Hecla Mining Reports Fourth Quarter and Full Year 2018 Results
COEUR D'ALENE, Idaho--(BUSINESS WIRE)--Hecla Mining Company (NYSE:HL) today announced fourth quarter and full year 2018 financial and operating results.
- Silver production of 10.4 million ounces and record gold production of 262,103 ounces.
- Silver equivalent production of 43.6 million ounces or gold equivalent of 540,174 ounces.7
- Cost of sales and other direct production costs and depreciation, depletion and amortization ("cost of sales") of $488.0 million.
- Total cash cost, after by-product credits and all-in sustaining cost ("AISC"), after by-product credits, per silver ounce of $1.08 and $11.44, respectively.1,2
- Record reserves for gold, silver and lead; increases over 2017 of 26%, 8% and 5%, respectively.
- Completed the acquisition of Klondex in July 2018.
- Improved safety with All Injury Frequency Rate 28% lower.
"Greens Creek and Casa Berardi are the economic engines of Hecla, and the continued increase in reserves and resources, extended mine life and positive changes to the mine plans are surfacing additional value at these operations,” said Phillips S. Baker, Jr., President and CEO. “This allows investment in our three other mines, which all have the potential to be long-lived with strong economics like Greens Creek and Casa Berardi. The turnaround of the Nevada operations continues with an increasing development rate at Fire Creek that should allow the mine to have operating consistency as we increase production. This is the same approach we took when we first acquired Greens Creek and Casa Berardi. Substantial exploration is planned for both Fire Creek and Hollister this year as we work to convert resources to reserves and discover additional resources. With the Hatter Graben decline about 15% complete, we expect to start drilling between the current Hollister mine area and the Hatter Graben soon."
"At San Sebastian we continue to discover and mine oxide mineralization while we take a bulk sample to determine the potential economics of the sulfide ore," Mr. Baker continued.
Non-GAAP measures. See pages 10 and 11 for more information.
See page 11 for details of equivalent production.
SILVER AND GOLD RESERVE SUMMARY
Proven and probable silver reserves are 191 million ounces, an increase of 8% over December 31, 2017 levels. Proven and probable gold reserves are 2.9 million ounces, an increase of 26% over December 31, 2017 levels. Proven and probable zinc and lead reserves of 932,000 tons and 774,000 tons are increases of 11% and 5%, respectively, over December 31, 2017 levels. The reserves for gold, silver and lead are the highest in Company history. The price assumptions used for 2018 reserves of $14.50 for silver, $1,200 for gold, $1.15 for zinc and $0.90 for lead are unchanged from last year, with the exception of zinc, which was $1.05 in 2017. The silver price assumption is among the lowest in the industry.
Please refer to the reserves and resources tables at the end of this press release, or to the press release entitled "Hecla Reports Record Gold, Silver and Lead Reserves" issued on February 14, 2019, for the breakdown between proven and probable reserve and resource levels, as well as a detailed summary of the Company's exploration programs.
Revised NI 43-101 Technical Reports for Greens Creek and Casa Berardi are expected by April. At Greens Creek, the optimized mine plan accelerates access to higher-grade ore, enabling the expected highest margin reserves to be extracted in the earlier years of the mine plan. In addition, the increase in reserves is expected to extend the mine life, excluding resources, by about three years to 2030.
|Fourth Quarter Ended||Twelve Months Ended|
|Gross profit (loss) (000)||$||(1,265||)||$||46,310||$||79,099||$||152,449|
|Loss applicable to common stockholders (000)||$||(23,831||)||$||(29,105||)||$||(27,115||)||$||(29,072||)|
|Basic and diluted loss per common share||$||(0.05||)||$||(0.07||)||$||(0.06||)||$||(0.07||)|
|Cash provided by operating activities (000)||$||19,011||$||41,763||$||94,221||$||115,878|
Net loss applicable to common stockholders for the fourth quarter and full year of 2018 was $23.8 million and $27.1 million, or $0.05 and $0.06 per basic share, respectively, compared to net losses applicable to common stockholders of $29.1 million, or $0.07 per basic share, for both periods of the prior year. Among items impacting the results for the 2018 periods compared to 2017 were the following:
- Sales for the fourth quarter and full year were 15% and 2% lower, respectively, than the same periods in 2017. The decreases are mainly due to lower silver production due to lower grades and production at San Sebastian as well as lower average silver prices, partially offset by higher gold production due to higher throughout at Casa Berardi and the addition of the Nevada operations.
