Hecla Reports Third Quarter 2019 Results
Strong operating results and free cash flow generation; Lucky Friday reaches tentative agreement
For The Period Ended: September 30, 2019
For Release: November 7, 2019
COEUR D’ALENE, Idaho–(BUSINESS WIRE)–Hecla Mining Company (NYSE:HL) today announced third quarter financial and operating results including sales of $161.5 million, net loss applicable to shareholders of $19.7 million, or $0.04 per share, cash provided by operating activities of $54.9 million and silver cost of sales and other direct production costs and depreciation, depletion and amortization (“cost of sales”) of $57.3 million.
HIGHLIGHTS
- Silver production of 3.3 million ounces and gold production of 77,311 ounces.
- Adjusted net loss applicable to common shareholders of $11.8 million, or $0.02 per share.1
- Adjusted EBITDA of $69.8 million.2
- Approximately 40% lower cash cost per silver ounce and all in sustaining cost (“AISC”) per silver ounce, in each case net of by-product credits compared to the third quarter of 2018. 3,4
- Free cash flow of $28.8 million generated.6
- Cash and cash equivalents of $33.0 million, with a draw on the revolving line of credit of $50 million, at September 30, 2019.
- A tentative labor agreement at Lucky Friday between the Company and the union negotiating committees which is subject to member ratification.
- Lucky Friday Mine received the Sentinels of Safety award from the National Mining Association (NMA) for its stellar safety record in 2018 as well as the Pollution Prevention Champion award from the State of Idaho.
- Reaffirmed annual estimates for production, cost and expenditure estimates.
“The third quarter performance, including our increased adjusted EBITDA results, demonstrates significant progress toward our twin financial goals of having no net revolver indebtedness at year end and refinancing our senior notes,” said Phillips S. Baker, Jr., President and CEO. “Our net revolver debt decreased by about $26 million, all from free cash flow, and our adjusted EBITDA of $70 million is about 50% more than the first and second quarter combined. We expect the fourth quarter adjusted EBITDA to be similar to the third quarter.”
Mr. Baker continued, “At the Lucky Friday, a tentative labor agreement has been reached with the union’s negotiating committee and is subject to member ratification. We expect the mine ramp-up to full production to take about a year’s time, which would be good for the workforce, shareholders and the community. Also, congratulations to the Lucky Friday for winning the Sentinels of Safety, the highest safety award for mining in the US, as well as Idaho’s Pollution Prevention Champion Award.”
FINANCIAL OVERVIEW
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Third Quarter Ended |
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Nine Months Ended |
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HIGHLIGHTS |
September 30, |
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September 30, |
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September 30, |
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September 30, |
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FINANCIAL DATA |
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Sales (000) |
$161,532 |
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$143,649 |
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$448,321 |
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$430,617 |
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Gross profit (000) |
$14,880 |
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$6,576 |
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($1,919 |
) |
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$80,364 |
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Loss applicable to common shareholders (000) |
($19,654 |
) |
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($23,322 |
) |
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($91,995 |
) |
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($3,284 |
) |
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Basic and diluted loss per common share |
($0.04 |
) |
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($0.05 |
) |
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($0.19 |
) |
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($0.01 |
) |
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Net loss (000) |
($19,516 |
) |
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($23,184 |
) |
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($91,581 |
) |
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($2,870 |
) |
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Cash provided by operating activities (000) |
$54,896 |
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$28,192 |
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$63,609 |
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$75,210 |
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Free cash flow (000) |
$28,803 |
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($11,789 |
) |
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($33,729 |
) |
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($8,075 |
) |
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Net loss applicable to common shareholders for the third quarter was $19.7 million, or $0.04 per share, compared to net loss of $23.3 million, or $0.05 per share, for the same period a year ago. The difference was mainly due to the following items:
- Sales of $161.5 million were impacted by higher silver and gold production and higher realized silver and gold prices.
- A decrease of $7.9 million in exploration and pre-development expenditures over the third quarter of 2018 under the Company’s austerity program.
- Acquisition costs of $6.1 million in the third quarter 2018.
- Lower suspension-related costs at Lucky Friday by $2.8 million due to increased production.
