Hecla Reports Second Quarter Net Income of $13.7 Million and Operating Cashflow of $54.0 Million: Lowering Full-Year Cash Cost Guidance to $1.00-$1.50 Per Ounce1
For the Period Ended June 30, 2010
Hecla Mining Company (NYSE:HL)
today reported second quarter financial and operating results for 2010.
SECOND QUARTER 2010 HIGHLIGHTS
Silver production of 2.6 million ounces
Gold production of 17,880 ounces
Cash costs of negative $1.82 per ounce of silver after
by-product credits in the second quarter of 2010 and cash costs of negative
$2.41 per ounce of silver in the first half of 2010
Net income of $13.7 million, or 6 cents per basic share, applicable to
common shareholders
Cash flow from operations of $54.0 million
Second highest gross profit and cash flow from operating activities in
Hecla′s 119-year history
Strong balance sheet with more than $197 million in cash, up from $116
million at March 31, 2010
Hecla Mining Company President and Chief Executive Officer Phillips S.
Baker, Jr., said, 'Our mines, operating management and orebodies
combined with current prices allowed Hecla to generate an extraordinary
amount of cash flow for the amount of production. With very low
operating costs per ounce, our margin was in excess of $20 per ounce of
silver which drove cash flow of $54 million in the quarter, the second
highest in Hecla's history. This cash flow enabled Hecla to deploy
financial resources to support larger exploration and development
programs to build for the future. Importantly, we increased our cash
balance during the recent quarter by more than $80 million to almost
$200 million.'
FINANCIAL
Hecla reported net income of $17.1 million in the second quarter of
2010, compared with net income of $2.5 million in the second quarter of
2009. After dividends to holders of its preferred stock, Hecla reported
net income applicable to common shareholders of $13.7 million, or 6
cents per basic share, in the second quarter of 2010, compared to a loss
of $0.9 million in the second quarter of 2009. Hecla′s mandatory
convertible preferred stock will be converted into common stock in
January 2011.
Cash flow from operating activities in the second quarter of 2010 was
$54.0 million compared with $20.0 million in cash flow from operating
activities in the same prior year period. In the second quarter of 2010,
the company also received $45.6 million from the exercise of common
stock purchase warrants and stock options. During the quarter, capital
expenditures were $18.2 million compared to $7.3 million in the same
prior year period. The increase is primarily the result of a ramp-up in
capital expenditures, particularly with deep development at the Lucky
Friday mine.
(1) Cash cost per ounce is a non-GAAP measure, see Reconciliation of Net
Income at end of this release.
During the second quarter of 2010, Hecla recorded a gain totaling $8.4
million associated with its base metals hedging program which was
implemented to reduce the company′s exposure to both provisional price
adjustments and to reduce the impact of base metals price volatility. Of
the total, $6.4 million was related to its hedging of base metals
exposure on provisionally priced metal shipments and a gain of $2.0
million is associated with its longer-dated hedging program. The company
reported negative price adjustments of $5.7 million during the second
quarter of 2010. During the second quarter of 2010, the company also
recorded a loss on impairment of investments of $0.7 million associated
with marketable securities held in another mining company.
Baker said, 'Our newly implemented hedging program is achieving our
objectives to first avoid swings in earnings and cash flow on
provisional pricing and second, to build longer term price protection
ensuring our cost structure.?
At June 30, 2010, Hecla had $197.4 million in cash and cash equivalents
and no debt. Hecla has approximately 255.5 million shares of common
stock outstanding.
METALS PRICES
During the second quarter of 2010, Hecla realized $18.96 and $1,246 per
ounce of silver and gold, respectively, and $0.89 and $0.93 per pound,
respectively, for zinc and lead.
Average prices for silver and gold in the second quarter of 2010 were
33% and 30% higher, respectively, compared to the same 2009 period.
Average prices for lead and zinc in the second quarter of 2010 were 29%
and 37% higher, respectively, compared with the same prior year period.