- A slight loss was recorded on base metal derivative contracts for the fourth quarter 2018, while gains on base metal derivative contracts of $40.3 million were recorded for the full year 2018, compared to losses of $4.7 million and $21.3 million, respectively, in the prior year periods, mainly the result of lower lead prices. During the third quarter of 2018, the Company settled in-the-money contracts prior to their maturity date, for cash proceeds of approximately $32.8 million.
- Foreign exchange gains of $7.5 million and $10.3 million were recognized in the fourth quarter and full year of 2018, respectively, compared to a $0.6 million gain and a loss of $9.7 million, respectively, in the prior year periods. The variances were primarily due to weakening of the Canadian dollar relative to the U.S. dollar.
- Interest expense, net of amount capitalized, was $10.9 million in the fourth quarter and $40.9 million for the full year of 2018 compared to $9.6 million and $38.0 million, respectively, in the prior year periods.
- Exploration and pre-development expense was $9.4 million for the fourth quarter and $40.6 million for the full year of 2018, compared to $7.3 million and $29.0 million, respectively, in the prior year periods, primarily due to increased exploration activity in Nevada and Quebec.
- Research and development expense was $0.4 million for the fourth quarter and $5.4 million for the full year of 2018, compared to $1.2 million and $3.3 million, respectively, for the prior year periods, and is related to the evaluation and development of new technologies, such as the Remote Vein Miner (RVM) project at the Lucky Friday.
- Suspension costs for the fourth quarter of $2.4 million and $20.7 million for the full year of 2018, including $1.3 million and $5.0 million, respectively, in non-cash depreciation expense. This is compared to suspension costs of $6.9 million and $21.3 million, respectively, for the prior year periods.
- Income tax benefit for the fourth quarter and full year of 2018 of $5.2 million and $6.7 million, respectively, compared to provisions of $38.5 million and $21.0 million, respectively, in the prior year periods. The tax provisions in 2017 resulted primarily from the changes in the U.S. Tax Cuts and Jobs Act and the resulting revaluation of the deferred tax asset, as well as current income and mining taxes in Mexico.
Cash provided by operating activities for the fourth quarter and full year of 2018 of $19.0 million and $94.2 million, respectively, was $22.8 million and $21.7 million lower, respectively, as compared to the prior year periods. The decrease in 2018 was mainly the result of lower production and higher exploration spending, as well as acquisition costs, partly offset by cash proceeds from settlement of base metals derivative contracts prior to their maturity date.
Adjusted EBITDA was $28.1 million for the fourth quarter of 2018, compared to $71.1 million for the same period of 2017, and $211.9 million for the full year of 2018, compared to $231.9 million in 2017.3 The decreases were due to lower production and higher exploration spending.
Capital expenditures at the operations totaled $53.2 million for the fourth quarter of 2018, including $17.6 million at Nevada operations, $13.6 million at Casa Berardi, $12.2 million at Greens Creek, $7.3 million at Lucky Friday, and $2.5 million at San Sebastian. Capital expenditures for the year 2018 totaled $140.6 million at the operations, compared to $103.4 million in 2017.
Average realized silver prices in the fourth quarter and full year 2018 were $14.58 and $15.63 per ounce, respectively, compared to $16.87 and $17.23, respectively, for the prior year periods. Realized prices for gold for the fourth quarter and full year 2018 were $1,237 and $1,265 per ounce, respectively, 3% lower compared to the fourth quarter 2017, while the price for the year ended slightly higher. Average realized prices for lead and zinc for the fourth quarter of 2018 were 23% and 21% lower, respectively, compared to the prior year period. The average realized prices for lead and zinc for the full year of 2018 were 2% and 4% lower, respectively, compared to 2017.