Operating cash flow was $54.9 million compared to $28.2 million in the third quarter of 2018, with the increase due to higher income, adjusted for non-cash items, and lower cash outflows for working capital changes.
Adjusted EBITDA was $69.8 million compared to $64.4 million in the third quarter of 2018.
Capital expenditures totaled $29.0 million for the third quarter 2019 compared to $40.7 million in the third quarter of 2018, with the decrease mainly due to reduced spending at Nevada, Greens Creek and Lucky Friday, partially offset by increased spending at Casa Berardi. Expenditures at the operations were $2.5 million at Hecla Nevada, $9.0 million at Greens Creek, $13.2 million at Casa Berardi (includes $6.3 million for expansion of tailings dam capacity), $2.7 million at Lucky Friday, and $1.5 million at San Sebastian.
Metals Prices
The average realized silver price in the third quarter 2019 was $18.18 per ounce, 24% higher than the $14.68 price realized in the third quarter of 2018. The average realized gold price in the third quarter was $1,475 per ounce, 22% higher than the prior year period. Realized lead and zinc prices decreased by 2% and 14%, respectively, from the third quarter of 2018.
Metals Forward Sales Contracts
The following table summarizes the quantities of metals committed under financially settled forward sales contracts at September 30, 2019:
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Ounces/Pounds Under Contract (in thousands) |
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Average Price per Ounce/Pound |
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Silver |
Gold |
Zinc |
Lead |
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Silver |
Gold |
Zinc |
Lead |
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Contracts on forecasted sales |
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Forward contracts |
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2019 settlements |
— |
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— |
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— |
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4,409 |
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— |
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— |
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— |
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$ |
0.95 |
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2020 settlements |
— |
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— |
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— |
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4,960 |
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— |
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— |
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— |
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$ |
0.96 |
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The forward contracts represent 14% of the forecasted payable lead production for the 36-month period ended September 30, 2022 at an average price of $0.95 per pound.
Setting A Short-term Floor for Silver and Gold Prices
The Company purchased put option contracts in an amount approximating the expected silver and gold sales through the second quarter of 2020, setting an expected minimum average price of between $1,400 and $1,450 per gold ounce and between $15.00 and $16.00 per silver ounce. Put options set a floor on the price the Company expects to receive on substantially all of its projected near-term production while maintaining exposure to the upside, excluding the transaction costs. This gives the Company confidence in the minimum prices it expects to receive.
OPERATIONS OVERVIEW
The following table provides the production summary on a consolidated basis for the third quarter and nine months ended September 30, 2019 and 2018:
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Third Quarter Ended |
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Nine Months Ended |
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September 30, 2019 |
September 30, 2018 |
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September 30, 2019 |
September 30, 2018 |
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PRODUCTION SUMMARY |
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Silver – |
Ounces produced |
3,251,350 |
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2,523,691 |
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9,193,246 |
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7,654,118 |
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Payable ounces sold |
2,232,691 |
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2,588,478 |
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7,549,360 |
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6,993,695 |
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Gold – |
Ounces produced |
77,311 |
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72,995 |
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198,100 |
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191,116 |
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Payable ounces sold |
69,760 |
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68,568 |
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189,823 |
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183,050 |
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Lead – |
Tons produced |
6,107 |
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4,238 |
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17,406 |
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15,387 |
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Payable tons sold |
3,817 |
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3,986 |
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12,628 |
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12,599 |
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Zinc – |
Tons produced |
15,413 |
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12,795 |
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42,672 |
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42,312 |
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Payable tons sold |
7,878 |
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9,282 |
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27,234 |
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30,072 |
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On a silver or gold equivalency basis, third quarter production equates to 12.5 million ounces of silver equivalent or 144,629 ounces of gold equivalent, and for nine months 34.6 million ounces of silver equivalent or 401,774 ounces of gold equivalent production.