OPERATIONS
Hecla produced 2.6 million ounces of silver in the second quarter of
2010 at a total cash cost of negative $1.82 per ounce, after
by-product credits. This compares with 3.0 million ounces of silver in
the second quarter of 2009 at a total cash cost of $3.38 per ounce and
2.5 million ounces of silver in the first quarter of 2010 at a total
cash cost of negative $3.03 per ounce. Cash costs in the second
quarter of 2010 were higher compared with cash costs in the first
quarter of 2010 because of lower prices for lead and zinc in the period.
By-product metal production totaled 17,880 ounces of gold, 21,623 tons
of zinc and 11,582 tons of lead in the second quarter of 2010 compared
with 15,925 ounces of gold, 19,410 tons of zinc and 10,650 tons of lead
for the second quarter of 2009.
Baker said, 'Improved grades at both operations compared to the first
quarter of 2010 helped to underpin another strong operating quarter for
Hecla. Despite some price weakness associated with base metals in the
quarter, our cost structure remains low and is one of the lowest amongst
the primary silver producers.?
Greens Creek - The Greens Creek mine in Alaska produced 1.8
million ounces of silver during the second quarter of 2010 at an average
total cash cost per ounce of negative $4.56, compared to
production of 2.1 million ounces at an average total cash cost per ounce
of $2.14 for the prior year period. The decrease in cash costs in the
second quarter of 2010 compared to the second quarter of 2009, despite
lower silver production, is primarily the result of higher prices and
volumes for by-product credits. On a year-over-year basis, silver grade
in the second quarter of 2010 was 10% lower; however, silver grade
improved 14% compared with the first quarter of 2010.
Milled tonnage averaged 2,252 tons per day in the second quarter of
2010, a further step toward our long-term goal of 2,300 tons per day.
Good availability of long-hole stopes helped to increase ore production
while other development and back-fill activities continue to track well
with production in the mine. Currently, the mine is on track to produce
7 million ounces of silver this year.
During the second quarter of 2010, $4.0 million was capitalized for
underground development, purchases of new equipment and construction
projects at the Greens Creek mine.
Lucky Friday - The Lucky Friday mine in northern Idaho produced
797,385 ounces of silver during the second quarter of 2010 at an average
total cash cost of $4.47 per ounce of silver after by-product credits,
compared to 868,339 ounces of silver during the second quarter of 2009
at an average total cash cost of $6.41 per ounce. Cash costs in the
second quarter of 2010 were lower compared with the second quarter of
2009 due to higher prices for by-product credits. Lower quarterly silver
production compared to the second quarter of 2009 is the result of
rehabilitation work in the exhaust shaft and secondary escape-way. The
mine is forecast to produce approximately 3 million ounces of silver in
2010.
Unit operating costs for mining and milling in the second quarter of
2010 were $71.97 per ton, or 7% lower than in the second quarter of 2009.
Capitalized mine costs in the second quarter were $14.0 million. This
included continued detailed engineering work, as well as lateral
development for an internal shaft and work at the new #4 tailings
facility.
In May 2010, the United Steel, Paper and Forestry, Rubber,
Manufacturing, Energy, Allied Industrial and Service Workers
International Union on behalf of Local 5114, formalized a six-year
collective bargaining agreement with our subsidiary, Hecla Limited, for
the Lucky Friday mine. Terms and conditions will not materially change
Lucky Friday′s cost structure.
EXPLORATION
During the second quarter, $5.8 million was spent on exploration.
Hecla′s programs consist of underground and surface drill testing at the
Greens Creek and Lucky Friday mine properties, as well as surface drill
testing at projects in Idaho, Colorado and Mexico. Up to ten drills were
active across the project areas during the quarter. Baker said, 'We′ve
seen continued success with deeper drilling at Lucky Friday while
in-mine drilling at Greens Creek is finding important extensions to
current reserves and resources. It′s still relatively early in the
surface exploration season and programs in our four project areas are
just receiving assay data to direct additional drilling. The 2010
program is a ramp-up of our exploration activities and significant for
some areas such as Greens Creek where we′ve had limited surface programs
in the past two seasons.?
