect operating cash costs related directly to the physical activities of producing metals, including mining, processing and other plant costs, third-party refining expense, on-site general and administrative costs, royalties and mining production taxes. AISC, Before By-product Credits for each mine also includes on-site exploration, reclamation, and sustaining capital costs. AISC, Before By-product Credits for our consolidated silver properties also includes corporate costs for general and administrative expense, exploration and sustaining capital projects. By-product credits include revenues earned from all metals other than the primary metal produced at each unit. As depicted in the tables below, by-product credits comprise an essential element of our silver unit cost structure, distinguishing our silver operations due to the polymetallic nature of their orebodies. In addition to the uses described above, Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce provide management and investors an indication of operating cash flow, after consideration of the average price received from production. We also use these measurements for the comparative monitoring of performance of our mining operations period-to-period from a cash flow perspective. The Casa Berardi, Nevada Operations and combined gold properties information below reports Cash Cost, After By-product Credits, per Gold Ounce and AISC, After By-product Credits, per Gold Ounce for the production of gold, their primary product, and by-product revenues earned from silver, which is a by-product at Casa Berardi and Nevada Operations. Only costs and ounces produced relating to units with the same primary product are combined to represent Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce. Thus, the gold produced at ourCasa Berardi and Nevada Operations units is not included as a by-product credit when calculating Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce for the total ofGreens Creek ,Lucky Friday andSan Sebastian , our combined silver properties. Similarly, the silver produced at our other three units is not included as a by-product credit when calculating the gold metrics forCasa Berardi and Nevada Operations. 50
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In thousands (except per
ounce amounts) Three Months Ended June 30, 2020
Greens Lucky San Total
Creek Friday(2) Sebastian (3) Corporate(4) Silver
Cost of sales and other
direct production costs and
depreciation, depletion and
amortization $ 57,672 11,455 $ 4,010 $ 73,137
Depreciation, depletion and
amortization (12,988 ) (1,894 ) (895 ) (15,777 )
Treatment costs 20,016 3,032 47 23,095
Change in product inventory (4,020 ) (118 ) (398 ) (4,536 )
Reclamation and other costs 93 - (296 ) (203 )
Exclusion of Lucky Friday
costs - (12,475 ) - (12,475 )
Cash Cost, Before
By-product Credits (1) 60,773 - 2,468 63,241
Reclamation and other costs 789 114 903
Exploration - - 314 314
Sustaining capital 4,501 (1 ) - 4,500
General and administrative
6,979 6,979
AISC, Before By-product
Credits (1) 66,063 - 2,581 75,937
By-product credits:
Zinc (19,913 ) - (19,913 )
Gold (19,427 ) - (2,287 ) (21,714 )
Lead (7,133 ) - (7,133 )
Total By-product credits (46,473 ) - (2,287 ) (48,760 )
Cash Cost, After By-product
Credits $ 14,300 $ - $ 181 $ 14,481
AISC, After By-product
Credits $ 19,590 $ - $ 294 $ 27,177
Divided by ounces produced 2,754 - 158 2,912
Cash Cost, Before
By-product Credits, per
Ounce $ 22.06 $ - $ 15.61 $ 21.71
By-product credits per
ounce (16.87 ) - (14.47 ) (16.74 )
Cash Cost, After By-product
Credits, per Ounce $ 5.19 $ - $ 1.14 $ 4.97
AISC, Before By-product
Credits, per Ounce $ 23.98 $ - $ 16.32 $ 26.07
By-product credits per
ounce (16.87 ) - (14.47 ) (16.74 )
AISC, After By-product
Credits, per Ounce $ 7.11 $ - $ 1.85 $ 9.33
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In thousands (except per ounce
amounts) Three months ended June 30, 2020
Casa Nevada Total
Berardi (5) Operations (6) Gold
Cost of sales and other direct
production costs and depreciation,
depletion and amortization $ 45,582 $ 13,557 $ 59,139
Depreciation, depletion and
amortization (17,281 ) (6,365 ) (23,646 )
Treatment costs 558 19 577
Change in product inventory (400 ) 3,669 3,269
Reclamation and other costs (92 ) (328 ) (420 )
Cash Cost, Before By-product
Credits (1) 28,367 10,552 38,919
Reclamation and other costs 94 327 421
Exploration 467 - 467
Sustaining capital 4,278 774 5,052
AISC, Before By-product Credits
(1) 33,206 11,653 44,859
By-product credits:
Silver (92 ) (282 ) (374 )
Total By-product credits (92 ) (282 ) (374 )
Cash Cost, After By-product
Credits $ 28,275 $ 10,270 $ 38,545
AISC, After By-product Credits $ 33,114 $ 11,371 $ 44,485
Divided by ounces produced 31 15 46
Cash Cost, Before By-product
Credits, per Ounce $ 922 $ 713 $ 854
By-product credits per ounce (3 ) (19 ) (8 )
Cash Cost, After By-product
Credits, per Ounce $ 919 $ 694 $ 846
AISC, Before By-product Credits,
per Ounce $ 1,080 $ 788 $ 985
By-product credits per ounce (3 ) (19 ) (8 )
AISC, After By-product Credits,
per Ounce $ 1,077 $ 769 $ 977