The following tables provide a summary of the final production, cost of sales, cash cost, after by-product credits, per silver and gold ounce, and AISC, after by-product credits, per silver and gold ounce for the third quarter and nine months ended September 30, 2019:
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Third Quarter Ended |
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Greens Creek |
Lucky |
San Sebastian |
Casa Berardi |
Nevada Ops |
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Sept 30, 2019 |
Silver |
Gold |
Silver |
Gold |
Silver |
Silver |
Gold |
Gold |
Silver |
Gold |
Silver |
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Production (ounces) |
3,251,350 |
77,311 |
2,544,018 |
13,684 |
115,682 |
541,636 |
4,699 |
36,547 |
6,637 |
22,381 |
43,377 |
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Increase/ (decrease) over 2018 |
727,659 |
4,316 |
667,601 |
2,125 |
84,043 |
19,705 |
1,033 |
(7,434) |
(2,922) |
8,592 |
(40,768) |
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Cost of sales & other direct production costs and depreciation, depletion and amortization (000) |
$57,335 |
$89,317 |
$40,475 |
— |
$4,018 |
$12,842 |
— |
$53,006 |
— |
$36,311 |
— |
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Increase/ (decrease) over 2018 |
$(9,152) |
$18,731 |
$(11,688) |
— |
$4,019 |
$(1,483) |
— |
$1,739 |
— |
$16,992 |
— |
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Cash costs, after by-prod credits, per silver or gold ounce 3,5 |
$2.34 |
$909 |
$2.05 |
— |
— |
$3.70 |
— |
$966 |
— |
$817 |
— |
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Increase/ (decrease) over 2018 |
$(1.78) |
$106 |
$0.13 |
— |
— |
$(8.32) |
— |
$280 |
— |
$(362) |
— |
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AISC, after by-prod credits, per silver or gold ounce 4 |
$8.89 |
$1,213 |
$6.05 |
— |
— |
$7.21 |
— |
$1,348 |
— |
$992 |
— |
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Increase/ (decrease) over 2018 |
$(6.79) |
$70 |
$(3.15) |
— |
— |
$(9.74) |
— |
$452 |
— |
$(940) |
— |
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Nine Months Ended |
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Greens Creek |
Lucky |
San Sebastian |
Casa Berardi |
Nevada Ops |
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Sept 30, 2019 |
Silver |
Gold |
Silver |
Gold |
Silver |
Silver |
Gold |
Gold |
Silver |
Gold |
Silver |
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Production (ounces) |
9,193,246 |
198,100 |
7,149,035 |
41,269 |
416,456 |
1,446,450 |
11,776 |
99,616 |
21,041 |
45,439 |
160,264 |
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Increase/ (decrease) over 2018 |
1,539,128 |
6,984 |
1,359,595 |
2,873 |
260,441 |
(147,320) |
(275) |
(27,264) |
(9,707) |
31,650 |
76,119 |
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Cost of sales and other direct production costs and depreciation, depletion and amortization (000) |
$187,724 |
$262,516 |
$140,237 |
— |
$11,149 |
$36,338 |
— |
$157,239 |
— |
$105,277 |
— |
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Increase/ (decrease) over 2018 |
$8,940 |
$91,047 |
$(1,526) |
— |
$5,305 |
$5,161 |
— |
$5,089 |
— |
$85,958 |
— |
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Cash costs, after by-prod credits, per silver or gold ounce 3,5 |
$2.70 |
$1,089 |
$1.67 |
— |
— |
$7.77 |
— |
$1,055 |
— |
$1,165 |
— |
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Increase/ (decrease) over 2018 |
$2.65 |
$287 |
$3.89 |
— |
— |
$(0.51) |
— |
$295 |
— |
$(14) |
— |
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AISC, after by-prod credits, per silver or gold ounce 4 |
$9.70 |
$1,520 |
$5.28 |
— |
— |
$12.14 |
— |
$1,373 |
— |
$1,841 |
— |
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Increase/ (decrease) over 2018 |
$(1.01) |
$425 |
$0.57 |
— |
— |
$(1.20) |
— |
$369 |
— |
$(91) |
— |
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Greens Creek Mine – Alaska
At the Greens Creek mine, 2.5 million ounces of silver and 13,684 ounces of gold were produced, compared to 1.9 million ounces and 11,559 ounces, respectively, in the third quarter of 2018. Higher silver production was a result of higher grades due to mine sequencing. The mill operated at an average of 2,321 tons per day (tpd) in the third quarter, a similar throughput as the third quarter of 2018.
