Hecla Mining Company (HL) Earnings Call Transcript & Summary

Hi, I'm Phil Baker, President and CEO of Hecla Mining Company. Thanks for joining me to discuss our first quarter 2022 results. The world is experiencing a combination of risks and events which we've not seen for some time; inflation, a war, $100 oil, rising interest rates, supply chain disruptions, shortages of skilled worker and a pandemic. And how is Hecla navigating through all of this successfully? Well, first, we're doing it because we operate in the United States and Canada, producing about 40% of all the silver mine in the United States, which makes us the largest U.S. silver producer. And we also produce a substantial amount of gold with our operations in Quebec. Second, while inflationary pressure is impacting everyone, our mines are not large consumers of capital. And as a mature operation with decades of prior investment, our capital spend is low and increased revenues from our byproducts, zinc and lead, largely offset the inflationary pressure. Third, we operate the best silver mines in the world. Our all-in sustaining costs, which was less than $8 per ounce or a 70% margin of about $17 per ounce. And our silver mines have mine lives greater than 14 years without resource conversion or exploration potential. Our reserve base is the largest in the United States. Fourth, each mine, once again, generated free cash flow for the quarter. In fact, this is Hecla's eighth consecutive quarter of free cash flow generation, $232 million cumulatively. And when I look back over the past 6 years, we've generated positive free cash flow in all but 1 year. All these factors culminate into a strong operational and financial quarter, allowing us to return 21% of our free cash flows to our shareholders during the quarter. Now digging into our financials. Quarterly revenue was $186.5 million; 33% was from silver; 39% from gold; with zinc and lead at 28%. We generated $38 million of cash flow from operations and free cash flow of more than $16 million even after interest payment of $18.5 million. We ended the quarter with $212 million in cash and liquidity of $445 million. Our leverage ratio remained consistent at 1.2x, which remains significantly below our target of 2x. Based on these credit metrics, we saw upgrades from the rating agencies, both Moody upgraded us to B1; and S&P then upgraded us to B+. Greens Creek produced 2.4 million ounces at a cost of $1.90 per silver ounce, a margin of almost $23 per ounce, generating free cash flow of more than $53 million. Realized, Greens Creek has generated $1.7 billion in free cash flow since 1987. At the start-up, 35 years ago, the mine had a reserve life of 7 years. Today, the mine has a reserve life of 14 years, and we continue to invest in exploration and definition drilling to continue to expand the mine life. Greens Creek might operate another 35 years. The Lucky Friday mine produced just under 900,000 ounces during the quarter, which is just slightly less than Q4 production. This quarter marks the sixth consecutive quarter of free cash flow generation since the mine achieved its target throughput in the fourth quarter of 2020. Production is anticipated to be more than 1 million ounces a quarter, which will lower costs and increase margins. At the Casa Berardi mine, we produced just over 30,000 ounces of gold, with all-in sustaining costs at over $1,800 an ounce, higher than our annual cost guidance. However, we anticipate with increasing the tons from the underground, it will lower our costs. Despite the inflationary pressure, the mine continues to generate free cash flow during the quarter. Finally, I want to bring to your attention, the pandemic and the Ukraine war has changed the attitude towards mining in the United States. There's an increasing understanding that minerals are the first link in the supply chain needed for energy transformation and national security. We are seeing it in the United States Senate and the Biden administration who invoked the Defense Production Act because minerals are needed for batteries for both national defense and the economy. This means that copper, zinc, silver metals that Hecla has very large resources of and the U.S. largest silver reserve will have policies that will encourage their mining. Realized, the silver market already consumes more than its supply, with a deficit expected to grow to approximately 70 million ounces this year. That is the equivalent to the production of 7 Greens Creeks mines, which is the largest silver mine in the United States. And over the next few decades, the U.S. Energy Information Agency expects demand for silver for solar to be 0.5 billion ounces. That's half of what we currently demand for all users. Demand for silver has doubled over the last 30 years, and I'll not be surprised to see it double again over the next 30. So with the U.S. encouraging mining for defense and energy and the need for higher silver prices to encourage more production, Hecla and its shareholders should be in a great position to benefit. Thanks for watching.