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In thousands (except per ounce
amounts) Three months ended June 30, 2020
Total Total
Silver Gold Total
Cost of sales and other direct
production costs and depreciation,
depletion and amortization $ 73,137 $ 59,139 $ 132,276
Depreciation, depletion and
amortization (15,777 ) (23,646 ) (39,423 )
Treatment costs 23,095 577 23,672
Change in product inventory (4,536 ) 3,269 (1,267 )
Reclamation and other costs (203 ) (420 ) (623 )
Exclusion of Lucky Friday costs (12,475 ) - (12,475 )
Cash Cost, Before By-product
Credits (1) 63,241 38,919 102,160
Reclamation and other costs 903 421 1,324
Exploration 314 467 781
Sustaining capital 4,500 5,052 9,552
General and administrative 6,979 - 6,979
AISC, Before By-product Credits
(1) 75,937 44,859 120,796
By-product credits:
Zinc (19,913 ) - (19,913 )
Gold (21,714 ) - (21,714 )
Lead (7,133 ) - (7,133 )
Silver (374 ) (374 )
Total By-product credits (48,760 ) (374 ) (49,134 )
Cash Cost, After By-product
Credits $ 14,481 $ 38,545 $ 53,026
AISC, After By-product Credits $ 27,177 $ 44,485 $ 71,662
Divided by ounces produced 2,912 46
Cash Cost, Before By-product
Credits, per Ounce $ 21.71 $ 854
By-product credits per ounce (16.74 ) (8 )
Cash Cost, After By-product
Credits, per Ounce $ 4.97 $ 846
AISC, Before By-product Credits,
per Ounce $ 26.07 $ 985
By-product credits per ounce (16.74 ) (8 )
AISC, After By-product Credits,
per Ounce $ 9.33 $ 977
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Table of Contents
In thousands (except per
ounce amounts) Three Months Ended June 30, 2019
Greens Lucky San Total
Creek Friday(2) Sebastian Corporate(4) Silver
Cost of sales and other
direct production costs
and depreciation,
depletion and
amortization $ 45,650 $ 4,951 $ 11,143 $ 61,744
Depreciation, depletion
and amortization (10,850 ) (422 ) (1,848 ) (13,120 )
Treatment costs 10,964 524 238 11,726
Change in product
inventory 4,577 (641 ) (190 ) 3,746
Reclamation and other
costs (933 ) - (422 ) (1,355 )
Exclusion of Lucky
Friday cash costs - (4,412 ) - (4,412 )
Cash Cost, Before
By-product Credits (1) 49,408 - 8,921 58,329
Reclamation and other
costs 738 - 123 861
Exploration 79 - 1,483 497 2,059
Sustaining capital 8,665 - 1,308 12 9,985
General and
administrative 8,918 8,918
AISC, Before By-product
Credits (1) 58,890 - 11,835 80,152
By-product credits:
Zinc (22,221 ) - - (22,221 )
Gold (15,350 ) - (4,645 ) (19,995 )
Lead (6,198 ) - - (6,198 )
Total By-product credits (43,769 ) - (4,645 ) (48,414 )
Cash Cost, After
By-product Credits $ 5,639 $ - $ 4,276 $ 9,915
AISC, After By-product
Credits $ 15,121 $ - $ 7,190 $ 31,738
Divided by ounces
produced 2,372 - 464 2,836
Cash Cost, Before
By-product Credits, per
Ounce $ 20.83 $ - $ 19.23 $ 20.57
By-product credits per
ounce (18.45 ) - (10.01 ) (17.07 )
Cash Cost, After
By-product Credits, per
Ounce $ 2.38 $ - $ 9.22 $ 3.50
AISC, Before By-product
Credits, per Ounce $ 24.82 $ - $ 25.51 $ 28.23
By-product credits per
ounce (18.45 ) - (10.01 ) (17.07 )
AISC, After By-product
Credits, per Ounce $ 6.37 $ - $ 15.50 $ 11.16
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Table of Contents
In thousands (except per ounce
amounts) Three Months Ended June 30, 2019
Casa Nevada Total
Berardi Operations Gold
Cost of sales and other direct
production costs and depreciation,
depletion and amortization $ 55,152 $ 37,519 $ 92,671
Depreciation, depletion and
amortization (18,561 ) (17,796 ) (36,357 )
Treatment costs 427 36 463
Change in product inventory (2,367 ) (1,969 ) (4,336 )
Reclamation and other costs (128 ) (885 ) (1,013 )
Cash Cost, Before By-product
Credits (1) 34,523 16,905 51,428
Reclamation and other costs 127 378 505
Exploration 941 698 1,639
Sustaining capital 9,431 12,553 21,984
AISC, Before By-product Credits
(1) 45,022 30,534 75,556
By-product credits:
Silver (91 ) (739 ) (830 )
Total By-product credits (91 ) (739 ) (830 )
Cash Cost, After By-product
Credits $ 34,432 $ 16,166 $ 50,598
AISC, After By-product Credits $ 44,931 $ 29,795 $ 74,726
Divided by ounces produced 31 13 44
Cash Cost, Before By-product
Credits, per Ounce $ 1,104 $ 1,332 $ 1,170
By-product credits per ounce (3 ) (58 ) (19 )
Cash Cost, After By-product
Credits, per Ounce $ 1,101 $ 1,274 $ 1,151
AISC, Before By-product Credits,
per Ounce $ 1,440 $ 2,405 $ 1,719
By-product credits per ounce (3 ) (58 ) (19 )
AISC, After By-product Credits,
per Ounce $ 1,437 $ 2,347 $ 1,700
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Table of Contents
In thousands (except per ounce
amounts) Three Months Ended June 30, 2019
Total Total
Silver Gold Total
Cost of sales and other direct
production costs and depreciation,
depletion and amortization $ 61,744 $ 92,671 $ 154,415
Depreciation, depletion and
amortization (13,120 ) (36,357 ) (49,477 )
Treatment costs 11,726 463 12,189
Change in product inventory 3,746 (4,336 ) (590 )
Reclamation and other costs (1,355 ) (1,013 ) (2,368 )
Exclusion of Lucky Friday cash
costs (4,412 ) - (4,412 )
Cash Cost, Before By-product
Credits (1) 58,329 51,428 109,757
Reclamation and other costs 861 505 1,366
Exploration 2,059 1,639 3,698