The cost of sales for the third quarter was $40.5 million, and the cash cost, after by-product credits, per silver ounce, was $2.05, compared to $52.2 million and $1.92, respectively, for the third quarter of 2018.3 The AISC, after by-product credits, was $6.05 per silver ounce for the third quarter compared to $9.20 in the third quarter of 2018.4 The per ounce silver cash costs were higher primarily due to lower base metals prices, while AISC was lower due to lower capital spending.
In September 2019, the Company sold and received payment for two parcels of concentrate, but weather delayed the vessel departing until early October. A current deferred revenue liability of $20.1 million in proceeds was recognized.
Casa Berardi Mine – Quebec
At the Casa Berardi mine, 36,547 ounces of gold were produced, including 6,080 ounces from the East Mine Crown Pillar (EMCP) pit; compared to 43,981 ounces in the third quarter of 2018. The decrease is primarily due to lower ore grades and mill recovery. Gold production increased compared to the first two quarters of the year with a pre-crush system being used to process the stockpile left over from the lower throughput in the first half. Higher grades and a further increase in production are projected in the fourth quarter. The mill operated at an average of 3,667 tpd in the third quarter, a decrease of 5% over the third quarter of 2018.
The cost of sales was $53.0 million and the cash cost, after by-product credits, per gold ounce was $966, compared to $51.3 million and $686, respectively, in the prior year period.3,5 The increase in cash cost, after by-product credits, per gold ounce is due to lower gold production. The AISC, after by-product credits, was $1,348 per gold ounce compared to $896 in the third quarter of 2018, primarily due to the lower gold production and planned higher capital spending which included expansion of the tailings storage capacity.4
San Sebastian Mine – Mexico
At the San Sebastian mine, 541,636 ounces of silver and 4,699 ounces of gold were produced, compared to 521,931 ounces and 3,666 ounces, respectively, in the third quarter of 2018. The higher silver and gold production was expected as a result of increased throughput. The Velardeña mill operated at an average of 492 tpd, an increase of 14% over the third quarter of 2018.
The cost of sales was $12.8 million and the cash cost, after by-product credits, was $3.70 per silver ounce, compared to $14.3 million and $12.02, respectively, in the third quarter of 2018.3 The AISC, after by-product credits, was $7.21 per silver ounce for the third quarter compared to $16.95 in the third quarter of 2018, principally due to the higher silver and gold production and higher gold prices.4
A review of sulfide ore continues through 2019, including a bulk sample to test the capabilities of the third-party plant and the suitability of long-hole stoping for the ore body, with results expected early in 2020. To date, about 20,000 tons of the planned 26,000-ton sample have been mined and results from the long-hole stoping indicate better than modeled mining recovery and lower dilution. About 13,000 tons have been processed at a third-party mill and results suggest that mill recoveries are generally in line with expectations.
Nevada Operations
For the Nevada Operations, 22,381 ounces of gold and 43,377 ounces of silver were produced, as compared to 13,789 ounces of gold and 84,145 ounces of silver in the third quarter 2018. Hecla’s ownership of the operations commenced July 20, 2018.
The cost of sales was $36.3 million and the cash cost, after by-product credits, was $817 per gold ounce, compared to $19.3 million and $1,179, respectively, in the third quarter of 2018.3,5 The AISC, after by-product credits, was $992 per gold ounce compared to $1,932 in the third quarter of 2018, with the decrease due to higher gold production and lower capital and exploration spending.4 Mining was conducted on resources that have been exposed by previous development, and increased spending is not anticipated in the fourth quarter. Mining at Midas is expected to end in the fourth quarter. Some surface exploration drilling and hydrology studies have continued to provide information on the deposits to aid future development programs.
Third-party ore processing arrangements are also being pursued with the goal of reducing transportation and milling costs. This could include facilities that can process ore that is considered refractory.
Lucky Friday Mine – Idaho
At the Lucky Friday Mine, 115,682 ounces of silver were produced by salaried workers, compared to 31,639 ounces in the third quarter of 2018. The higher level of production helps defray costs associated with the strike at Lucky Friday. Cost of sales was $4.0 million, with no amount reported for the third quarter of 2018 as there were no concentrate shipments during that period.
The Remote Vein Miner (RVM) is fully fabricated, with testing at EPIROC’s test mine in Sweden underway and modifications ongoing. Delivery to Lucky Friday is expected in 2020.
