Hecla Mining Company (HL) Earnings Call Transcript & Summary

I'm Phil Baker, President and CEO of Hecla Mining. Thank you for watching this video on our 2021 second quarter earnings and the outlook for the year. Hecla delivered another strong quarter with near record results. Our second highest revenues, gross profit, cash flow from operations and adjusted EBITDA in our history. Our realized silver margin of $19.60 per ounce is a record since we started reporting ASIC, all with silver as the dominant revenue contributor of 40% for the quarter. We're lowering our cash cost and all-in sustaining cost guidance again this year. Our financial position continues to strengthen. Our cash position has increased almost 2.5x from the prior year to $181 million from the cash the mines are generating. Our financial strength is not new to this quarter or even in the past few years. This is our 39th consecutive quarter of dividend payments. The dividend to be paid in September will make it 10 straight years of dividends. We've returned $72 million in common dividends. Before I talk more about the quarter, I want to take a moment to talk about ESG since we published earlier this year our 2020 sustainability report called Small Footprint, Large Benefit. I encourage you to take a look. The key to understanding Hecla's ESG is that despite Hecla being the largest silver producer in the U.S., producing 40% of all the silver mined, our mines are small, very small. They're high-value underground mines that have been the economic driver of communities where we operate for generations. When I say small mines, I mean small tonnage. The larger companies in our industry will mine as many tons in a day as we do in a year. However, when I say economic drivers of communities, I mean we have the largest private employers for 30-plus years at all 3 of our operations. Because our mines are small, we use very little electricity or fuel and that electricity is mostly created by hydro. So our greenhouse gas emissions are extraordinarily low and the best in the industry. In 2020, we produced almost 2.5x more metal per ton of emissions than our peers. And the amount of water we use per silver equivalent ounce is 63% of what the average person in the United States consumes in a day. So when it comes to the environmental impact of Hecla, think small. But when you think about social impact, think big. As the largest private employers and towns where we employ generations of employees, we just had a summer intern who is the fifth generation to work at Hecla at that location. We provide jobs that provide more than a living wage. They are jobs that sustain and build communities and families, particularly during the pandemic when it was desperately needed. The Alaska Chamber recognized this, awarding Greens Creek mine as the Large Business of the Year in 2020. And we do more than employing people with the work of our charitable foundation that has donated millions of dollars over the last 10 years. Our safety culture is across all operations with Casa Berardi in Quebec being awarded the prestigious Quebec Maritime Mine Safety Award, which goes to the safest mine. This is the first time in the mine's 30-year history to win the award. Finally, the metals we mine are essential in the transformation to renewable energy. And Hecla produces 40% of the United States' silver and our Montana assets host America's third largest undeveloped copper deposit with significant silver resources. These are both metals that hold keys to our green future. Let's look at some financial aspects of the quarter. Silver accounted for 40% of our revenues followed by gold at 37%, with the zinc and lead together at 23%. Our operations produced 3.5 million ounces of silver at an all-in sustaining cost of $7.54 an ounce. This results in a record margin of $19.60. Our gold production totaled 59,000 ounces and an all-in sustaining cost of $1,419 per ounce for a cash margin of $406 an ounce. Looking at our cash balance, we ended the quarter with $181 million, an increase of $42 million and giving us $411 million of liquidity. Our net debt to adjusted EBITDA ratio is 1.2x, well below our target of 2x. Our realized silver margins have continued to increase. Margins are now twice what they were a year ago and similar to what we had in the first quarter. This margin translates into free cash flow of $175 million in the past 15 months. Looking at the operations. At Greens Creek, we produced 2.6 million ounces of silver and a very low all-in sustaining cost of $0.68 per ounce. The mine generated $63 million of free cash flow in the quarter. In the past 15 months, the time we've been in the pandemic, Greens Creek has generated $255 million in free cash flow. And our workforce is nearly 90% vaccinated, and we're taking measured steps to return to normal operations. Given our first half performance and expectations, we are lowering cash costs and all-in sustaining cost guidance. Lucky Friday now is operating a historical production rates after a successful ramp-up in 2020. The mine produced 913,000 ounces of silver and generated positive free cash flow of $14 million. We remain on track to increase metal production to approximately 5 million ounces in 2023. No significant claim capital outlays required to achieve this goal as the increase is driven by improving grades as we mine deeper. Now we continue to test and optimize a new mining method, which will better manage the seismicity and has the potential to increase the productivity of the mine. Now at Casa Berardi mine, we've produced 31,000 ounces of gold for the quarter. We've focused on optimizing production. So we're seeing higher throughput availability and recovery in the mill, doing a great job there. We did have higher costs due to increased volumes, contractor costs related to maintenance and optimization activities in the mill and higher underground mobile maintenance costs, making our all-in sustaining cost $1,434. Our focus is now on reducing that cost, optimizing the operation. In the past 15 months of the pandemic, Casa has generated free cash flow of $68 million. We think over the next 2 years, cost will decline and cash flow will grow. Given year-to-date results and expectations for the rest of the year, we're increasing our gold production guidance to 191,000 to 198,000 ounces. Our current consolidated cash cost guidance is now -- for silver is now $1 to $2 per ounce and the all-in sustaining cost is now $9 to $11 per ounce. At current prices, this is about $15 per ounce of free cash flow from our silver operations and $400 per ounce of gold or over $200 million of free cash flow for the company. Our capital expenditures are increased slightly to reflect the royalty purchases at Nevada and Casa Berardi operations in the second quarter. Earlier in the quarter, we increased exploration to $40 million and predevelopment to $8.5 million. We'll update our exploration in early September. So thanks to all of our employees for their commitment to safe operations during the pandemic, and thank you for watching.