Sustaining capital 9,985 21,984 31,969
General and administrative 8,918 - 8,918
AISC, Before By-product Credits
(1) 80,152 75,556 155,708
By-product credits:
Zinc (22,221 ) - (22,221 )
Gold (19,995 ) - (19,995 )
Lead (6,198 ) - (6,198 )
Silver (830 ) (830 )
Total By-product credits (48,414 ) (830 ) (49,244 )
Cash Cost, After By-product
Credits $ 9,915 $ 50,598 $ 60,513
AISC, After By-product Credits $ 31,738 $ 74,726 $ 106,464
Divided by ounces produced 2,836 44
Cash Cost, Before By-product
Credits, per Ounce $ 20.57 $ 1,170
By-product credits per ounce (17.07 ) (19 )
Cash Cost, After By-product
Credits, per Ounce $ 3.50 $ 1,151
AISC, Before By-product Credits,
per Ounce $ 28.23 $ 1,719
By-product credits per ounce (17.07 ) (19 )
AISC, After By-product Credits,
per Ounce $ 11.16 $ 1,700
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Table of Contents
In thousands (except per
ounce amounts) Six Months Ended June 30, 2020
Greens Lucky San Total
Creek Friday(2) Sebastian (3) Corporate(4) SilverCost of sales and other direct production costs and depreciation, depletion and amortization$ 106,853 $ 14,287 $ 12,311 $ 133,451 Depreciation, depletion and amortization (25,417 ) (2,196 ) (2,368 ) (29,981 ) Treatment costs 35,842 3,464 151 39,457 Change in product inventory (1,150 ) 796 (145 ) (499 ) Reclamation and other costs 413 - (658 ) (245 ) Exclusion of Lucky Friday costs - (16,351 ) - (16,351 ) Cash Cost, Before By-product Credits (1) 116,541 - 9,291 125,832 Reclamation and other costs 1,577 - 228 1,805 Exploration 4 - - 664 668 Sustaining capital 10,011 - 55 - 10,066 General and administrative 15,918 15,918 AISC, Before By-product Credits (1) 128,133 - 9,574 154,289 By-product credits: Zinc (35,939 ) - (35,939 ) Gold (36,624 ) (6,716 ) (43,340 ) Lead (14,059 ) - (14,059 ) Total By-product credits (86,622 ) - (6,716 ) (93,338 ) Cash Cost, After By-product Credits$ 29,919 $ - $ 2,575$ 32,494 AISC, After By-product Credits$ 41,511 $ - $ 2,858$ 60,951 Divided by ounces produced 5,530 - 505 6,035 Cash Cost, Before By-product Credits, per Ounce$ 21.07 $ - $ 18.39$ 20.85 By-product credits per ounce (15.66 ) - (13.30 ) (15.47 ) Cash Cost, After By-product Credits, per Ounce$ 5.41 $ - $ 5.09$ 5.38 AISC, Before By-product Credits, per Ounce$ 23.17 $ - $ 18.95$ 25.57 By-product credits per ounce (15.66 ) - (13.30 ) (15.47 ) AISC, After By-product Credits, per Ounce$ 7.51 $ - $ 5.65$ 10.10 57
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Table of Contents
In thousands (except per ounce
amounts) Six Months Ended June 30, 2020
Casa Nevada Total
Berardi (5) Operations (6) Gold
Cost of sales and other direct
production costs and depreciation,
depletion and amortization $ 93,907 $ 30,471 $ 124,378
Depreciation, depletion and
amortization (33,678 ) (15,430 ) (49,108 )
Treatment costs 1,132 45 1,177
Change in product inventory 1,208 8,949 10,157
Reclamation and other costs (189 ) (654 ) (843 )
Cash Cost, Before By-product
Credits (1) 62,380 23,381 85,761
Reclamation and other costs 190 654 844
Exploration 1,158 - 1,158
Sustaining capital 12,784 1,600 14,384
AISC, Before By-product Credits
(1) 76,512 25,635 102,147
By-product credits:
Silver (192 ) (635 ) (827 )
Total By-product credits (192 ) (635 ) (827 )
Cash Cost, After By-product
Credits $ 62,188 $ 22,746 $ 84,934
AISC, After By-product Credits $ 76,320 $ 25,000 $ 101,320
Divided by ounces produced 58 32 90
Cash Cost, Before By-product
Credits, per Ounce $ 1,084 $ 736 $ 961
By-product credits per ounce (3 ) (20 ) (9 )
Cash Cost, After By-product
Credits, per Ounce $ 1,081 $ 716 $ 952
AISC, Before By-product Credits,
per Ounce $ 1,330 $ 807 $ 1,144
By-product credits per ounce (3 ) (20 ) (9 )
AISC, After By-product Credits,
per Ounce $ 1,327 $ 787 $ 1,135
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Table of Contents
In thousands (except per ounce
amounts) Six Months Ended June 30, 2020
Total Total
Silver Gold Total
Cost of sales and other direct
production costs and depreciation,
depletion and amortization $ 133,451 $ 124,378 $ 257,829
Depreciation, depletion and
amortization (29,981 ) (49,108 ) (79,089 )
Treatment costs 39,457 1,177 40,634
Change in product inventory (499 ) 10,157 9,658
Reclamation and other costs (245 ) (843 ) (1,088 )
Exclusion of Lucky Friday costs (16,351 ) - (16,351 )
Cash Cost, Before By-product
Credits (1) 125,832 85,761 211,593
Reclamation and other costs 1,805 844 2,649
Exploration 668 1,158 1,826
Sustaining capital 10,066 14,384 24,450
General and administrative 15,918 - 15,918
AISC, Before By-product Credits
(1) 154,289 102,147 256,436
By-product credits:
Zinc (35,939 ) - (35,939 )
Gold (43,340 ) - (43,340 )
Lead (14,059 ) - (14,059 )
Silver (827 ) (827 )
Total By-product credits (93,338 ) (827 ) (94,165 )
Cash Cost, After By-product
Credits $ 32,494 $ 84,934 $ 117,428
AISC, After By-product Credits $ 60,951 $ 101,320 $ 162,271
Divided by ounces produced 6,035 90
Cash Cost, Before By-product
Credits, per Ounce $ 20.85 $ 961
By-product credits per ounce (15.47 ) (9 )
Cash Cost, After By-product
Credits, per Ounce $ 5.38 $ 952
AISC, Before By-product Credits,
