Hecla Mining Company (HL) Earnings Call Transcript & Summary

I'm Phil Baker, President and CEO of Hecla Mining Company. Thanks for joining me today as I review our 2020 performance. Despite the incredible challenges of operating during a global pandemic, Hecla's people stepped up. We had our safest year in our 130-year history, reduced our net debt, increased our dividends, refinanced our bonds and doubled our exploration expenditures, all while more than doubling our 2019 cash position. 2020 was a remarkable year of accomplishment for our company and our employees, and we think 2021 is going to be even better. Let me tell you why we had the success in 2020 and what we expect in 2021. But to do this, I'm going to have to make forward-looking statements that are subject to the Private Securities Litigation Reform Act and cautions that are found in our 10-K, 10-Q and other filings with the SEC. Now key to our success in 2020 was our early, measured and evolving response to the COVID-19 pandemic. Our fast response and our industry being considered essential in the U.S. allowed us to produce significantly more silver then we guided at the beginning of the year. We produced 1.4 million ounces more. So even during a pandemic, we had our highest revenues, highest -- fourth highest free cash flow, third highest reserves in Hecla's history. Reserves would have been even better if COVID-19 hadn't reduced our drilling by 1/3 and slowed down assay. The pandemic certainly didn't slow down our growth in U.S. silver production, however. We are now producing 50% more than we were 3 years ago. This growing U.S. silver production allowed us to generate $152 million in cash over the last 18 months. We now have $130 million in cash and $380 million in liquidity. Our silver industry-leading dividend policy that ties dividends to silver price, along with the payment of a minimum base dividend, returned 10% of our free cash flow to shareholders this year. And we had our safest year in our history, worked with communities with our innovative [ Hecla Bucks ] program, where we gave vouchers to employees to use with struggling businesses and still expanded our ESG initiatives. We began 2020 with refinancing our senior notes and extending maturity of our long-term debt to 2028 and ended the year with twice as much cash as 2019. Our adjusted EBITDA of $224 million reduced our net leverage ratio to 1.8, which beats our target of having less than 2. Our operations generated $53 million in cash flow in just the fourth quarter with Lucky Friday generating positive cash flow as the mine achieved full production in the fourth quarter. While we had strong free cash flow in 2020, we expect our 2021 free cash flow generation if prices remain strong to significantly exceed that 2020 level. We accomplished all this while recording the lowest all-injury frequency rate of 1.22 in our history. That's an 80% reduction since we implemented our revised safety and health management system in 2012. And our safety culture is a big reason why we have responded so well to the impacts of the pandemic. We quickly modified our already robust health and safety protocols to continue to keep our workforce safe. Now due to the number of workers that fly into Juneau to work at Greens Creek mine, we went well beyond regulatory requirements by instituting quarantines and testing to protect our workforce and keep the mine in production. In Q3 2020, we partnered with a COVID lab to provide real-time testing services for our employees. This service is helping to shorten the quarantine period, reducing the burden on our employees. Despite all this, we had another exceptional year at Greens Creek with silver production 10.5 million ounces and all-in sustaining costs of $8.57 per ounce. The increase in silver production over 2019 was primarily due to higher grades. So we expect 2021 production to be slightly down and cost per ounce to be a little higher than in 2020. Greens Creek's rock-solid performance, combined with these higher silver prices, generated very strong free cash flow last year, and we would expect the same in 2021. And Lucky Friday achieved full production in the fourth quarter of 2020, producing 2 million ounces for the year and more than tripling our production from 2019. In 2021, silver production is expected to grow another 75% to be in the range of 3.4 million to 3.8 million ounces. We also anticipate the grade of the orebody will improve as we mine deeper, increasing the projected production to around 5 million ounces annually by 2023. And no significant planned capital outlay is required to achieve these goals. In addition, we are pursuing various mining method changes and other initiatives to improve safety of the mine while increasing its productivity. At the Casa Berardi mine, Casa produced more than 121,000 ounces, which is in line with our COVID-adjusted guidance at an all-in sustaining cost of $1,400 per ounce. We're working very hard to reduce that cost in 2021. Our investments in the mill to improve reliability and recovery are already yielding great results as the mill broke monthly throughput records with more than 90% availability for 3 consecutive months late in the quarter. To improve productivity and reduce cost, we realized a 10% increase in underground active time, allowing us to reduce equipment maintenance backlog by 2.5 weeks and launch training for underground operators to increase equipment reliability. These and other efforts increased the high-grade underground ore delivered to the mill by more than 20% in the fourth quarter. The team is targeting a 10% reduction in support costs through a combination of restructuring, eliminating nonvalue-added work and negotiating key vendor contracts, including our open pit contract miner, the explosive contracts, support services and other contracts. These efforts are well advanced, and we're starting to see a downward trend in our all-in sustaining costs. All of these factors are positioning Casa to deliver consistent production at lower cost. So our 2021 guidance exceeds 125,000 ounces at about $1,200 per ounce. So we're having more production, and we're having it at a lower cost. 18 months ago, midyear 2019, we concluded that our approach to Fire Creek was not going to get the results we were looking for. So we paused development to generate free cash flow and to gather the knowledge necessary for the long term. That decision has resulted in $38.6 million of free cash flow with a bit more to come in 2021, and we also got a bulk sample of refractory ore to test. Mining of the bulk sample was completed in the fourth quarter with most of the materials shipped to a third-party processor in February. The bulk test demonstrated that larger scale. More productive mining methods could be applied successfully to this material. The ground conditions we found were as good or better than expected, and the water in the test area was managed effectively. Recovery information to date is as expected following the grade recovery curve that we established through bench testing. So we know that there are multiple facilities that can process this ore, and we can generate a return should we decide to develop it. But we think we can do even better by focusing financial and human capital on exploration at Midas and Hollister's Hatter Graben, where we can process ore in our own facility. With the consistency of Greens Creek and now having Lucky Friday in full production, Hecla's U.S. silver production is expected to reach 15 million ounces by 2023, which is almost double our 2018 U.S. silver production. The combination of increasing silver production and higher prices should cause silver to be Hecla's biggest revenue generator maybe as early as 2021. Silver mines have always been our largest cash flow contributor. So that's just going to get bigger. And we think silver is a unique metal with a really bright future chiefly because it's going to be used to decarbonize our economy as well as continue to be a monetary asset. But that's a subject for another time. So thank you for watching today.