Company Overview
Hecla Mining Company (HL) is a renowned name in the silver mining industry, boasting a rich history that spans over 130 years. As the oldest and largest primary silver producer in the United States and Canada, Hecla has established itself as a formidable player in the global precious metals market.
Founded in 1891, Hecla’s journey has been marked by unwavering dedication to innovation, responsible mining practices, and a steadfast commitment to delivering long-term value to its shareholders. The company’s flagship assets, Greens Creek and Lucky Friday, have consistently demonstrated their ability to generate robust cash flows, even during challenging market conditions. Hecla is responsible for producing over 45% of U.S. silver production at these two operations. In addition to silver, the company also produces gold at its Casa Berardi and Greens Creek operations.
Financials
Hecla’s financial performance has been impressive, with the company reporting annual revenues of $720.23 million and a net income of -$84.22 million in 2023. The company’s operating cash flow for the year stood at $75.50 million, while its free cash flow was -$148.39 million.
In the most recent quarter (Q3 2024), Hecla reported revenue of $575.74 million, net income of $24.66 million, operating cash flow of $55.01 million, and free cash flow of -$0.69 million. The company’s revenues increased year-over-year, driven by higher metal prices, particularly for silver and gold, but were partially offset by lower sales volumes. Operating cash flow increased significantly compared to the prior year quarter due to higher income and non-cash items, but was negatively impacted by unfavorable changes in working capital.
Liquidity
Hecla’s liquidity position remains solid, with a current ratio of 1.09 and a quick ratio of 0.91, indicating the company’s ability to meet its short-term obligations. The company’s debt-to-equity ratio stands at 0.26, with cash and cash equivalents of $22.27 million. Hecla also has a $225 million revolving credit facility, of which $13 million was drawn as of September 30, 2024, and $6.3 million was used for letters of credit, leaving $205.7 million available.
Asset Portfolio and Operations
One of Hecla’s key strengths is its diversified asset portfolio, which includes not only its flagship silver mines but also gold and base metal operations. This diversification has allowed the company to mitigate risk and capitalize on a variety of market opportunities. The company’s Casa Berardi mine, located in Quebec, Canada, is a significant contributor to its gold production, while its Keno Hill operations in the Yukon Territory, Canada, have been ramping up silver output.
Hecla’s operations are primarily concentrated in the United States and Canada. The company has four main reportable segments: Greens Creek, Lucky Friday, Keno Hill, and Casa Berardi.
The Greens Creek segment, Hecla’s largest operation, produces silver, gold, lead, and zinc concentrates. In the third quarter of 2024, Greens Creek generated $116.57 million in sales, a 21% increase compared to the prior year period. Gross profit for the segment was $42.97 million, up from $36.14 million a year earlier. This improvement was primarily driven by higher realized prices for silver and gold, which offset lower sales volumes. Cash cost, after by-product credits, per silver ounce decreased to $0.93 from $3.04 in the prior year quarter, while all-in sustaining cost, after by-product credits, per silver ounce declined to $7.04 from $8.18. Capital expenditures at Greens Creek were $11.47 million in the quarter.
The Lucky Friday segment, Hecla’s second largest silver producer, saw a significant improvement in its financial performance. Sales increased to $51.07 million in the third quarter, up from $21.41 million a year ago, as the mine resumed full operations after being suspended in August 2023 due to a fire. Gross profit for the segment was $11.79 million, compared to $7.07 million in the prior year period. Cash cost, after by-product credits, per silver ounce was $9.98, up from $4.74 in the same quarter of 2023, while all-in sustaining cost, after by-product credits, per silver ounce increased to $19.40 from $10.63. Lucky Friday incurred $11.18 million in capital expenditures during the quarter.
Keno Hill, which Hecla acquired in September 2022, is in the ramp-up phase of production. In the third quarter, Keno Hill generated $19.81 million in sales and $14.41 million in capital expenditures as the company focused on development activities, mill commissioning, and permitting.
The Casa Berardi segment, Hecla’s gold-focused operation, saw its gross profit increase to $4.03 million in the third quarter, compared to a gross loss of $9.91 million a year earlier. This improvement was primarily due to higher realized gold prices, partially offset by lower gold ounces sold. Cash cost, after by-product credits, per gold ounce was $1.75, up from $1.48 in the prior year quarter, while all-in sustaining cost, after by-product credits, per gold ounce increased to $2.06 from $1.70. Casa Berardi incurred $18.61 million in capital expenditures during the quarter, mainly related to a tailings dam raise.
Responsible Mining Practices
Hecla’s commitment to responsible mining practices is also a hallmark of the company. The company has implemented stringent environmental and safety protocols across its operations, earning it a reputation as an industry leader in sustainability. This focus on corporate social responsibility has helped Hecla maintain strong relationships with local communities and regulatory bodies, further solidifying its position in the market.