The following table provides the production summary on a consolidated basis for the fourth quarter and twelve months ended December 31, 2018 and 2017:
|Fourth Quarter Ended||Twelve Months Ended|
|Silver -||Ounces produced||2,715,385||2,984,786||10,369,503||12,484,844|
|Payable ounces sold||2,260,690||3,210,306||9,254,385||11,308,958|
|Gold -||Ounces produced||70,987||60,964||262,103||232,684|
|Payable ounces sold||64,478||58,008||247,528||219,929|
|Lead -||Tons produced||4,704||4,307||20,091||22,733|
|Payable tons sold||3,615||4,348||16,214||17,960|
|Zinc -||Tons produced||13,711||12,107||56,023||55,107|
|Payable tons sold||9,201||10,066||39,273||39,335|
Non-GAAP measures. See page 11 for more information.
The following table provides a summary of the final production, cost of sales, cash cost, after by-product credits, per silver or gold ounce, and AISC, after by-product credits, per silver and gold ounce, for the fourth quarter and twelve months ended December 31, 2018:
|Fourth Quarter||Total||Greens Creek||
|San Sebastian||Casa Berardi||Nevada Operations|
|Increase/(decrease) over 2017||(9||)%||16||%||1||%||13||%||(81||)%||(42||)%||(51||)%||(17||)%||(26||)%||N/A||N/A|
|Cost of sales & other direct production costs and depreciation, depletion and amortization (000)||$||62,846||$||74,938||$||48,302||N/A||$||3,906||$||10,638||N/A||$||47,253||N/A||$||27,686||N/A|
|Increase/(decrease) over 2017||(7||)%||62||%||(22||)%||N/A||591||%||100||%||N/A||2||%||N/A||N/A||N/A|
|Cash costs, after by-prod credits, per silver or gold ounce 1,4||$||4.01||$||1,048||$||1.79||N/A||N/A||$||14.78||N/A||$||940||N/A||$||1,251||N/A|
|Increase/(decrease) over 2017||$||4.56||$||329||$||1.13||N/A||N/A||$||18.58||N/A||$||221||N/A||N/A||N/A|
AISC, after by-prod credits, per silver or gold ounce 2
|Increase/(decrease) over 2017||$||6.30||$||543||$||1.69||N/A||N/A||$||20.15||N/A||$||309||N/A||N/A||N/A|
|Twelve Months Ended||Total||Greens Creek||Lucky Friday||San Sebastian||Casa Berardi||Nevada Operations|
|Dec 31, 2018||Silver||Gold||Silver||Gold||Silver||Silver||Gold||Gold||Silver||Gold||Silver|
|Increase/(decrease) over 2017||(17||)%||13||%||(5||)%||1||%||(80||)%||(37||)%||(41||)%||4||%||4||%||N/A||N/A|
|Cost of sales & other direct production costs and depreciation, depletion and amortization (000)||$||241,631||$||246,407||$||190,066||N/A||$||9,750||$||41,815||N/A||$||199,402||N/A||$||47,005||N/A|
|Increase/(decrease) over 2017||0.4||%||33||%||(6||)%||N/A||(35||)%||76||%||N/A||8||%||N/A||N/A||N/A|
|Cash costs, after by-prod credits, per silver or gold ounce 1,4||$||1.08||$||871||$||(1.13||)||N/A||N/A||$||9.69||N/A||$||800||N/A||$||1,221||N/A|
|Increase/(decrease) over 2017||$||1.08||$||51||$||(1.84||)||N/A||N/A||$||13.05||N/A||$||(19||)||N/A||N/A||N/A|
AISC, after by-prod credits, per silver or gold ounce 2
|Increase/(decrease) over 2017||$||3.58||$||52||$||(0.18||)||N/A||N/A||$||14.94||N/A||$||(94||)||N/A||N/A||N/A|
Greens Creek Mine - Alaska
For the fourth quarter, silver production was 2,163,563 ounces and gold production was 13,097 ounces, increases of 1% and 13%, respectively, compared to the prior year periods. Full year 2018 silver production was 7,953,003 ounces, a decrease of 5% compared to the prior year period, and 2018 gold production was 51,493 ounces, an increase of 1%. The decrease in silver production resulted from lower grades, and gold production was modestly higher due to higher throughput. The mill operated at an average of 2,310 tons per day (tpd) in the fourth quarter and 2,316 tpd for the full year. The annual throughput was a record.
