Hecla Mining pany(HL) - 2023 Q4 - Annual Report

PART I Business Hecla Mining Company, established in 1891, is a precious and base metals miner operating five segments, with performance tied to volatile metal prices - Hecla Mining Company is organized into five primary business segments: Greens Creek, Lucky Friday, Keno Hill, Casa Berardi, and the Nevada Operations[26] - The company's business strategy emphasizes the development of the Keno Hill properties, safe and cost-effective operation of existing mines, exploration near current districts, and seeking acquisition opportunities[28] Average Realized and Market Metal Prices (2021-2023) | Metal (per unit) | Type | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | :--- | | Silver (oz) | Realized Avg. | $23.33 | $21.53 | $25.24 | | | Market Avg. | $23.39 | $21.75 | $25.17 | | Gold (oz) | Realized Avg. | $1,939 | $1,803 | $1,796 | | | Market Avg. | $1,943 | $1,801 | $1,800 | | Lead (lb) | Realized Avg. | $1.03 | $1.01 | $1.03 | | | Market Avg. | $0.97 | $0.98 | $1.00 | | Zinc (lb) | Realized Avg. | $1.35 | $1.41 | $1.44 | | | Market Avg. | $1.20 | $1.58 | $1.36 | - In 2023, sales contributions from significant operations were: Greens Creek (53.7%), Casa Berardi (24.9%), Lucky Friday (16.3%), and Keno Hill (5.0%), with Lucky Friday's production impacted by an underground fire in August 2023[35] - As of December 31, 2023, the company had approximately 1,775 employees, with about 990 in the United States, 765 in Canada, and 20 in Mexico, and a company-wide All Injury Frequency Rate (AIFR) of 1.45 for 2023[48][49] Risk Factors The company faces significant financial, operational, legal, and regulatory risks, including volatile metal prices, substantial debt, and mining accidents - A primary financial risk is the significant volatility of silver, gold, lead, and zinc prices, which are influenced by factors beyond the company's control, such as speculative activities, exchange rates, and global demand[59] - As of December 31, 2023, the company had total indebtedness of approximately $671.4 million, primarily from its Senior Notes and Credit Agreement, which could impair financial health and restrict operations[62] - Operational risks include mining accidents, such as the underground fire at the Lucky Friday unit in August 2023, which halted production for approximately 5 months[86] - The company faces significant permitting risks for mine life extensions and new developments at several key properties, including Greens Creek (tailings expansion), Casa Berardi (open pit extensions), and Keno Hill (production level modifications)[135] - The company's debt instruments, including the Senior Notes and revolving credit facility, contain covenants that restrict its ability to incur additional debt, sell assets, and pay dividends, potentially limiting strategic flexibility[158][160] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[179] Cybersecurity Hecla employs a multi-layered cybersecurity program with third-party monitoring and board oversight, reporting no material incidents in 2023 - The company's cybersecurity program uses a multi-layered defense strategy, engages third-party resources, and conducts annual NIST self-assessments to manage cyber threats[180] - Oversight is provided by the Audit Committee, which periodically reviews risk assessments from management regarding the cybersecurity threat landscape and related strategies[184] - There were no material cybersecurity incidents discovered in 2023[183] Properties This section details Hecla's material mining properties, including 2023 production statistics and mineral reserves, with aggregate production of 14.3 million ounces of silver Aggregate Metal Production (2021-2023) | Metal | Unit | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | :--- | | Silver | Ounces | 14,342,863 | 14,182,987 | 12,887,240 | | Gold | Ounces | 151,259 | 175,807 | 201,327 | | Lead | Tons | 40,347 | 48,713 | 43,010 | | Zinc | Tons | 60,579 | 64,748 | 63,617 | Total Proven and Probable Mineral Reserves (as of Dec 31, 2023) | Metal | Contained Quantity | | :--- | :--- | | Silver | 238,296,000 oz | | Gold | 2,165,000 oz | | Lead | 801,150 tons | | Zinc | 940,490 tons | Greens Creek The Greens Creek mine in Alaska, 100% owned by Hecla, is a key asset, producing silver, gold, zinc, and lead, with 9.7 million ounces of silver produced in 2023 Greens Creek Production (2023) | Metal | Production | Payable Sold | | :--- | :--- | :--- | | Silver (oz) | 9,731,752 | 8,493,040 | | Gold (oz) | 60,896 | 49,790 | | Zinc (tons) | 51,496 | 36,042 | | Lead (tons) | 19,578 | 15,247 | - As of December 31, 2023, Greens Creek had total proven and probable reserves containing 105.2 million ounces of silver and 880,400 ounces of gold[211] Lucky Friday The Lucky Friday mine in Idaho, a deep underground silver, lead, and zinc mine, had production significantly impacted by an underground fire in August 2023 - Production was suspended in August 2023 due to a fire in the 2 ventilation shaft and secondary egress, halting operations for the rest of the year, with production resuming in January 2024 after a new egress was developed[226][321] Lucky Friday Production (2023) | Metal | Production | Payable Sold | | :--- | :--- | :--- | | Silver (oz) | 3,086,119 | 3,020,116 | | Lead (tons) | 19,543 | 19,079 | | Zinc (tons) | 7,944 | 6,160 | - As of December 31, 2023, Lucky Friday had total proven and probable reserves containing 78.0 million ounces of