per Ounce $ 25.57 $ 1,144
By-product credits per ounce (15.47 ) (9 )
AISC, After By-product Credits,
per Ounce $ 10.10 $ 1,135
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Table of Contents
In thousands (except per
ounce amounts) Six Months Ended June 30, 2019
Greens Lucky San Total
Creek Friday(2) Sebastian Corporate(4) Silver
Cost of sales and other
direct production costs
and depreciation,
depletion and
amortization $ 99,762 $ 7,132 $ 23,495 $ 130,389
Depreciation, depletion
and amortization (23,220 ) (591 ) (3,608 ) (27,419 )
Treatment costs 21,316 1,334 369 23,019
Change in product
inventory 712 842 (1,043 ) 511
Reclamation and other
costs (1,347 ) - (735 ) (2,082 )
Exclusion of Lucky
Friday cash costs - (8,717 ) - (8,717 )
Cash Cost, Before
By-product Credits (1) 97,223 - 18,478 115,701
Reclamation and other
costs 1,475 - 246 1,721
Exploration 160 - 3,200 938 4,298
Sustaining capital 13,977 - 1,814 73 15,864
General and
administrative 18,877 18,877
AISC, Before By-product
Credits (1) 112,835 - 23,738 156,461
By-product credits:
Zinc (45,506 ) - - (45,506 )
Gold (31,868 ) (9,247 ) (41,115 )
Lead (13,115 ) - - (13,115 )
Total By-product credits (90,489 ) - (9,247 ) (99,736 )
Cash Cost, After
By-product Credits $ 6,734 $ - $ 9,231 $ 15,965
AISC, After By-product
Credits $ 22,346 $ - $ 14,491 $ 56,725
Divided by ounces
produced 4,605 - 905 5,510
Cash Cost, Before
By-product Credits, per
Ounce $ 21.11 $ - $ 20.42 $ 21.00
By-product credits per
ounce (19.65 ) - (10.22 ) (18.10 )
Cash Cost, After
By-product Credits, per
Ounce $ 1.46 $ - $ 10.20 $ 2.90
AISC, Before By-product
Credits, per Ounce $ 24.50 $ - $ 26.24 $ 28.39
By-product credits per
ounce (19.65 ) - (10.22 ) (18.10 )
AISC, After By-product
Credits, per Ounce $ 4.85 $ - $ 16.02 $ 10.29
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In thousands (except per ounce
amounts) Six Months Ended June 30, 2019
Casa Nevada Total
Berardi Operations Gold
Cost of sales and other direct
production costs and depreciation,
depletion and amortization $ 104,233 $ 68,966 $ 173,199
Depreciation, depletion and
amortization (34,716 ) (26,129 ) (60,845 )
Treatment costs 869 74 943
Change in product inventory (99 ) (5,215 ) (5,314 )
Reclamation and other costs (257 ) (1,264 ) (1,521 )
Cash Cost, Before By-product
Credits (1) 70,030 36,432 106,462
Reclamation and other costs 256 756 1,012
Exploration 2,287 816 3,103
Sustaining capital 15,123 25,260 40,383
AISC, Before By-product Credits
(1) 87,696 63,264 150,960
By-product credits:
Silver (217 ) (1,796 ) (2,013 )
Total By-product credits (217 ) (1,796 ) (2,013 )
Cash Cost, After By-product
Credits $ 69,813 $ 34,636 $ 104,449
AISC, After By-product Credits $ 87,479 $ 61,468 $ 148,947
Divided by ounces produced 63 23 86
Cash Cost, Before By-product
Credits, per Ounce $ 1,110 $ 1,580 $ 1,236
By-product credits per ounce (3 ) (78 ) (23 )
Cash Cost, After By-product
Credits, per Ounce $ 1,107 $ 1,502 $ 1,213
AISC, Before By-product Credits,
per Ounce $ 1,390 $ 2,744 $ 1,752
By-product credits per ounce (3 ) (78 ) (23 )
AISC, After By-product Credits,
per Ounce $ 1,387 $ 2,666 $ 1,729
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In thousands (except per ounce
amounts) Six Months Ended June 30, 2019
Total Total
Silver Gold Total
Cost of sales and other direct
production costs and depreciation,
depletion and amortization $ 130,389 $ 173,199 $ 303,588
Depreciation, depletion and
amortization (27,419 ) (60,845 ) (88,264 )
Treatment costs 23,019 943 23,962
Change in product inventory 511 (5,314 ) (4,803 )
Reclamation and other costs (2,082 ) (1,521 ) (3,603 )
Exclusion of Lucky Friday cash
costs (8,717 ) - (8,717 )
Cash Cost, Before By-product
Credits (1) 115,701 106,462 222,163
Reclamation and other costs 1,721 1,012 2,733
Exploration 4,298 3,103 7,401
Sustaining capital 15,864 40,383 56,247
General and administrative 18,877 - 18,877
AISC, Before By-product Credits
(1) 156,461 150,960 307,421
By-product credits:
Zinc (45,506 ) - (45,506 )
Gold (41,115 ) - (41,115 )
Lead (13,115 ) - (13,115 )
Silver (2,013 ) (2,013 )
Total By-product credits (99,736 ) (2,013 ) (101,749 )
Cash Cost, After By-product
Credits $ 15,965 $ 104,449 $ 120,414
AISC, After By-product Credits $ 56,725 $ 148,947 $ 205,672
Divided by ounces produced 5,510 86
Cash Cost, Before By-product
Credits, per Ounce $ 21.00 $ 1,236
By-product credits per ounce (18.10 ) (23 )
Cash Cost, After By-product
Credits, per Ounce $ 2.90 $ 1,213
AISC, Before By-product Credits,
per Ounce $ 28.39 $ 1,752
By-product credits per ounce (18.10 ) (23 )
AISC, After By-product Credits,
per Ounce $ 10.29 $ 1,729 (1) Includes all direct and indirect operating costs related to the physical
activities of producing metals, including mining, processing and other plant
costs, third-party refining and marketing expense, on-site general and
administrative costs, royalties and mining production taxes, before
by-product revenues earned from all metals other than the primary metal
produced at each unit. AISC, Before By-product Credits also includes on-site
exploration, reclamation, and sustaining capital costs.