The cost of sales for the fourth quarter and full year 2018 was $48.3 million and $190.1 million, respectively, a decrease of 22% and 6%, respectively, over the prior year periods. The cash cost, after by-product credits, per silver ounce, for the quarter and full year was $1.79 and $(1.13), respectively, an increase from $0.66 for the fourth quarter 2017, and a decrease from $0.71 for the full year 2017.1 The AISC, after by-product credits, was $7.92 per silver ounce for the fourth quarter and $5.58 for the full year of 2018, up for the quarter from $6.23 and lower for the year from $5.76.2 The higher per silver ounce cash cost, after by-product credits, for the quarter was primarily due to higher production costs and lower by-product credits. The increase in AISC, after by-product credits, for the quarter resulted from higher capital spending. The decrease in cash cost, after by-product credits, per silver ounce for the full year of 2018 was due to higher by-product credits. The impact of higher by-product credits on AISC, after by-product credits, was partially offset by higher capital spending for the full year of 2018.
For the full year of 2018, Greens Creek generated cash provided by operating activities of approximately $125.1 million and spent $40.8 million on additions to properties, plants and equipment, resulting in free cash flow of $84.3 million.5
Casa Berardi - Quebec
Gold production of 35,864 ounces during the fourth quarter 2018, including 4,849 ounces from the East Mine Crown Pillar (EMCP) pit, was 17% lower than the same period of 2017 due to lower grades. Full year 2018 gold production of 162,744 ounces, including 32,097 ounces from the EMCP pit, was higher than the prior year period by 4% and the highest since acquisition of the operation. The mill operated at an average of 3,515 tpd in the fourth quarter 2018 and 3,769 tpd for the year, which is a record and 218 tpd more than 2017, as well as approximately 1,800 tpd more than at acquisition.
Cost of sales was $47.3 million and $199.4 million for the fourth quarter and full year 2018, respectively, increases of 2% and 8%, respectively, over the prior year periods. The cash cost, after by-product credits, per gold ounce of $940 for the fourth quarter 2018 increased 31% over the prior year period, due to lower gold production.7 For the full year 2018, the cash cost, after by-product credits, per gold ounce, decreased to $800, from $820 for the prior year period, due to higher gold production and expensing of EMCP pit stripping costs during the first half of 2017.1,4 The AISC, after by-product credits, was $1,348 per gold ounce for the fourth quarter and $1,080 for the full year 2018 compared to $1,039 and $1,174 in the same periods of 2017. The increase for the quarter was due to higher capital spending, with the decrease for the full year due to higher gold production and lower capital spending.2
For the full year of 2018, Casa Berardi generated cash provided by operating activities of approximately $82.9 million and spent $39.7 million on additions to properties, plants and equipment, resulting in free cash flow of $43.2 million.5
San Sebastian - Mexico
Silver production was 443,302 ounces for the fourth quarter and 2,037,072 ounces for the full year of 2018 compared to 759,100 and 3,257,738 for the same periods of 2017. Gold production was 2,928 ounces for the fourth quarter and 14,979 ounces for the full year of 2018, compared to 5,955 and 25,177 for the same periods of 2017. The lower metal production was expected due to lower grades as a result of the transition from shallow, high-grade open pits to underground production. The mill operated at an average of 487 tpd in the fourth quarter 2018 and 429 tpd for the year.
The cost of sales was $10.6 million and $41.8 million for the fourth quarter and full year 2018, respectively, compared to $5.3 million and $23.7 million, respectively, for the same periods in 2017. Cash cost, after by-product credits, per silver ounce was $14.78 in the fourth quarter and $9.69 for the full year of 2018, compared to ($3.80) and ($3.36) for the same periods of 2017.1 The AISC, after by-product credits, was $19.51 for the fourth quarter and $14.68 for the full year of 2018 compared to ($0.64) and ($0.26) for the same periods of 2017.2 The increases in cash cost, after by-product credits, per silver ounce and AISC, after by-product credits, per silver ounce, were due to lower silver and gold production and higher mining costs as a result of the transition to underground mining.
A review of sulfide ore is underway, including a bulk sample to test the capabilities of the third-party plant.
