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 Hecla Mining Company and its consolidated subsidiaries, except where the context requires otherwise. You should read this discussion in conjunction with our consolidated financial statements, the related MD&A and the discussion of our Business and Properties in our 2021 Form 10-K filed with the United States Securities and Exchange Commission (the "SEC"). The results of operations reported and summarized below are not necessarily indicative of future operating results (refer to "Forward-Looking Statements" above for further discussion). References to "Notes" are Notes included in our Notes to Condensed Consolidated Financial Statements (Unaudited). Throughout MD&A, all references to losses or income per share are on a diluted basis.





Overview


Established in 1891, we believe we are the oldest operating precious metals mining company in the United States. We are the largest silver producer in the United States, producing over 40% of the United States silver production at our Greens Creek and Lucky Friday operations. We produce gold at our Casa Berardi operation in Quebec, Canada, and Greens Creek, and produced gold at our Nevada Operations segment prior to suspension of operations during 2021. Based upon our operational footprint, we believe we have low political and economic risk compared to other mines located in other parts of the world. Our exploration interests are located in the United States, Canada and Mexico. Our operating and strategic framework is based on expanding our production and locating and developing new resource potential in a safe and responsible manner.

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 ended June 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 at Greens Creek, $11.5
    million at Lucky Friday, $8.1 million at Casa Berardi and $0.3 million at the
    Nevada Operations.




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  • 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
    to June 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 ended June 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 the U.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 at Greens 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 on Alaska's Admiralty Island
    located near Juneau; North Idaho's Silver Valley in the historic Coeur d'Alene
    Mining District; the silver-producing district near Durango, Mexico; in the
    vicinity of our Casa Berardi mine and the Heva-Hosco project in the Abitibi
    region of northwestern Quebec, Canada; our projects located in two districts
    in Nevada; our projects in northwestern Montana; the Creede district of
    southwestern Colorado; the Kinskuch project in British Columbia, Canada; and
    the Republic mining district in Washington state;




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  • 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 our Montana 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 National Mining Association's CORESafety program. We seek to implement reasonable best practices with respect to mine safety and emergency preparedness. We respond to issues outlined in investigations and inspections by MSHA, the Commission of Labor Standards, Pay Equity and Occupational Health and Safety in Quebec, and the Mexico Ministry of Economy and Mining and continue to evaluate our safety practices. There can be no assurance that our practices will mitigate or eliminate all safety risks. 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 2021 Form 10-K.

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 Greens Creek. We incurred $0.1 million and $0.4 million in COVID-19 mitigation costs during the three and six months ended June 30, 2022 compared to $1.4 million and $3.0 million during the three and six months ended June 30, 2021, respectively. To mitigate the impact of COVID-19, we have taken precautionary measures, including implementing operational plans and practices and increasing our cash reserves. As long as they are required, the operational practices implemented could continue to have an adverse impact on our operating results due to additional costs or deferred production and revenues. There is uncertainty related to the potential additional impacts COVID-19 and any subsequent variants could have on our operations and financial results for the rest of 2022. In our 2021 Form 10-K, see Item IA. Risk Factors - Natural disasters, public health crises (including COVID-19), political crises, and other catastrophic events or other events outside of our control may materially and adversely affect our business or financial results and COVID-19 virus pandemic may heighten other risks 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 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 $250 million revolving credit agreement, of which $14.9 million was used as of June 30, 2022 for letters of credit, leaving approximately $235.1 million available for borrowing.

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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