Greens Creek - Good drill results from the NWW and 200 South
zones lead Hecla to believe that new reserves and resources could be
outlined over time. Definition and exploration drilling of the NWW zone
in the northern part of the mine have defined and extended two distinct
limbs of a major folded orebody for over 200 feet down dip. Variable
widths of massive sulfide up to 42 feet have been intersected on the two
limbs of the fold. The drill intercepts contain higher-than-expected
grades of precious metals such as: 0.72 ounces per ton gold and 75.6
ounces per ton silver with base metals over 2.6 feet. The closest
previous holes above this area grade 0.27 ounces per ton gold and 33
ounces per ton silver plus base metals over 41 feet in the upper limb
and 0.28 ounces per ton gold and 4.9 ounces per ton silver with base
metals over 7.7 feet on the lower limb. Drilling later this year could
expand both limbs further along strike.
Drilling from the 1147 Drift targeted the projection of the 200 South
zone to the south and west. The first three holes completed included a
13-foot section of massive sulfide that graded 0.25 ounces per ton gold,
2.1 ounces per ton silver, 2.1% lead and 23.3% zinc. The second hole
intersected a 30-foot interval of baritic ores and silicified argillite
with elevated silver grades. Assays are pending on a few holes in this
area as drilling continues to the south along the 1147 Drift to define
extensions of the 200 South and 5250 South.
The surface drill program began in late May and is designed to
systematically evaluate a series of targets including the north and
eastern projection of the NE mine contact and the Killer Creek gossans.
Disseminated mineralization, near the mine horizon and fault structures,
has been observed in each of these target areas and drilling will
attempt to expand the mineralized horizon and identify the next new
orebody at Greens Creek.
Lucky Friday - Two underground drills continue to test the
potential to expand the resource area outwards to the east with one
program evaluating the interval between the 6300 and 6800 levels of the
mine, and the other is testing below the 7000 level of the mineto
about the 7900 level. Drilling to the east of the resource between the
6300 to 6800 levels shows that the 30 Vein continues to be strong.
Selected assays from this area include: 12 feet of 30.4 ounces per ton
silver and 24.4% combined lead-zinc and 4.6 feet of 16.4 ounces per ton
silver and 11.4% combined lead-zinc.
Drilling below the 7000 level 500 feet to the east of the current
resource boundary indicates that the 30 Vein locally narrows and
contains higher-grade mineralization while secondary vein structures
such as the 60, 70 and 90 Veins host wider zones with strong
silver-lead-zinc. These results confirm that the vein structures
continue at least 500 feet east of the known resources. Selected results
include: 2.6 feet of 17.8 ounces per ton silver and 13.5% combined
lead-zinc in the 30 Vein, 2.3 feet grading 43 ounces per ton silver plus
18.1% combined lead-zinc in the 60 Vein, 2.3 feet of 57.5 ounces per ton
silver plus 33.4% combined lead-zinc in the 130 Vein. In the second
quarter of 2010, we continued to have success defining new resources at
the Lucky Friday.
Silver Valley -Drill programs east and west of the Lucky
Friday mine with three surface rigs are designed to test the Silver
Mountain and You Like/30 Vein trends, respectively. Cross veins such as
the Lucretia and Gettysburg Veins that parallel the Lucky Friday
structures will also be evaluated. Hecla′s program in these areas
represents the first exploration on these targets in more than 50 years.
Encouraging mineralization and structures have been observed in the
Silver Mountain drilling which is interpreted to be the eastern
extension of the Lucky Friday veins. Drilling in the You Like target
area west of the Lucky Friday Expansion area has intersected multiple
vein structures and validated extensions at depth of previously
identified shallower mineralization in historic workings. These are the
first holes in a program to evaluate a significant exploration target
(4,000 foot strike length, 7,000 feet down dip) between the western
boundary of the Lucky Friday extension to the past-producing Star and
You Like Vein deposits.