For the fourth quarter of 2018, 19,098 gold ounces and 88,156 silver ounces were produced. For the period July 20, 2018 to December 31, 2018, 32,887 gold ounces and 172,301 silver ounces were produced. During 2018, the Nevada operations focused on development at Fire Creek and Hollister, limiting production as little development had been undertaken earlier in the year by Klondex. While the development rate at Fire Creek has exceeded the planned advance, the focus remains on finding ways to maintain the development rate in all ground conditions. In addition, the increasing development is providing additional drill platforms to enhance the exploration program, and five drills are operating for stope design, in-fill drilling and exploration. The Company's plan is to increase Fire Creek's throughput from 350 tons per day to 520 tons per day by mid-2019. At Hollister, the development of a decline to the Hatter Graben exploration target is underway with completion of the initial phase expected to be late in 2019.
During the period July 20, 2018 to December 31, 2018, approximately $32.6 million in capital and $9.3 million in exploration expense was invested in Nevada. Of the $32.6 million in capital, $12.4 million related to the completion of the tailings facility at Midas which is expected to provide the waste capacity for four years of full production, while $13.2 million was for development needed to increase Fire Creek throughput, and $1.5 million was for completing the carbon in leach "CIL" circuit at the Midas Mill to increase the recoveries from Hollister ore.
Lucky Friday Mine - Idaho
Silver production was 13,026 ounces in the fourth quarter and 169,041 ounces for the full year 2018, a decrease from 69,578 ounces and 838,658 ounces in the fourth quarter and full year of 2017, respectively, due to the ongoing strike by unionized employees, which began in March 2017. The Company continues to invest in the mine, with limited production and capital improvements being performed by salaried staff.
Construction of the RVM machine continues in Sweden, and is expected to be completed, along with testing of the unit, and sent to the Company in 2020.
EXPLORATION AND PRE-DEVELOPMENT
Exploration (including corporate development) expenses were $8.1 million, and $35.7 million for the fourth quarter and full year 2018, respectively. This represents an increase of 37% and 52% over the fourth quarter and full year 2017. These increases were primarily the result of the addition of the Nevada operations and increased exploration at San Sebastian, the Kinskuch project in British Columbia and the Little Baldy project in northern Idaho.
A complete summary of exploration activities can be found in the news release entitled "Hecla Reports Record Reserves For Silver, Gold, and Lead" released on February 14, 2019.
Pre-development spending was $1.3 million in the fourth quarter and $4.9 million for the full year 2018, principally to advance the permitting at Rock Creek and Montanore.
Non-GAAP measure. See pages 10-11 for more information.
In August 2018, the Kootenai National Forest issued the Final Record of Decision (ROD) for Phase I (evaluation phase) of the Rock Creek Project, a proposed underground copper and silver mine in northwestern Montana near Noxon in Sanders County. The Company is updating its plan of operation to reflect the ROD, and agency approval is anticipated in early 2019. The project remains the subject of ongoing litigation.
In May 2017, the Federal District court judge in Missoula, Montana remanded back to the U.S. Forest Service and U.S. Fish and Wildlife Service their approvals for the Montanore project. The court advised that the agencies could proceed with the approval of the evaluation phase of the project. The U.S. Forest Service determined a focused supplemental Environmental Impact Statement ("EIS") would be prepared on the evaluation phase and published its notice of intent to do so in the Federal Register in December 2017. It is anticipated that the agency will complete its assessment and issue a new ROD in 2019. As a part of this permitting process, the U.S. Fish and Wildlife Service is preparing updated terrestrial and aquatic biological opinions for the project. The project remains the subject of ongoing litigation.
RESEARCH AND DEVELOPMENT
The Research and Development activities of the Company consisted primarily of work being conducted on the RVM, the focus of which is shifting towards fabrication of the unit, with delivery expected in 2020.
BASE METALS AND CURRENCY HEDGING
Base Metals Forward Sales Contracts
There were no forward sales contracts outstanding at December 31, 2018, other than provisional hedges (which address changes in prices between shipment and settlement with customers).
