Hecla Mining pany(HL) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company's financial performance significantly improved, shifting from a net loss to a net income driven by higher sales and operating cash flow Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Sales grew 37.9% year-over-year, leading to a net income of $27.9 million in Q2 2024, a reversal from a net loss in the prior year Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Sales | $245,657 | $178,131 | $435,185 | $377,631 | | Gross Profit | $51,430 | $37,659 | $70,590 | $72,607 | | Income from Operations | $40,600 | $4,811 | $45,664 | $10,364 | | Net Income (Loss) | $27,870 | ($15,694) | $22,117 | ($18,867) | | Net Income (Loss) Applicable to Common Stockholders | $27,732 | ($15,832) | $21,841 | ($19,143) | | Diluted EPS | $0.04 | ($0.03) | $0.04 | ($0.03) | Condensed Consolidated Statements of Cash Flows Operating cash flow increased to $95.8 million, while investing and financing activities resulted in a net cash use, decreasing total cash reserves Condensed Consolidated Statements of Cash Flows (in thousands) | Category | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Cash provided by operating activities | $95,798 | $64,380 | | Net cash used in investing activities | ($96,808) | ($105,831) | | Net cash (used in) provided by financing activities | ($79,593) | $42,279 | | Net (decrease) increase in cash | ($81,783) | $2,045 | | Cash at end of period | $25,756 | $107,952 | Condensed Consolidated Balance Sheets Total assets slightly decreased to $2.94 billion, while a reduction in long-term debt lowered total liabilities to $959.7 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $24,585 | $106,374 | | Total current assets | $200,230 | $260,262 | | Property, plant and mine development, net | $2,657,995 | $2,666,250 | | Total assets | $2,939,764 | $3,011,104 | | Total current liabilities | $155,525 | $157,460 | | Long-term debt including finance leases | $582,577 | $653,063 | | Total liabilities | $959,699 | $1,043,000 | | Total stockholders' equity | $1,980,065 | $1,968,104 | Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased to $1.98 billion, primarily driven by net income which offset dividend payments and other comprehensive losses Changes in Stockholders' Equity (Six Months Ended June 30, 2024, in thousands) | Description | Amount | | :--- | :--- | | Balances, January 1, 2024 | $1,968,104 | | Net income | $22,117 | | Dividends declared | ($7,994) | | Stock-based compensation expense | $3,321 | | Other comprehensive loss | ($11,891) | | Balances, June 30, 2024 | $1,980,065 | Notes to Condensed Consolidated Financial Statements The notes provide details on business segments, derivative instruments, debt facilities, and various commitments and contingencies Business Segments and Sales of Products The company's revenue is driven by four key mining segments, with Greens Creek being the largest contributor to sales and operating income Sales and Income from Operations by Segment (Six Months Ended June 30, 2024, in thousands) | Segment | Total Sales | Income (Loss) from Operations | | :--- | :--- | :--- | | Greens Creek | $192,969 | $62,405 | | Lucky Friday | $94,411 | $62,265 | | Keno Hill | $39,797 | ($12,793) | | Casa Berardi | $100,207 | ($27,712) | | Other | $7,801 | ($38,501) | | Total | $435,185 | $45,664 | - Lucky Friday's income from operations for the six months ended June 30, 2024, includes $35.2 million of business interruption insurance proceeds related to the 2023 fire[17] Sales by Metal (Six Months Ended June 30, 2024, in thousands) | Metal | Sales | | :--- | :--- | | Silver | $198,925 | | Gold | $149,884 | | Lead | $43,411 | | Zinc | $57,460 | | Less: Smelter charges | ($22,296) | | Total Metal Sales | $427,384 | Debt, Credit Agreement and Leases Total long-term debt stood at $582.6 million, and the company recently increased its revolving credit facility to $225 million Long-Term Debt Balances (in thousands) | Debt Instrument | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Senior Notes (Principal) | $475,000 | $475,000 | | IQ Notes (Principal) | $35,244 | $36,473 | | Total Principal | $510,244 | $511,473 | | Long-term debt balance (net) | $507,141 | $508,000 | - The revolving credit agreement was amended in May 2024, increasing the borrowing amount to $225 million from $150 million and extending the maturity date to July 21, 2028[32] - As of June 30, 2024, the company had net draws of $62.0 million outstanding under the Credit Agreement at an interest rate of 8.4%, with an additional $6.3 million in outstanding letters of credit[35] Derivative Instruments The company utilizes forward contracts to manage risks from foreign currency fluctuations and metals price volatility - The company has a program to manage exposure to fluctuations in the USD/CAD exchange rate for future operating and capital costs, with forward contracts to buy a total of CAD $302.4 million through 2026[38] - Financially-settled forward contracts are used to manage price changes for metals in concentrate shipments and for forecasted sales of zinc and lead[39][41] - For the six months ended June 30, 2024, a net loss of $9.4 million was recognized on metals contracts, which is included in sales to offset price adjustments on provisional concentrate sales[42] Commitments, Contingencies and Obligations The company faces several environmental cleanup liabilities, potential Superfund site responsibilities, and ongoing class action litigation - The company has accrued $10.1 million for the CERCLA removal action at the Johnny M Mine Area in New Mexico, but notes the final liability could be higher[51][52] - Hecla is a potentially responsible party (PRP) for two Superfund sites in Montana, Carpenter Snow Creek and Barker-Hughesville, but cannot reasonably estimate the amount or range of liability[53][54][56] - A class action lawsuit related to the Klondex acquisition alleges material false statements, which