silver[232] Keno Hill The Keno Hill property in Canada's Yukon Territory, acquired in September 2022, commenced production ramp-up in June 2023, producing 1.5 million ounces of silver - Keno Hill commenced production ramp-up in June 2023 and produced 1.5 million ounces of silver during the year[249][290] - The production ramp-up has been slowed by safety-related matters, prompting the initiation of a safety action plan focusing on training, supervision, and mining practices[330] - As of December 31, 2023, Keno Hill had total probable reserves containing 55.1 million ounces of silver[249] Casa Berardi The Casa Berardi mine in Quebec, Canada, produced 90,363 ounces of gold in 2023 and is transitioning to an open-pit-only operation Casa Berardi Production (2023) | Metal | Production | Payable Sold | | :--- | :--- | :--- | | Gold (oz) | 90,363 | 91,268 | | Silver (oz) | 22,415 | 22,566 | - The mine is transitioning to an open-pit-only operation, with the East Mine underground closed in July 2023 and the West Mine underground to cease in mid-2024[333] - Total proven and probable gold reserves decreased by 21% from 2022 to 1.27 million ounces in 2023, primarily due to the strategic shift and economic re-evaluation of underground reserves[270] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Hecla's common stock trades on the NYSE, with 16.6 million securities available for issuance and a 5-year cumulative return of $208.16, but no share repurchases in 2023 - As of February 9, 2024, there were 2,859 stockholders of record for the company's common stock, which trades on the NYSE under the symbol "HL"[282] Comparison of 5-Year Cumulative Total Return | Date | Hecla Mining | S&P 500 | Philadelphia Gold and Silver Index | | :--- | :--- | :--- | :--- | | Dec 2018 | $100.00 | $100.00 | $100.00 | | Dec 2019 | $143.96 | $130.99 | $116.68 | | Dec 2020 | $275.87 | $151.99 | $109.46 | | Dec 2021 | $223.83 | $192.90 | $149.92 | | Dec 2022 | $239.37 | $155.57 | $162.99 | | Dec 2023 | $208.16 | $191.57 | $143.09 | - The company has a stock repurchase program authorizing the buyback of up to 20 million shares, but no purchases were made during the year ended December 31, 2023[287] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, Hecla reported $720.2 million in sales and an $84.8 million net loss, driven by ramp-up and suspension costs, with $75.5 million in operating cash flow and $223.9 million in capital expenditures Consolidated Financial Highlights (in millions) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Sales (in millions) | $720.2 | $718.9 | $807.5 | | Gross Profit (in millions) | $112.9 | $116.2 | $217.8 | | Net (Loss) Income Applicable to Common Stockholders (in millions) | $(84.8) | $(37.9) | $34.5 | | Net Cash Provided by Operating Activities (in millions) | $75.5 | $89.9 | $220.3 | - The net loss widened in 2023 primarily due to $76.3 million in ramp-up and suspension costs, including $29.8 million for Keno Hill's ramp-up and $25.5 million for the production suspension at Lucky Friday following an underground fire[312][313] - The company completed the acquisition of ATAC Resources Ltd. on July 7, 2023, for total consideration of approximately $19.4 million, accounted for as an asset acquisition[291] - As of December 31, 2023, the company had $106.4 million in cash and cash equivalents and had drawn $128.0 million on its revolving credit facility, leaving approximately $15.1 million available for borrowing[297][370] - Under its at-the-market (ATM) equity program, the company sold 10.6 million shares in 2023 for net proceeds of $56.7 million[373] Quantitative and Qualitative Disclosures About Market Risk Hecla is exposed to market risks from commodity prices, foreign exchange rates, and interest rates, which are managed through forward contracts for concentrate sales and Canadian dollar denominated costs - The company is exposed to price changes on provisional concentrate sales, where a 10% change in metal prices would impact the value of these sales by approximately $3.8 million, though largely offset by forward contracts[421] - To manage commodity price risk, the company uses forward contracts, including contracts on forecasted lead sales of 56.7 million pounds for 2024 and 49.3 million pounds for 2025 as of year-end 2023[424] - To manage foreign currency risk on Canadian operations, the company held forward contracts to buy a total of CAD $422.1 million as of December 31, 2023[430] - The company has interest rate risk from its credit facility, where with $128 million drawn, a one-percentage-point change in interest rates would result in a $2.2 million change in annual cash interest expense, assuming the full facility was drawn[433] Financial Statements and Supplementary Data The company's Consolidated Financial Statements are included beginning on page F-1 of the report - The Consolidated Financial Statements for Hecla Mining Company begin on page F-1 of the Form 10-K[434] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - There were no changes in or disagreements with accountants on accounting and financial disclosure[435] Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with an unqualified auditor opinion and no material changes - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[436] - Management assessed internal control over financial reporting using the COSO framework and concluded it was effective as of December 31, 2023[439] - The independent auditor, BDO USA, P.C., provided