Foreign Currency Forward Purchase Contracts
The following table summarizes the Canadian dollars and Mexican pesos the Company has committed to purchase under foreign exchange forward contracts at December 31, 2018:
Currency Under Contract
(in thousands of CAD/MXN)
|Average Exchange Rate|
2019 Production Outlook
2019 Cost Outlook
Costs of Sales
Cash cost, after by-
product credits, per
AISC, after by-product
credits, per produced
2019 Capital and Exploration Outlook
|2019E Capital expenditures (excluding capitalized interest)||$150 million|
|2019E Exploration expenditures (includes Corporate Development)||$25 million|
|2019E Pre-development expenditures||$2.5 million|
|2019E Research and Development expenditures||$3.5 million|
Non-GAAP measures. See pages 10-11 for more information.
The Board of Directors declared a quarterly dividend of $0.0025 per share of common stock, payable on or about March 13, 2019, to shareholders of record on March 5, 2019. The Company's realized silver price was $14.58 in the fourth quarter and therefore did not satisfy the criteria for a larger dividend under the Company's dividend policy.
The Board of Directors also declared the regular quarterly dividend of $0.875 per share on the 157,816 outstanding shares of Series B Cumulative Convertible Preferred Stock. This represents a total amount to be paid of approximately $138,000. The cash dividend is payable April 1, 2019, to shareholders of record on March 15, 2019.
CONFERENCE CALL AND WEBCAST
A conference call and webcast will be held today, Thursday, February 21, at 10:00 a.m. Eastern Time to discuss these results. You may join the conference call by dialing toll-free 1-855-760-8158 or for international by dialing 1-720-634-2922. The participant passcode is HECLA. Hecla's live and archived webcast can be accessed at www.hecla-mining.com under Investors or via Thomson StreetEvents Network.
Founded in 1891, Hecla Mining Company (NYSE:HL) is a leading low-cost U.S. silver producer with operating mines in Alaska, Idaho and Mexico, and is a growing gold producer with operating mines in Nevada and Quebec, Canada. The Company also has exploration and pre-development properties in seven world-class silver and gold mining districts in the U.S., Canada and Mexico, and an exploration office and investments in early-stage silver exploration projects in Canada.
Non-GAAP Financial Measures
Non-GAAP financial measures are intended to provide additional information only and do not have any standard meaning prescribed by generally accepted accounting principles (GAAP). These measures should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. The non-GAAP financial measures cited in this release and listed below are reconciled to their most comparable GAAP measure at the end of this release.
(1) Cash cost, after by-product credits, per silver and gold ounce is a non-GAAP measurement, a reconciliation of which to cost of sales and other direct production costs and depreciation, depletion and amortization (sometimes referred to as "cost of sales" in this release), can be found at the end of the release. It is an important operating statistic that management utilizes to measure each mine's operating performance. It also allows the benchmarking of performance of each mine versus those of our competitors. As a primary silver mining company, management also uses the statistic on an aggregate basis - aggregating the Greens Creek, Lucky Friday and San Sebastian mines - to compare performance with that of other primary silver mining companies. With regard to Casa Berardi and Nevada Operations, management uses cash cost, after by-product credits, per gold ounce to compare its performance with other gold mines. Similarly, the statistic is useful in identifying acquisition and investment opportunities as it provides a common tool for measuring the financial performance of other mines with varying geologic, metallurgical and operating characteristics. In addition, the Company may use it when formulating performance goals and targets under its incentive program.
(2) All in sustaining cost (AISC), after by-product credits, is a non-GAAP measurement, a reconciliation of which to cost of sales and other direct production costs and depreciation, depletion and amortization, the closest GAAP measurement, can be found in the end of the release. AISC, after by-product credits, includes cost of sales and other direct production costs, expenses for reclamation and exploration at the mines sites, corporate exploration related to sustaining operations, and all site sustaining capital costs. AISC, after by-product credits, is calculated net of depreciation, depletion, and amortization and by-product credits.
Current GAAP measures used in the mining industry, such as cost of goods sold, do not capture all the expenditures incurred to discover, develop and sustain silver and gold production. Management believes that all in sustaining costs is a non-GAAP measure that provides additional information to management, investors and analysts to help (i) in the understanding of the economics of our operations and performance compared to other producers and (ii) in the transparency by better defining the total costs associated with production. Similarly, the statistic is useful in identifying acquisition and investment opportunities as it provides a common tool for measuring the financial performance of other mines with varying geologic, metallurgical and operating characteristics. In addition, the Company may use it when formulating performance goals and targets under its incentive program.