(2) The unionized employees at Lucky Friday were on strike from
of the strike. Costs related to ramp-up activities totaling
the first half of 2020, and suspension-related costs totaling
during the strike in the first half of 2019, along with
million, respectively, in non-cash depreciation expense for those periods,
have been excluded from the calculations of cost of sales and other direct
production costs and depreciation, depletion and amortization, Cash Cost,
Before By-product Credits, Cash Cost, After By-product Credits, AISC, Before
By-product Credits, and AISC, After By-product Credits.
(3) In early
industry to reduce operations to a minimum level until
to COVID-19, and the order was subsequently extended until
operations at
Suspension-related costs totaling
reported in a separate line item on our consolidated statements of operations
and excluded from the calculations of cost of sales and other direct
production costs and depreciation, depletion and amortization, mining and
milling cost per ton, and Cash Cost and AISC, After By-product Credits, per
Gold Ounce.
(4) AISC, Before By-product Credits for our consolidated silver properties
includes corporate costs for general and administrative expense, exploration
and sustaining capital.
(5) In late
reduce to minimum operations as part of the fight against COVID-19, causing
us to suspend our
mining operations resumed, resulting in reduced mill throughput.
Suspension-related costs totaling
reported in a separate line item on our consolidated statements of operations
and excluded from the calculations of cost of sales and other direct
production costs and depreciation, depletion and amortization and Cash Cost
and AISC, After By-product Credits, per Gold Ounce.
(6) Production was suspended at the
and at the Midas mine and Aurora mill in late-2019. Suspension-related costs
at
2020 are reported in a separate line item on our consolidated statements of
operations and excluded from the calculations of cost of sales and other
direct production costs and depreciation, depletion and amortization and Cash
Cost and AISC, After By-product Credits, per Gold Ounce.
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Financial Liquidity and Capital Resources
Our liquid assets include (in millions):
June 30 ,December 31, 2020 2019
Cash and cash equivalents held in
50.3
Cash and cash equivalents held in foreign currency 23.7
12.2
Total cash and cash equivalents 75.9
62.5
Marketable equity securities - non-current 12.2
6.2
Total cash, cash equivalents and investments
68.7 Cash and cash equivalents increased by$13.4 million in the first six months of 2020. Cash held in foreign currencies represents balances in Canadian dollars and Mexican pesos, with the$11.5 million increase in the first half of 2020 resulting from increases in both currencies held. The value of non-current marketable equity securities increased by$6.0 million (see Note 2 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information). OnFebruary 19, 2020 , we completed an offering of Senior Notes in the total principal amount ofUS$475 million . The Senior Notes are dueFebruary 15, 2028 and bear interest at a rate of 7.25% per year from the most recent payment date to which interest has been paid or provided for. The net proceeds from the Senior Notes were used, along with cash on hand, to redeem, inMarch 2020 , our previously-outstanding 2021 Notes having a principal balance of$506.5 million . Also, inJuly 2018 we entered into a new$250 million revolving credit facility. Interest is payable on amounts drawn from the revolving credit facility at a rate of between 2.25% and 4.00% over the London Interbank Offered Rate, or between 1.25% and 3.00% over an alternative base rate, with interest payable onMarch 31 ,June 30 ,September 30 , andDecember 31 of each year. As a precaution due to uncertainties of the duration, severity and scope of the COVID-19 outbreak, we drew$210.0 million on the facility in the first quarter of 2020. In the second quarter of 2020, we repaid$160.0 million of the amount drawn on the facility, with the remaining$50 million outstanding as of the end of the quarter. In addition, inJuly 2020 we agreed to issueCAD$50 million (approximatelyUSD$36.8 million at the time of the transaction) in aggregate principal amount of our IQ Notes, which mature inJuly 2025 and bear interest at a rate of 6.515% per year. The IQ Notes will be issued at a premium of 103.65%, implying an effective annual yield of 5.74% and an aggregate principal amount to be repaid ofCAD$48.2 million . The IQ Notes will be issued in four equal installments ofCAD$12.5 million in July, August, September andOctober 2020 , with the first installment issued net ofCAD$0.6 million in fees. The net proceeds from the IQ Notes will be available for general corporate purposes, including for open market purchases of a portion of the Senior Notes and to pay for capital expenditures at ourCasa Berardi unit. Under the note purchase agreement for the IQ Notes and subject to a force majeure event, we are required to invest in the aggregateCAD$100 million at the Casa Berardi unit and other exploration and development projects inQuebec over the four-year period commencing onJuly 9, 2020 . See Note 9 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information on our debt arrangements. We continue to address the COVID-19 outbreak and face uncertainty related to the potential additional impacts it could have on our operations. It is possible that future restrictions at Casa Berardi,San Sebastian orGreens Creek (or at any other operation) could have an adverse impact on operations or 2020 financial results, including materially so, beyond the second quarter of 2020. We have taken precautionary measures to mitigate the impacts of COVID-19, including implementing operational plans and practices and increasing our cash reserves through a draw-down of our revolving credit facility. As long as they are required, the operational practices implemented could continue to have an adverse impact on our operating results due to deferred production and revenues or additional costs. If required, increasing or prolonged restrictions on our operations could require access to additional sources of liquidity, which may not be available to us. See Part II, Item 1A. Risk Factors - Natural disasters, public health crises, political crises, and other catastrophic events or other events outside of our control may materially and adversely affect our business or financial results in our quarterly report on Form 10-Q for the period endedMarch 31, 2020 for information on how restrictions related to COVID-19 have recently affected some of our operations. As further discussed in the Lucky Friday Segment section above, the union employees at Lucky Friday were on strike fromMarch 13, 2017 until the strike ended onJanuary 7, 2020 , and production at Lucky Friday has been limited since the start of the strike. Re-staffing of the mine has been substantially completed, with a return to full production anticipated by the end of 2020. However, the ramp-up to full production could take longer or be more costly than anticipated. Pursuant to our common stock dividend policy described in Note 8 of Notes to Condensed Consolidated Financial Statements (Unaudited), our board of directors declared and paid dividends on common stock totaling$2.6 million in the first half of 2020 and$2.4 million in the first half of 2019. Our dividend policy has a silver-price-linked component which ties the amount of declared common stock dividends to our realized silver price for the preceding quarter. Another component of our common stock dividend policy anticipates paying an annual minimum dividend. The declaration and payment of dividends on common stock is at the sole discretion of our board of directors, and there can be no assurance that we will continue to declare and pay common stock dividends in the future. 63
