In this Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A"), "Hecla," "the Company," "we," "us" and "our" refer to
Overview
Established in 1891, we believe we are the oldest operating precious metals
mining company in
Second Quarter 2022 Highlights
Operational: • Produced 3.6 million ounces of silver and 45,719 ounces of gold. See Consolidated Results of Operations below for information on total cost of sales and cash costs and AISC, after by-product credits, per silver and gold ounce for the three-month periods endedJune 30, 2022 and 2021. • Continued mitigation of the impacts of COVID-19 through refinement of our operational plans and procedures to protect our workforce, operations and communities while maintaining liquidity. Financial: • Reported sales of$191.2 million . • Generated$40.2 million in net cash provided by operating activities. See the Financial Liquidity and Capital Resources section below for further discussion. • Made capital expenditures (excluding lease additions and other non-cash items) of approximately$34.7 million , including$14.7 million atGreens Creek ,$11.5 million at Lucky Friday,$8.1 million at Casa Berardi and$0.3 million at the Nevada Operations. 23
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Table of Contents • Generated$5.9 million in free cash flow. A reconciliation of the non-GAAP measure free cash flow to net cash provided by operating activities, the nearest GAAP measure, is included in the Reconciliation of Cash Flows From Operating Activities (GAAP) to Free Cash Flow (Non-GAAP) section below. • Returned$3.5 million , or 60% of free cash flows, to our shareholders through payment of dividends. • Spent$11.2 million on exploration and pre-development activities. • During April made an$11.0 million strategic investment in Alexco. Subsequent toJune 30, 2022 , we increased our investment in Alexco. See Note 12, of Notes to Condensed Consolidated Financial Statements (unaudited) regarding our proposed acquisition of Alexco. Year to date 2022 Highlights Operational: • Produced 7.0 million ounces of silver and 87,361 ounces of gold. See Consolidated Results of Operations below for information on total cost of sales and cash costs and AISC, after by-product credits, per silver and gold ounce for the six-month periods endedJune 30, 2022 and 2021. • Continued our trend of strong safety performance, as our All Injury Frequency Rate ("AIFR") for the year to date was 1.59, 24% below theU.S. national average for MSHA's "metal and nonmetal" category and within 10% of our AIFR of 1.45 for the full year of 2021. • Continued mitigation of the impacts of COVID-19 through refinement of our operational plans and procedures to protect our workforce, operations and communities while maintaining liquidity. Financial: • Reported sales of$377.7 million . • Generated$78.1 million in net cash provided by operating activities. See the Financial Liquidity and Capital Resources section below for further discussion. • Made capital expenditures (excluding lease additions and other non-cash items) of approximately$55.8 million , including$17.8 million atGreens Creek ,$21.2 million at Lucky Friday,$15.9 million at Casa Berardi and$1.2 million at the Nevada Operations. • Generated$22.3 million in free cash flow. A reconciliation of the non-GAAP measure free cash flow to net cash provided by operating activities, the nearest GAAP measure, is included in the Reconciliation of Cash Flows From Operating Activities (GAAP) to Free Cash Flow (Non-GAAP) section below. • Returned$7.0 million , or 31% of free cash flows, to our shareholders through payment of dividends. • Spent$24.0 million on exploration and pre-development activities. • Invested$21.9 million in junior mining companies, including an$11.0 investment in Alexco. See Note 12, of Notes to Condensed Consolidated Financial Statements (unaudited) regarding our proposed acquisition of Alexco.
Our current business strategy is to focus our financial and human resources in the following areas:
• executing value enhancing transactions, such as with the proposed Alexco acquisition; • 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 and cost-effective manner; • maintaining and investing in exploration and pre-development projects in the vicinities of eleven mining districts and projects we believe to be under-explored and under-invested:Greens Creek onAlaska's Admiralty Island located nearJuneau ;North Idaho's Silver Valley in the historicCoeur d'Alene Mining District; the silver-producing district nearDurango, Mexico ; in the vicinity of ourCasa Berardi mine and the Heva-Hosco project in the Abitibi region of northwesternQuebec, Canada ; our projects located in two districts inNevada ; our projects in northwesternMontana ; theCreede district of southwesternColorado ; the Kinskuch project inBritish Columbia, Canada ; and the Republic mining district inWashington state ; 24
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Table of Contents • improving operations at each of our mines, which includes incurring costs for new technologies and equipment; • expanding our proven and probable reserves, mineral resources and production capacity at our properties; • conducting our business with financial stewardship to preserve our financial position in varying metals price and operational environments; • advancing permitting of one or both of ourMontana projects; and • continuing to seek opportunities to acquire and invest in mining and exploration properties and companies.
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 the
Since its outbreak in 2020, the COVID-19 pandemic continues to impact our
operational practices and we continue to incur incremental costs and modify our
operational plans to keep our workforce safe. In 2020, the pandemic adversely
impacted our expected production of gold at Casa Berardi and exploration
drilling at
A number of key factors may impact the execution of our strategy, including regulatory issues and metals prices. Metals prices can be very volatile and are influenced by a number of factors beyond our control (except on a limited basis through the use of derivative contracts). See Item 7. Critical Accounting Estimates in our 2021 Form 10-K and above in Note 8 of Notes to Condensed Consolidated Financial Statements (Unaudited). The average realized prices of gold and zinc were higher, with the average realized price for silver and lead lower, in the second three months of 2022 than in 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.
Volatility in global financial markets and other factors can pose a significant
challenge to our ability to access credit and equity markets, should we need to
do so, and to predict sales prices for our products. To help mitigate this
challenge, we utilize forward contracts to manage exposure to declines in the
prices of (i) silver, gold, zinc and lead contained in our concentrates that
have been shipped but have not yet settled, and (ii) zinc and lead that we
forecast for future concentrate shipments. In addition, we have in place a
Another challenge for us is the risk associated with environmental litigation and ongoing reclamation activities. As described in Item 1A. Risk Factors in our 2021 Form 10-K and above in Note 10 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.
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