Drilling of both cross structures in this area, the Lucretia and
Gettysburg, have cut silver-bearing veins along trend of historic vein
production. Drilling will continue on all of these structures and veins
to better define geometries and potential future resources.
San Juan Silver -In southern Colorado, Hecla is earning a
70% interest in the San Juan Silver Joint Venture from its partners,
Emerald Mining & Leasing, LLC, and Golden 8 Mining, LLC. Significantly,
the Five-Year Plan of Operations and Environmental Assessment was
approved by the U.S. Forest Service on June 15 allowing Hecla to fully
access the 25-square-mile, district-controlling land package of the
past-producing Creede mining district. Drills are initially targeting
on-strike extensions to the Bulldog and Amethyst Vein structures which
were prolific silver-bearing veins in the past and also evaluating new
areas along the Equity and Amethyst Vein structures where there has been
limited historic exploration. Assays are pending on all the drilling.
Mexico - On the San Sebastian property, a systematic evaluation
of targets through drilling and surface prospecting continues. At the
Pedernalillo target, near the past-producing Don Sergio Vein, assays
from the major quartz vein include 5.82 meters at 0.67 grams per tonne
gold and 4.8 grams per tonne silver. Assays from a 10.2 meter zone of
brecciation with moderate to strong pyrite directly below the vein are
pending. Assay modeling and vein textures suggest that the most
favorable target for enriched precious metals in the mineral system is
at depth.
Features of the intersected veins and initial drill results on the first
hole at the Cerro Santiago target area are promising. One of several
near surface, and partially oxidized veins, graded 117 grams per tonne
silver over 4.65 meters, with a narrower zone of 336 grams per tonne
silver over 1.48 meters. Assay results from the remainder of the hole
are pending. The Cerro Santiago target covers a strong silver and gold
soil anomaly. Characteristics of the quartz intersected in the veins at
Cerro Santiago have similarities to other parts of the district where
high-grade precious metals are known. Drill programs on the Pedernalillo
and Cerro Santiago targets will continue over the next few months.
PRODUCTION AND COST OUTLOOK
Hecla is on track to meet its full-year production guidance of 10 to 11
million ounces of silver. Cash costs of negative $1.82 per ounce
of silver in the second quarter and cash costs of negative
$2.41 per ounce of silver in the first six months of 2010 are lower than
full-year guidance of $1.90-$2.25 per ounce. Hecla is revising full-year
cash costs per ounce downward to be in a range of $1.00-$1.50 per ounce.
Hecla′s estimate of cash costs in 2010 is based on by-product prices of
$0.80 per pound for zinc and lead.
Hecla Mining Company and its subsidiaries headquartered in Coeur
d'Alene, Idaho, mine, process and explore for silver and gold in the
United States and Mexico. Hecla has been in business for 119 years and
have long been well known in the mining world and financial markets as a
quality producer of silver and gold. Hecla′s common and preferred shares
are traded on the New York Stock Exchange under the symbols HL, HL-PrB
and HL-PrC.
Statements made which are not historical facts, such as anticipated
payments, litigation outcome, production, sales of assets, exploration
results and plans, costs, and prices or sales performance are
'forward-looking statements' within the meaning of the Private
Securities Litigation Reform Act of 1995, and involve a number of risks
and uncertainties that could cause actual results to differ materially
from those projected, anticipated, expected or implied. These risks and
uncertainties include, but are not limited to, metals price volatility,
volatility of metals production and costs, exploration risks and
results, operating risks, project development risks, political risks,
labor issues and ability to raise financing. Refer to the company's Form
10-Q and 10-K reports for a more detailed discussion of factors that may
impact expected future results. The company undertakes no obligation and
has no intention of updating forward-looking statements other than as
may be required by law.
Cautionary Note to Investors - The United States Securities and Exchange
Commission permits mining companies, in their filings with the SEC, to
disclose only those mineral deposits that a company can economically and
legally extract or produce. We use certain terms in this news release,
such as 'resource,' mineralization,? 'reserve,' and 'inferred resource'
that the SEC guidelines strictly prohibit us from including in our
filing with the SEC. U.S. investors are urged to consider closely the
disclosure in our Form 10-K. You can review and obtain copies of these
filings from the SEC's website at http://www.sec.gov/edgar.shtml.