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OnMay 8, 2012 , we announced that our board of directors approved a stock repurchase program. Under the program, we are authorized to repurchase up to 20 million shares of our outstanding common stock from time to time in open market or privately negotiated transactions, depending on prevailing market conditions and other factors. The repurchase program may be modified, suspended or discontinued by us at any time. Whether or not we engage in repurchases from time to time may depend on a variety of factors, including not only price and cash resources, but customary black-out restrictions, whether we have any material inside information, limitations on share repurchases or cash usage that may be imposed by our credit agreement or in connection with issuances of securities, alternative uses for cash, applicable law, and other investment opportunities from time to time. As ofJune 30, 2020 , 934,100 shares had been purchased in prior periods at an average price of$3.99 per share, leaving 19.1 million shares that may yet be purchased under the program. The closing price of our common stock atAugust 4, 2020 , was$6.05 per share. No shares were purchased under the program during the first half of 2020. We may defer some capital investment and/or exploration and pre-development activities, engage in asset sales or secure additional capital if necessary to maintain liquidity. We also may pursue additional acquisition opportunities, which could require additional equity issuances or other forms of financing. There can be no assurance that such financing will be available to us. As a result of our current cash balances, the performance of our current and expected operations, current metals prices, proceeds from potential at-the-market sales of common stock, and availability of our revolving credit facility, we believe we will be able to meet our obligations and other potential cash requirements during the next 12 months from the date of this report. Our obligations and other uses of cash may include, but are not limited to: debt service obligations related to the Senior Notes and IQ Notes; principal and interest payments under our revolving credit facility; deferral of revenues, care-and-maintenance and other costs related to addressing the impacts of COVID-19 on our operations; capital expenditures at our operations; potential acquisitions of other mining companies or properties; regulatory matters; litigation; potential repurchases of our common stock under the program described above; and payment of dividends on common stock, if declared by our board of directors. We currently estimate a total of approximately$90 million will be spent on capital expenditures, primarily for equipment, infrastructure, and development at our mines, in 2020, including$33.8 million incurred in the first half of 2020. We also estimate exploration and pre-development expenditures will total approximately$13.2 million in 2020, including$5.6 million already incurred in the first half of 2020. Our expenditures for these items and our related plans for 2020 may change based upon our financial position, metals prices, and other considerations. Our ability to fund the activities described above will depend on our operating performance, metals prices, our ability to estimate revenues and costs, sources of liquidity available to us, including the revolving credit facility, and other factors. A sustained downturn in metals prices, significant increase in operational or capital costs or other uses of cash, our inability to access the credit facility or the sources of liquidity discussed above, or other factors beyond our control could impact our plans. Six Months Ended June 30, 2020 June 30, 2019 Cash provided by operating activities (in millions) $ 42.5 $ 8.7 Cash provided by operating activities in the first half of 2020 of$42.5 million represented a$33.8 million increase compared to the$8.7 million provided by operating activities in the first half of 2019. The variance was the result of higher net income, as adjusted for non-cash items, reductions to accounts receivable, and increases to accrued payroll and taxes, partially offset by increases to inventory and decreases to accounts payable. Six Months Ended June 30, 2020 June 30, 2019 Cash used in investing activities (in millions) $ (31.1 ) $ (71.3 ) 64
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During the first half of 2020, we invested$30.7 million in capital expenditures, not including$3.1 million in non-cash finance lease additions, a decrease of$40.6 million compared to the same period in 2019. The variance is due to reduced expenditures at all of our operations exceptLucky Friday , where we have been preparing for a return to production after the end of the strike inJanuary 2020 . Six Months Ended June 30, 2020 June 30, 2019 Cash provided by financing activities (in millions) $ 4.0 $ 44.2 In the first half of 2020, we received$469.5 million in net proceeds from the issuance of our Senior Notes and drew$210.0 million on our revolving credit facility, and had debt repayments of$506.5 million for redemption of our 2021 Notes and$160.0 million for our revolving credit facility. In the first half of 2019, we drew$170.0 million and had repayments of$118.0 million on our revolving credit facility. We made repayments on our finance leases of$2.8 million and$3.4 million in the six-month periods endedJune 30, 2020 and 2019, respectively. During the first six months of 2020 and 2019, we paid cash dividends on our common stock totaling$2.6 million and$2.4 million , respectively, and cash dividends of$0.3 million on our Series B Preferred Stock during each of those periods. We acquired treasury shares for$2.7 million and$1.6 million in the first half of 2020 and 2019, respectively, as a result of employees' elections to utilize net share settlement to satisfy their tax withholding obligations related to incentive compensation paid in stock and vesting of restricted stock units. See Note 8 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information. The effect of changes in foreign exchange rates resulted in a$1.8 million decrease in cash and cash equivalents in the first half of 2020 compared to an increase of$0.4 million in the first half of 2019, with the variance due to weakening of the CAD and MXN relative to the USD in the 2020 period.