Production Guidance
Hecla has revised its silver production outlook for 2024. The company now expects to produce between 8.6 million and 9.0 million ounces of silver at Greens Creek, down from its previous guidance of 9.0 million to 9.5 million ounces due to 7 days of unplanned mill downtime. Lucky Friday’s silver production guidance has been revised lower to 4.7 million to 5 million ounces due to lower than expected production and higher costs in Q3. The company’s gold production guidance remains unchanged, with an expected output of 106,000 to 116,000 ounces.
Hecla has also updated its cost guidance, with Lucky Friday’s all-in sustaining cost guidance revised to $14.50 to $15 per ounce of silver. The consolidated silver and gold cost guidance remains unchanged. Capital and exploration guidance is affirmed as well.
For Keno Hill, the company is affirming its previous silver production guidance. The mine produced approximately 600,000 ounces of silver in Q3, with year-to-date production of 2.1 million ounces. Casa Berardi’s previous production, cost, and capital guidance has been reiterated.
Recent Performance
Hecla’s strong performance has not gone unnoticed by the market. In the third quarter of 2024, the company reported revenues of $245.10 million, a significant increase from the $181.91 million reported in the same period of the previous year. This revenue growth was driven by higher metal prices and improved sales volumes, particularly for silver and gold.
Strategic Acquisitions
The company’s recent acquisition of Alexco Resource Corp. and its Keno Hill operations in the Yukon Territory has also been a strategic move, positioning Hecla as a dominant player in the prolific silver-producing region. The Keno Hill project is expected to contribute significantly to Hecla’s silver production in the coming years, further solidifying its status as a leading silver producer.
Resilience and Future Outlook
Despite the challenges posed by the COVID-19 pandemic and ongoing global economic uncertainties, Hecla has demonstrated its resilience and ability to navigate through turbulent times. The company’s strong balance sheet, diversified asset base, and commitment to sustainable mining practices have been instrumental in its success.
Looking ahead, Hecla’s future appears promising, with the company well-positioned to capitalize on the growing demand for precious metals, particularly silver, driven by its increasing applications in various industries, including renewable energy and electric vehicles. With a seasoned management team, a robust pipeline of exploration and development projects, and a steadfast focus on creating shareholder value, Hecla Mining Company is poised to continue its legacy as a titan in the silver mining industry.
Challenges and Setbacks
However, Hecla has faced its share of challenges in recent years. In 2023, the company experienced a significant setback when operations at the Lucky Friday mine were temporarily suspended due to a fire in the secondary egress shaft. This resulted in the mine being shut down for the remainder of 2023, until it was able to restart production in January 2024 after a new secondary egress was developed. Despite this setback, Hecla was able to collect $50 million in insurance proceeds related to the fire, which helped offset the financial impact of the shutdown.
The company has also had to contend with cost inflation across its operations, facing higher energy prices, increased costs for consumables, and rising labor and contractor costs. In response, Hecla has implemented cost containment efforts, particularly at its Casa Berardi mine, to manage these cost pressures effectively.
Furthermore, Hecla has faced some challenges at Keno Hill during the ramp-up phase, including permitting delays and community relations issues, which have impacted production and costs. The company remains committed to operating responsibly and working collaboratively with stakeholders in the Yukon.
Competitive Advantages
Despite these challenges, Hecla maintains a strong position in the industry, partly due to the favorable jurisdictions in which its operations are located. The company believes this reduces political and economic risk compared to some of its peers. Furthermore, Hecla’s culture of innovation has been a key factor in its success. A prime example of this is the implementation of the underhand closed bench mining method at the Lucky Friday mine, which has allowed the company to consistently produce silver, gold, lead, and zinc from its polymetallic orebodies.
Legal Matters
In May 2019, a purported class action lawsuit was filed against Hecla and certain executives alleging material false and misleading statements regarding the company’s Nevada operations. The lawsuit was dismissed with prejudice in September 2024.
In May 2022, a shareholder derivative lawsuit was filed against certain current and past members of Hecla’s Board of Directors and officers, alleging breaches of fiduciary duties, waste of corporate assets, and unjust enrichment related to the Nevada operations. This lawsuit is still ongoing.
Management Changes
There have been no recent CEO departures. Catherine “Cassie” J. Boggs has served as Interim President and CEO since May 2024, and the company recently announced the appointment of Rob Krcmarov as the new President and CEO effective November 2024.
In conclusion, Hecla Mining Company remains a leading precious metals producer focused on silver, with a portfolio of high-quality assets. The company is working to improve operational performance, strengthen its balance sheet, and position itself for long-term success. With its focus on organic growth and maximizing the value of its existing portfolio, along with a measured approach to Keno Hill’s ramp-up and a renewed focus on cash flow generation across all assets, Hecla is well-positioned to navigate the challenges and opportunities in the precious metals market.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.