A tentative agreement has been reached between the Company and the union negotiating committee which requires ratification by a majority of union members. A ramp-up to full production is expected to take about a year.
The mine earned the 2018 Sentinels of Safety award by the National Mining Association, the highest safety honor for a mine in the US, for the first time in its more than 60-year history of operations by Hecla.
In addition, Lucky Friday was recently showcased by the Idaho Department of Environmental Quality as an example of environmental leadership for its efforts creating waste treatment facilities that reduce the concentration of lead and zinc in the water released by over 95% and a water recycling program that reduces the average freshwater use by 95% in the concentrator plant.
EXPLORATION AND PRE-DEVELOPMENT
Exploration (including corporate development) expenses were $4.8 million, a decrease of $7.6 million compared to the third quarter of 2018.
Casa Berardi – Quebec
Up to nine drills (7 underground and 2 surface) operated in the East and West Mine areas with the goal of upgrading and expanding resources in several promising areas and potentially extending the underground mine production. Definition drilling was concentrated on the 148, 152 and EMCP zones in the East Mine Area and the 119, 123 and 124 zones in the Principal Area. Exploration drilling was focused on the western extension of the 118 Zone and the down-plunge extensions of the 128 Zone in the Principal Mine area as well as the down-plunge extensions of the 148 and the 152 zones in the East Mine. Two drills on surface completed definition and exploration drilling at the 128 Zone east of and at depth of the Principal Pit area, below the 160 Pit to define the 157 Zone resources, and along strike of the 160 Zone open pit.
The East Mine has a history of high-grade mine production and given that access has been re-established in the area, underground drilling confirmed and expanded a series of high-grade lenses from the 148 to 160 zones. Definition and exploration drilling results from the East Mine were previously reported in the press release “Hecla Expands High-Grade at Casa Berardi’s East Mine” dated November 5, 2019. Results from this drilling continue to show high grades over substantial widths. The most successful drilling included 0.45 oz/ton gold over 16.1 feet, 0.65 oz/ton gold over 22.3 feet including 1.05 oz/ton gold over 12.8 feet, 0.63 oz/ton gold over 26.6 feet including 1.12 oz/ton gold over 13.4 feet, 0.78 oz/ton gold over 15.2 feet and 1.03 oz/ton gold over 14.7 feet. Drilling also shows that the high-grade mineralization on the 148-08 lens extends both to the surface and west of the known EMCP pit lenses and includes intersections of 0.03 oz/ton gold over 64 feet and 0.06 oz/ton gold over 48.5 feet. Drilling continues at the East Mine and results show high-grades and the presence of visible gold in many of the drill holes with pending assays, and these high-grade lenses are open at depth down-plunge. Results received to date could have a significant positive impact on 2020 as we work to accelerate the modeling and mine planning of these high-grade zones.
West Mine definition drilling occurred in the 119, 123, 124 zones, and the West Mine Crown Pillar (WMCP) pit. In the lower part of the 123 Zone, in-fill and step-out drilling from the 1010 and 1030-levels to the west shows the continuity of high-grade mineralization down-plunge for over 400 feet and indicates the mineralization remains open to the west and to depth. Recent intersections include 0.33 oz/ton gold over 11.9 feet and 0.35 oz/ton gold over 32.0 feet. Higher in the mine, drilling of the 119 Zone from the 550-Level continues to define the eastern extension of the 119-01 lens south the Casa Berardi Fault. Recent assays include 0.14 oz/ton gold over 13.8 feet which extends the 119-01 lens over 160 feet to the east. Drilling in the 124 Zone shows the upward continuity of the 124-22 lens within the Principal Mine, with recent results including 0.37 oz/ton gold over 11.5 feet. Drilling results in the WMCP pit show that the high-grade mineralization extends to the surface and include intersections of 0.04 oz/ton gold over 42.6 feet and 0.03 oz/ton gold over 25.9 feet.