Hecla believes the claims are without merit[57] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses improved performance driven by higher silver production and prices, segment results, and sufficient liquidity for future operations Overview Q2 2024 performance was highlighted by a 16% increase in silver production and a return to profitability, supported by key mine operations Q2 2024 Highlights | Metric | Value | | :--- | :--- | | Silver Production | 4.5 million ounces (+16% YoY) | | Gold Production | 37,324 ounces | | Sales | $245.7 million | | Net Income (to common stockholders) | $27.7 million | | Capital Expenditures | $50.4 million | | Insurance Proceeds (Lucky Friday) | $17.8 million | Year-to-Date 2024 Highlights | Metric | Value | | :--- | :--- | | Silver Production | 8.7 million ounces (+10% YoY) | | Gold Production | 73,916 ounces | | Sales | $435.2 million | | Net Income (to common stockholders) | $21.8 million | | Capital Expenditures | $98.0 million | | Insurance Proceeds (Lucky Friday) | $35.2 million | Consolidated Results of Operations Higher metals prices and volumes drove a $67.5 million year-over-year increase in Q2 sales, significantly boosting net income Variance in Metal Sales (Q2 2024 vs Q2 2023, in thousands) | Variance Type | Amount | | :--- | :--- | | Price | $47,595 | | Volume | $14,518 | | Smelter terms | $2,437 | | Total Variance | $64,550 | Average Realized Prices | Metal | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Silver ($/oz) | $29.77 | $23.67 | | Gold ($/oz) | $2,338 | $1,969 | | Lead ($/lb) | $1.06 | $0.99 | | Zinc ($/lb) | $1.51 | $1.13 | - The increase in net income for Q2 2024 was driven by higher gross profit, a $10.8 million decrease in ramp-up and suspension costs, a $13.0 million increase in other operating income, a $7.6 million positive swing in fair value adjustments, and a $6.5 million increase in net foreign exchange gains[83] Segment Performance Performance varied by segment, with strong results from Greens Creek and Lucky Friday, while Casa Berardi experienced a wider gross loss Segment Gross Profit (Loss) (Q2 2024 vs Q2 2023, in thousands) | Segment | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Greens Creek | $38,873 | $32,837 | | Lucky Friday | $21,548 | $10,458 | | Keno Hill | $— | $— | | Casa Berardi | ($8,717) | ($5,630) | - Lucky Friday's improved performance was due to a full quarter of production following its restart on January 9, 2024, after a fire suspended operations in August 2023[91][92] - Casa Berardi's increased gross loss reflects accelerated amortization and cessation of capitalizing development costs as it transitions to an open-pit-only operation[101][102] Reconciliation of Non-GAAP Measures This section reconciles GAAP costs to non-GAAP metrics like AISC, showing a consolidated silver AISC of $12.54 per ounce for Q2 2024 - Cash Cost and AISC are non-GAAP measures used to provide a standard for comparison, measure mine operating performance, and assess net cash flow after sustaining capital and reclamation costs[111][112] AISC, After By-product Credits, per Ounce (Q2 2024 vs Q2 2023) | Operation/Metric | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Silver Properties (Consolidated) | $12.54 | $11.63 | | Greens Creek | $5.40 | $5.34 | | Lucky Friday | $12.74 | $14.24 | | Gold (Casa Berardi) | $1,825 | $2,147 | Financial Liquidity and Capital Resources The company maintains sufficient liquidity with $24.6 million in cash and $156.7 million available under its credit facility to fund operations - At June 30, 2024, the company had $24.6 million in cash and cash equivalents and availability of $156.7 million under its credit facility[135] - Cash provided by operating activities increased by $31.4 million to $95.8 million for the first six months of 2024 compared to the same period in 2023[145] - The company forecasts capital expenditures for 2024 to be in the range of $196 million to $218 million, with $98.0 million already incurred as of June 30, 2024[142] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from metals prices and foreign currency rates, which it manages through derivative contracts - The company's profitability is significantly affected by changes in the market prices of silver, gold, lead, and zinc[161] - At June 30, 2024, a hypothetical 10% change in the price of each metal would change the total value of provisionally priced concentrate sales by approximately $23.0 million[162] - A 10% change in the USD/CAD exchange rate would have resulted in a change of approximately $6.8 million in the company's net foreign exchange gain or loss[163] Controls and Procedures Management concluded that the company's disclosure controls and internal controls over financial reporting were effective as of June 30, 2024 - Based on an evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2024[165] - No material changes in internal control over financial reporting occurred during the quarter[165] PART II. OTHER INFORMATION Legal Proceedings Details regarding legal matters, including environmental liabilities and litigation, are cross-referenced to Note 11 of the financial statements - For details on legal proceedings, the report refers to Note 11 of the financial statements, which covers environmental contingencies and litigation[168] Risk Factors A new operational risk has emerged at the Keno Hill mine related to a potential mining moratorium and tailings storage capacity limits - The First Nation of Na-Cho Nyäk Dun (FNNND) has called for a moratorium on mining activities within their Traditional Territory following an incident at a neighboring mine[169] - This poses a risk to Keno Hill's operations and its ability to obtain approval for a critical expansion of its dry stack tailings facility (DSTF)[170] - The company estimates it will run out of tailings storage capacity before the end of 2024, which could lead to a halt in production if the DSTF expansion is not approved[170][171]