COEUR D'ALENE - Hecla Mining Company (NYSE: HL) today announced second quarter 2022 financial and operating results.
SECOND QUARTER HIGHLIGHTS
Silver and gold production of 3.6 million and 45,719 ounces respectively, a 10% increase over the first quarter 2022 ('the prior quarter')
Sales of $191.2 million, a 3% increase over the prior quarter despite lower gold and silver prices
Cash provided by operating activities of $40.2 million and $5.9 million in free cash flow with continued positive free cash flow generation from all three operations3
Total cost of sales for silver of $90.9 million and cash cost and all-in sustaining cash cost (AISC) per ounce (each after by-product credits) of ($1.14) and $8.55 respectively1,2
Net loss applicable to common shareholders of $13.7 million or $0.03 per share (basic), and adjusted net income of $20.1 million or $0.04 per share5
Adjusted EBITDA of $70.5 million, net debt/adjusted EBITDA (last 12 months) of 1.4x 4
$198.2 million in cash and cash equivalents with approximately $335 million in available liquidity
Pending acquisition of Alexco Resource Corp ('Alexco') and its high-grade silver property in Yukon; transaction expected to close in early September
Published 2021 Sustainability report 'Building Strong Communities Through Responsible Mining'
'All three of our mines continue to deliver strong operational and financial results with each generating positive free cash flow,' said Phillips S. Baker Jr., President & CEO. 'Lucky Friday achieved record quarterly tons milled reflecting the significant strides we have made in managing seismicity and improving productivity with the Underhand Closed Bench (UCB) mining method. I strongly believe as we optimize this mining method, the Lucky Friday along with Greens Creek will further increase our position as the dominant U.S. silver producer.'
Baker continued, 'While we are exposed to inflationary pressures like the rest of the industry, our silver mines have largely been able to offset inflation with by-product credits. For the second half of the year with our strong balance sheet, we plan to increase our investment in operations with the goal of further accelerating production, earnings and cash flow growth. We are looking forward to closing the Alexco acquisition, which adds a high-grade silver property in the Yukon to our best in class portfolio. This acquisition could make Hecla the largest silver producer in Canada, as well as the United States, an important and a unique characteristic of Hecla among all silver producers for decades to come.'
These decreases were partially offset by: Higher sales volume at Greens Creek and Lucky Friday
Lower income and mining tax provision of $0.3 million compared to $5.6 million in the prior quarter reflecting lower income from operations
A net foreign exchange gain of $4.5 million versus a loss of $2.0 million in the prior quarter reflecting the appreciation of the U.S. dollar ('USD') against the Canadian dollar ('CAD') during the current quarter
Lower exploration and pre-development expense of $1.6 million versus the prior quarter reflecting timing of expenditures across the Company's exploration portfolio
Cash provided by operating activities of $40.2 million increased $2.3 million compared to the prior quarter, primarily due to positive working capital changes of $32.6 million reflecting the semi-annual interest payment on the outstanding long-term debt in the prior quarter.
Capital expenditures totaled $34.3 million, an increase of $12.9 million over the prior quarter with increased planned expenditures at Greens Creek of $14.7 million, Lucky Friday of $11.5 million, and Casa Berardi of $8.1 million. Free cash flow for the quarter was $5.9 million, a decrease of $10.6 million over the prior quarter primarily due to higher capital expenditures.
Cash costs and AISC (each after by-product credits) for silver were $(1.14) and $8.55 per ounce respectively. Cash costs declined by $2.23 per ounce over the prior quarter due to higher by-product credits at Greens Creek and higher silver production at the Lucky Friday as well as Greens Creek. AISC increased by $0.91 over the prior quarter, as a result of increased sustaining capital spend at both Greens Creek and Lucky Friday, partially offset by increased production at the Lucky Friday.
Gold cash cost per ounce and AISC declined by $145 and $169, respectively, attributable to higher gold production during the second quarter.
The Company is seeing the impact of inflationary pressures and labor constraints at all its operations. By-product credits continue to help offset the inflationary pressures for the silver segment due to strong by-product production and prices. At the Casa Berardi mine, while AISC per gold ounce after by-product credits declined over the prior quarter, the mine continues to see 15-20% overall increases in costs, notably impacting fuel, steel, reagents, and other consumables that have a greater impact on this mine because it handles the largest volume of ore and waste among the three operations. While Casa Berardi is focused on increasing underground ore feed to the mill, the mill is kept full with ore sourced from the surface, which exposes the mine to further inflationary pressures due to relatively higher volume of material moved.
Inflation is also impacting capital projects, particularly at the Lucky Friday where multiple projects are underway to support the production growth.
At the time of guidance issuance earlier this year, inflation expectations were 5%, which have been surpassed in the first half of the year. The Company expects these inflationary pressures to continue in the second half of the year at similar levels seen in the first half of the year and has revised gold cost guidance for Casa Berardi. The Company has also revised the consolidated capital expenditure guidance to reflect sustained inflationary pressures and to account for supply chain uncertainties that might delay equipment delivery schedules to 2023.
Forward Sales Contracts for Base Metals and Foreign Currency
The Company uses financially settled forward sales contracts to manage exposures to changes in prices of zinc and lead. At June 30, 2022, the Company had contracts covering approximately 65% of the forecasted payable zinc production (through 2025) at an average price of $1.32 per pound, and 49% of the forecasted payable lead production (through 2024) at an average price of $0.99 per pound.
The Company manages CAD exposure through forward contracts. At June 30, 2022, the Company had hedged approximately 43% of forecasted CAD direct production costs through 2025 at an average CAD/USD rate of 1.30. The Company has also hedged approximately 32% of capital costs for 2022 at 1.29.
Lucky Friday produced 1.2 million ounces of silver during the second quarter, a 38% increase over the prior quarter due to higher production resulting from higher throughput due to the UCB mining method and a 9% increase in grade. The throughput rate and the mined tons in the quarter are the highest in the mine's 80-year history. The UCB method mined 91% of tons in the second quarter compared to 82% of tons in the second quarter of 2021.
Total cost of sales for the second quarter 2022 was $30.3 million, an increase of $1.1 million over the prior quarter due to increased use of consumables to support higher mining volumes and higher contractor costs resulting from manpower shortages. Cash cost and AISC per silver ounce (each after by-product credits) were $3.07 and $9.91, respectively, and decreased over the prior quarter due to higher
HECLA MINING COMPANY 