an unqualified opinion on the effectiveness of the company's internal control over financial reporting[440][442] PART III Directors, Executive Officers and Corporate Governance This section provides information on directors and executive officers, with detailed corporate governance information incorporated by reference from the 2024 Proxy Statement - Phillips S. Baker, Jr. is the President and CEO, and Russell D. Lawlar is the Senior Vice President and CFO[453][454][455] - The board of directors is divided into three classes with staggered three-year terms[452] - Detailed information regarding directors, the audit committee, and corporate governance is incorporated by reference from the company's Proxy Statement for the 2024 Annual Meeting[466][467] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2024 Proxy Statement - All information related to executive compensation is incorporated by reference from the Proxy Statement to be filed for the 2024 annual meeting[470] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and equity compensation plans is incorporated by reference from the company's 2024 Proxy Statement - Information on security ownership and equity compensation plans is incorporated by reference from the 2024 Proxy Statement[471] Certain Relationships and Related Transactions, and Director Independence Information on related transactions and director independence is incorporated by reference from the company's 2024 Proxy Statement - Details on related transactions and director independence are incorporated by reference from the 2024 Proxy Statement[472] Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the company's 2024 Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the 2024 Proxy Statement[473] PART IV Exhibits and Financial Statement Schedules This section lists financial statements, schedules, and exhibits filed with the Form 10-K, including debt agreements, technical reports, and certifications - This section provides an index of all exhibits filed with the Form 10-K, including debt agreements, technical reports, and executive certifications[475][477] Form 10-K Summary No summary is provided under this item - No summary is provided under Item 16[485] Consolidated Financial Statements Report of Independent Registered Public Accounting Firm BDO USA, P.C. issued an unqualified opinion on Hecla's 2023 consolidated financial statements and internal control over financial reporting, highlighting the impairment assessment as a critical audit matter - The auditor, BDO USA, P.C., issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2023[494][495] - The audit identified the impairment assessment of the Nevada Operations' long-lived assets as a critical audit matter, highlighting the challenging and subjective nature of assumptions for future cash flows, metal prices, and market values[502] Financial Statements The consolidated financial statements show 2023 sales of $720.2 million, a net loss of $84.2 million, total assets of $3.01 billion, and $75.5 million in operating cash flow Consolidated Statement of Operations (Year Ended Dec 31, in thousands) | Account | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Sales | $720,227 | $718,905 | $807,473 | | Total cost of sales | $607,278 | $602,749 | $589,672 | | Gross profit | $112,949 | $116,156 | $217,801 | | (Loss) income from operations | $(44,674) | $(12,438) | $83,420 | | Net (loss) income | $(84,217) | $(37,348) | $35,095 | | Basic (loss) income per common share | $(0.14) | $(0.07) | $0.06 | Consolidated Balance Sheet (As of Dec 31, in thousands) | Account | 2023 | 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $106,374 | $104,743 | | Total current assets | $260,262 | $267,727 | | Properties, plants, equipment and mineral interests, net | $2,666,250 | $2,569,790 | | Total assets | $3,011,104 | $2,927,172 | | Liabilities & Equity | | | | Total current liabilities | $157,460 | $178,466 | | Long-term debt including finance leases | $653,063 | $517,742 | | Total liabilities | $1,043,000 | $948,205 | | Total stockholders' equity | $1,968,104 | $1,978,967 | Consolidated Statement of Cash Flows (Year Ended Dec 31, in thousands) | Activity | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $75,499 | $89,890 | $220,337 | | Net cash used in investing activities | $(231,292) | $(187,273) | $(107,029) | | Net cash provided by (used in) financing activities | $156,330 | $(7,500) | $(32,598) | | Net increase (decrease) in cash | $1,632 | $(105,156) | $80,180 | Notes to Consolidated Financial Statements The notes detail significant accounting policies, including business segments, environmental liabilities, employee benefits, income taxes, debt arrangements, derivative instruments, and stockholders' equity - Significant customers in 2023 accounted for 24.2%, 15.8%, 15.5%, and 11.8% of total sales, respectively[581] - Total accrued reclamation and closure cost liabilities were $120.5 million as of December 31, 2023[584] - The company's defined benefit pension plans had a funded status (assets exceeding obligations) of $27.5 million at year-end 2023[588] - As of December 31, 2023, the company had $475 million in principal of 7.25% Senior Notes due 2028 and CAD $48.2 million in principal of IQ Notes due 2025[614][622] - The company's common stock dividend policy includes a minimum annual dividend of $0.015 per share and a silver-linked component that increases the dividend when the realized silver price exceeds $20/oz[655][657]