West Mine exploration drilling occurred in the 113, 118, and 128 zones during the quarter. Drilling in the 113 Zone from the 1010-level ramp in the West Mine has been completed and results indicate that there is potential for resource gains within the 113 Zone; further drilling will be required to better define these zones, especially on the North side of the Casa Berardi Fault. Exploration drilling in the 118 Zone, testing the connection between the 113 Zone and the 118 Zone, shows that the 118 Zone is open to the West with recent drill intersections including 0.13 oz/ton gold over 7.9 feet and 0.16 oz/ton gold over 13.1 feet. Drilling in the 128 Zone began in September and is focused on the South Domain south of the Casa Berardi Fault to test the eastern extension of the Upper Principal area mineralization.
A selection of third quarter assay results from Casa Berardi are listed in Table 1.
San Sebastian – Mexico
There were up to three core drills operating at San Sebastian focused on exploration definition drilling of the El Toro and El Toro Hanging Wall veins and definition drilling on the Middle Vein. This drilling added new mineralization and increased confidence to the El Toro veins, potentially adding oxide mine life to San Sebastian.
Discovered in late-2018, the El Toro Vein area is located approximately 1.2 miles southwest of the San Sebastian mine operation. Follow-up exploration drilling was conducted throughout most of 2019, and to date mineralization has been identified over 5,000 feet of strike length on the El Toro Vein and over 1,600 feet of strike length on the El Toro Hanging Wall Vein and up to 900 feet down-dip within both veins. Drilling results at El Toro and El Toro Hanging Wall Veins during the third quarter continued to return good grades over significant widths including 0.32 oz/ton gold and 33.0 oz/ton silver over 6.8 feet, 0.38 oz/ton gold and 21.2 oz/ton silver over 6.6 feet and 0.13 oz/ton gold and 8.5 oz/ton silver over 17.2 feet.
Two definition drill holes were completed in the 100 Zone of the Middle Vein and provided information for mine stope design in advance of mining. Results include 22.5 oz/ton silver and 0.08 oz/ton gold over 5.0 feet and 7.5 oz/ton silver and 0.13 oz/ton gold over 3.8 feet.
A selection of third quarter assay results from the El Toro, El Toro Hanging Wall, and Middle Veins are listed in Table 1.
Greens Creek – Alaska
At Greens Creek, drilling continues to upgrade the East, NWW, and 9A Ore zones resources. In the East Ore Zone, drill intersections targeted the central portion of the resource and confirmed mineralization. Strong assay results included 31.7 oz/ton silver, 0.35 oz/ton gold, 9.9% zinc and 4.0% lead over 10.6 feet and 114.4 oz/ton silver, 0.23 oz/ton gold, 4.9% zinc and 1.7% lead over 2.4 feet.
Drilling in the NWW Zone focused on testing the 600 feet of strike length. Recent assay results returned high-grade precious and base metal mineralization including 29.5 oz/ton silver, 0.21 oz/ton gold, 10.0% zinc and 5.7% lead over 32.2 feet and 42.8 oz/ton silver, 0.20 oz/ton gold, 30.3% zinc and 21.1% lead over 8.7 feet. Results received for the Northwest West Zone should upgrade the lower portion of model and extended a limb of mineralization at depth in the central portion of the zone.
Drilling in the 9A Zone targeted the northern and southern extents of the zone. Results included 17.5 oz/ton silver, 0.16 oz/ton gold, 18.2% zinc and 4.0% lead over 7.6 feet and 13.6 oz/ton silver, 0.03 oz/ton gold, 18.5% zinc and 10.1% lead over 3.6 feet. The 9A Zone is structurally complex and multiple drill holes intersected mineralization across several bands.
A selection of third quarter assay results from Greens Creek are listed in Table 1.
Nevada
Up to two drill rigs were used at Fire Creek to further evaluate the potential of areas of Spiral 2, Spiral 3 and Spiral 9 for near-term production and one surface drill rig was used to complete two exploration drill holes in the Hatter Graben at Hollister.
At Fire Creek, drilling focused on: 1) the lower extension of Spiral 2 mineralization, 2) expanding Spiral 2 resources up-dip in the Karen and Joyce zones, 3) testing the southern portion of Spiral 9 mineralization, and 4) extensions of Vein 20 in Spiral 2.
Contacts
For further information, please contact:
Mike Westerlund
Vice President – Investor Relations
800-HECLA91 (800-432-5291)
Email: [email protected]
Website: www.hecla-mining.com