Contractual Obligations, Contingent Liabilities and Commitments
The table below presents our fixed, non-cancelable contractual obligations and commitments primarily related to our Senior Notes, credit facility, outstanding purchase orders, certain capital expenditures and lease arrangements as ofJune 30, 2020 (in thousands): Payments Due By Period Less than More than 1 year 1-3 years 4-5 years 5 years Total Purchase obligations (1)$ 10,722 - - $ -$ 10,722 Credit facility(2) - 50,000 - - 50,000 Contractual obligations (3) 1,302 - - - 1,302 Finance lease commitments (4) 6,123 6,592 960 - 13,675 Operating lease commitments (5) 3,946 6,001 2,052 2,601 14,600 Supplemental executive retirement plan (6) 622 1,509 2,107 6,440 10,678 Defined benefit pension plans (6) 4,800 - - - 4,800 Senior notes (7) 34,438 68,875 68,875 565,398 737,586 Total contractual cash obligations$ 61,953 $ 132,977 $ 73,994 $ 574,439 $ 843,363
(1) Consists of open purchase orders of approximately
Creek unit,
Friday unit and $2.8 million at the Nevada Operations unit.
(2) We have a $250 million revolving credit agreement under which we arerequired to pay a standby fee of between 0.5625% and 1.00% per annum on
undrawn amounts and interest of between 2.25% and 4.00% over the
Interbank Offered Rate or between 1.25% and 3.00% over an alternative base
rate on drawn amounts under the revolving credit agreement. We had
million drawn and
balance drawn, and not an estimate of interest to be paid or the standby fee
on potentially undrawn amounts, as the timing of repayment of the principal
balance and future draws is unknown at this time. For more information on
our credit facility, see Note 9 of Notes to Condensed Consolidated Financial
Statements (Unaudited).
(3) As of June 30, 2020 , we were committed to approximately $1.3 million for
various items at Greens Creek .
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(4) Includes scheduled finance lease payments of
equipment at our
Operations units. These leases have fixed payment terms and contain bargain
purchase options at the end of the lease periods (see Note 9 of Notes to
Condensed Consolidated Financial Statements (Unaudited) for more
information).
(5) We enter into operating leases in the normal course of
business. Substantially all lease agreements have fixed payment terms based
on the passage of time. Some lease agreements provide us with the option to
renew the lease or purchase the leased property. Our future operating lease
obligations would change if we exercised these renewal options and if we
entered into additional operating lease arrangements.
(6) We sponsor defined benefit pension plans covering substantially all
employees and provide certain post-retirement benefits for qualifying
retired employees, along with a supplemental executive retirement plan.
These amounts represent our estimate of the future funding requirements for
these plans. We believe we will have funding requirements related to our
defined benefit plans beyond one year; however, such obligations are notfixed in nature and are difficult to estimate, as they involve significant
assumptions. See Note 7 of Notes to Condensed Consolidated Financial
Statements (Unaudited) for more information.
(7) On
principal amount of our Senior Notes due
bear interest at a rate of 7.25% per year from the original date of issuance
or the most recent payment date to which interest has been paid or provided
for. Interest on the Senior Notes is payable on
each year, commencing
Consolidated Financial Statements (Unaudited) for more information.
We record liabilities for costs associated with mine closure, reclamation of
land and other environmental matters. At June 30, 2020 , our liabilities for
these matters totaled $104.6 million . Future expenditures related to closure,
reclamation and environmental expenditures at our sites are difficult to
estimate, although we anticipate we will incur expenditures relating to these
obligations over the next 30 years. For additional information relating to our
environmental obligations, see Note 4 of Notes to Condensed Consolidated
Financial Statements (Unaudited).