Hecla Mining Company news releases can be accessed on the Internet at http://www.hecla-mining.com
HECLA MINING COMPANY | |||||||||||||||||||||
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Second Quarter Ended | Six Months Ended | ||||||||||||||||||||
| HIGHLIGHTS | June 30, 2010 | June 30, 2009 | June 30, 2010 | June 30, 2009 | |||||||||||||||||
| FINANCIAL DATA | |||||||||||||||||||||
Sales | $ | 88,631 | $ | 74,610 | $ | 168,506 | $ | 129,331 | |||||||||||||
Gross Profit | $ | 38,066 | $ | 17,157 | $ | 65,602 | $ | 27,026 | |||||||||||||
Income (loss) applicable to common shareholders | $ | 13,675 |
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| $ | 32,111 |
|
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Basic income per common share | $ | 0.06 | $ | 0.00 | $ | 0.13 | $ | 0.01 | |||||||||||||
Diluted income (loss) per common share | $ | 0.05 | $ | 0.00 | $ | 0.12 | $ | 0.01 | |||||||||||||
Net income | $ | 17,084 | $ | 2,499 | $ | 38,928 | $ | 9,811 | |||||||||||||
Cash flow provided by operating activities | $ | 54,041 |
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| $ | 73,354 |
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| PRODUCTION SUMMARY ? TOTALS (1) | |||||||||||||||||||||
Silver ? Ounces produced | 2,628,664 | 2,983,437 | 5,112,398 | 5,846,588 | |||||||||||||||||
Payable ounces sold | 2,027,064 | 2,615,495 | 4,069,304 | 4,888,157 | |||||||||||||||||
Gold ? Ounces produced | 17,880 | 15,925 | 34,742 | 33,974 | |||||||||||||||||
Payable ounces sold | 13,423 | 14,492 | 26,275 | 27,622 | |||||||||||||||||
Lead ? Tons produced | 11,582 | 10,650 | 23,763 | 21,475 | |||||||||||||||||
Payable tons sold | 9,173 | 8,785 | 18,781 | 17,258 | |||||||||||||||||
Zinc ? Tons produced | 21,623 | 19,410 | 43,834 | 38,121 | |||||||||||||||||
Payable tons sold | 17,302 | 18,189 | 32,956 | 30,358 | |||||||||||||||||
Average cost per ounce of silver produced (2): | |||||||||||||||||||||
Total cash costs ($/oz.) (3) | (1.82 | ) | 3.38 | (2.41 | ) | 4.01 | |||||||||||||||
Total production costs ($/oz.) | 4.00 | 8.92 | 3.68 | 9.48 | |||||||||||||||||
| AVERAGE METAL PRICES | |||||||||||||||||||||
Silver ? London PM Fix ($/oz.) | $ | 18.32 | $ | 13.73 | $ | 17.62 | $ | 13.17 | |||||||||||||
Realized price per ounce | $ | 18.96 | $ | 14.15 | $ | 17.94 | $ | 14.04 | |||||||||||||
Gold ? London PM Fix ($/oz.) | $ | 1,196 | $ | 922 | $ | 1,152 | $ | 915 | |||||||||||||
Realized price per ounce | $ | 1,246 | $ | 970 | $ | 1,178 | $ | 954 | |||||||||||||
Lead ? LME Cash ($/pound) | $ | 0.88 | $ | 0.68 | $ | 0.95 | $ | 0.60 | |||||||||||||
Realized price per pound | $ | 0.93 | $ | 0.77 | $ | 0.93 | $ | 0.69 | |||||||||||||
Zinc ? LME Cash ($/pound) | $ | 0.92 | $ | 0.67 | $ | 0.98 | $ | 0.60 | |||||||||||||
| $ | 0.89 | $ | 0.77 | $ | 0.92 | $ | 0.71 | |||||||||||||
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