Off-Balance Sheet Arrangements
AtJune 30, 2020 , we had no existing off-balance sheet arrangements, as defined underSEC regulations, that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Critical Accounting Estimates
Our significant accounting policies are described in Note 1 of Notes to Consolidated Financial Statements in Part IV of our annual report filed on Form 10-K for the year endedDecember 31, 2019 . As described in such Note 1, we are required to make estimates and assumptions that affect the reported amounts and related disclosures of assets, liabilities, revenue, and expenses. Our estimates are based on our experience and our interpretation of economic, political, regulatory, and other factors that affect our business prospects. Actual results may differ significantly from our estimates. We believe that our most critical accounting estimates are related to future metals prices; obligations for environmental, reclamation, and closure matters; mineral reserves; and accounting for business combinations, as they require us to make assumptions that are highly uncertain at the time the accounting estimates are made and changes in them are reasonably likely to occur from period to period. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our board of directors, and the Audit Committee has reviewed the disclosures presented below. In addition, there are other items within our financial statements that require estimation, but are not deemed to be critical. However, changes in estimates used in these and other items could have a material impact on our financial statements. 66
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Table of Contents Future Metals Prices Metals prices are key components in estimates that determine the valuation of some of our significant assets and liabilities, including properties, plants, equipment and mineral interests, deferred tax assets, and certain accounts receivable. Metals prices are also an important component in the estimation of reserves. As shown under Part I, Item 1. - Business in our annual report filed on Form 10-K for the year endedDecember 31, 2019 , metals prices have historically been volatile. Silver demand arises from investment demand, particularly in exchange-traded funds, industrial demand, and consumer demand. Gold demand arises primarily from investment and consumer demand. Investment demand for silver and gold can be influenced by several factors, including: the value of theU.S. dollar and other currencies, changingU.S. budget deficits, widening availability of exchange-traded funds, interest rate levels, the health of credit markets, and inflationary expectations. Uncertainty related to the political environment in theU.S. ,Britain's exit from theEuropean Union ,U.S. and global trading policies (including tariffs), and a global economic recovery, including recent uncertainty inChina and from the current downturn and continued uncertainty resulting from the COVID-19 outbreak, could result in continued investment demand for precious metals. Industrial demand for silver is closely linked to world Gross Domestic Product growth and industrial fabrication levels, as it is difficult to substitute for silver in industrial fabrication. Consumer demand is driven significantly by demand for jewelry and other retail products. We believe that long-term industrial and economic trends, including urbanization and growth of the middle class in countries such asChina andIndia , will result in continued consumer demand for silver and gold and industrial demand for silver. However, the global economy has been significantly impacted by the COVID-19 outbreak, with the ultimate severity and duration of the downtown unknown, andChina has recently experienced economic contraction which could resume in the future. There can be no assurance whether these trends will continue or how they will impact prices of the metals we produce. In the past, we have recorded impairments to our asset carrying value because of low prices, and we can offer no assurance that prices will either remain at their current levels or increase. Processes supporting valuation of our assets and liabilities that are most significantly affected by prices include analysis of asset carrying values, depreciation, reserves, and deferred income taxes. On at least an annual basis - and more frequently if circumstances warrant - we examine our depreciation rates, reserve estimates, and the valuation allowances on our deferred tax assets. We examine the carrying values of our assets as changes in facts and circumstances warrant. In our evaluation of carrying values and deferred taxes, we apply several pricing views to our forecasting model, including current prices, analyst price estimates, forward-curve prices, and historical prices (see Mineral Reserves, below, regarding prices used for reserve estimates). Using applicable accounting guidance and our view of metals markets, we use the probability-weighted average of the various methods to determine whether the values of our assets are fairly stated, and to determine the level of valuation allowances, if any, on our deferred tax assets. In addition, estimates of future metals prices are used in the valuation of certain assets in the determination of the purchase price allocations for our acquisitions (see Business Combinations below). Sales of concentrates sold directly to customers are recorded as revenues upon completion of the performance obligation and transfer of control of the product to the customer (generally at the time of shipment) using estimated forward metals prices for the estimated month of settlement. Due to the time elapsed between shipment of concentrates to the customer and final settlement with the customer, we must estimate the prices at which sales of our metals will be settled. Previously recorded sales and trade accounts receivable are adjusted to estimated settlement prices until final settlement by the customer. Changes in metals prices between shipment and final settlement result in changes to revenues and accounts receivable previously recorded upon shipment. As a result, our trade accounts receivable balances related to concentrate sales are subject to changes in metals prices until final settlement occurs. For more information, see Note 6 of Notes to Condensed Consolidated Financial Statements (Unaudited). We utilize financially-settled forward and put option contracts to manage our exposure to changes in prices for silver, gold, zinc and lead. See Item 3. - Quantitative and Qualitative Disclosures About Market Risk - Commodity-Price Risk Management below for more information on our contract programs. These contracts do not qualify for hedge accounting and are therefore marked-to-market through earnings each period. Changes in silver, gold, zinc and lead prices between the dates that the contracts are entered into and their settlements will result in changes to the fair value asset or liability associated with the contracts, with a corresponding gain or loss recognized in earnings.
Obligations for Environmental, Reclamation and Closure Matters
Accrued reclamation and closure costs can represent a significant and variable liability on our balance sheet. We have estimated our liabilities under appropriate accounting guidance, and on at least an annual basis - and more frequently if warranted - management reviews our liabilities with our Audit Committee. However, the ranges of liability could exceed the liabilities recognized. If substantial damages were awarded, claims were settled, or remediation costs incurred in excess of our accruals, our financial results or condition could be materially adversely affected. Mineral Reserves Critical estimates are inherent in the process of determining our reserves. Our reserves are affected largely by our assessment of future metals prices, as well as by engineering and geological estimates of ore grade, accessibility and production cost. Metals prices are estimated at long-term averages, as described in Part I, Item 2. - Properties in our annual report filed on Form 10-K for the year endedDecember 31, 2019 . Our assessment of reserves occurs at least annually, and periodically utilizes external audits. 67
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Reserves are a key component in the valuation of our properties, plants, equipment and mineral interests. Reserve estimates are used in determining appropriate rates of units-of-production depreciation, with net book value of many assets depreciated over remaining estimated reserves. Reserves are also a key component in forecasts, with which we compare future cash flows to current asset values in an effort to ensure that carrying values are reported appropriately. Our forecasts are also used in determining the level of valuation allowances on our deferred tax assets. Reserves also play a key role in the valuation of certain assets in the determination of the purchase price allocations for acquisitions. Annual reserve estimates are also used to determine conversions of mineral assets beyond the known reserve resulting from business combinations to depreciable reserves, in periods subsequent to the business combinations (see Business Combinations below). Reserves are a culmination of many estimates and are not guarantees that we will recover the indicated quantities of metals or that we will do so at a profitable level. Business Combinations We are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The valuation of assets acquired and liabilities assumed requires management to make significant estimates and assumptions, especially with respect to long-lived assets (including mineral assets beyond the known reserve). These estimates include future metals prices and mineral reserves, as discussed above. Management may also be required to make estimates related to the valuation of deferred tax assets or liabilities as part of the purchase price allocation for business combinations. In some cases, we use third-party appraisers to determine the fair values of property and other identifiable assets. In addition, costs related to business combinations are included in earnings as incurred, and our financial results for periods in which business combinations are pursued could be adversely affected as a result.
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