(3) Adjusted EBITDA is a non-GAAP measurement, a reconciliation of which to net income, the most comparable GAAP measure, can be found at the end of the release. Adjusted EBITDA is a measure used by management to evaluate the Company's operating performance but should not be considered an alternative to net income, or cash provided by operating activities as those terms are defined by GAAP, and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. In addition, the Company may use it when formulating performance goals and targets under its incentive program.
(4) Cash cost, after by-product credits, per gold ounce, is a Non-GAAP measurement only applicable to Casa Berardi and Nevada Operations production. Gold produced from Greens Creek and San Sebastian is treated as a by-product credit against the silver cash cost.
(5) Free cash flow is a non-GAAP measure calculated as cash provided by operating activities less additions to properties, plants and equipment.
(6) Expectations for 2019 include silver, gold, lead and zinc production from Greens Creek, San Sebastian, Casa Berardi and Nevada Operations converted using Au $1,250/oz, Ag $16.00/oz, Zn $1.25/lb, and Pb $1.00/lb. Lucky Friday expectations are currently suspended as there is currently a strike. Numbers may be rounded.
(7) Silver and gold equivalent calculation based on average actual prices for each metal in the year as follows: $15.71 for Ag, $1,269 for Au, $1.02 for Pb, and $1.33 for Zn.
Cautionary Statement Regarding Forward Looking Statements, Including 2019 Outlook
This news release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbor created by such sections and other applicable laws, including Canadian securities laws. Such forward-looking statements may include, without limitation: (i) estimates of future costs including cost of sales, cash cost, after by-product credits per ounce of silver/gold and AISC, after by-product credits, per ounce of silver/gold; (ii) estimates for 2019 for silver and gold production and silver equivalent production, cash cost, after by-product credits, AISC, after by-product credits, capital expenditures and exploration and pre-development expenditures (which assumes metal prices of gold at $1,250/oz, Ag $16.00/oz, Zn $1.25/lb, Pb $1.00/lb; USD/CAD assumed to be $0.79, USD/MXN assumed to be $0.06; and (iii) the Company’s mineral reserves and resources. Estimates or expectations of future events or results are based upon certain assumptions, which may prove to be incorrect. Such assumptions, include, but are not limited to: (a) there being no significant change to current geotechnical, metallurgical, hydrological and other physical conditions; (b) permitting, development, operations and expansion of the Company’s projects being consistent with current expectations and mine plans; (c) political/regulatory developments in any jurisdiction in which the Company operates being consistent with its current expectations; (d) the exchange rate for the Canadian dollar to the U.S. dollar, being approximately consistent with current levels; (e) certain price assumptions for gold, silver, lead and zinc; (f) prices for key supplies being approximately consistent with current levels; (g) the accuracy of our current mineral reserve and mineral resource estimates; and (h) the Company’s plans for development and production will proceed as expected and will not require revision as a result of risks or uncertainties, whether known, unknown or unanticipated. Where the Company expresses or implies an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, such statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from future results expressed, projected or implied by the “forward-looking statements.” Such risks include, but are not limited to gold, silver and other metals price volatility, operating risks, currency fluctuations, increased production costs and variances in ore grade or recovery rates from those assumed in mining plans, community relations, conflict resolution and outcome of projects or oppositions, litigation, political, regulatory, labor and environmental risks, and exploration risks and results, including that mineral resources are not mineral reserves, they do not have demonstrated economic viability and there is no certainty that they can be upgraded to mineral reserves through continued exploration. For a more detailed discussion of such risks and other factors, see the Company’s 2018 Form 10-K, filed on February 22, 2019, with the Securities and Exchange Commission (SEC), as well as the Company’s other SEC filings. The Company does not undertake any obligation to release publicly revisions to any “forward-looking statement,” including, without limitation, outlook, to reflect events or circumstances after the date of this news release, or to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws. Investors should not assume that any lack of update to a previously issued “forward-looking statement” constitutes a reaffirmation of that statement. Continued reliance on “forward-looking statements” is at investors’ own risk.
Cautionary Statements to Investors on Reserves and Resources
Reporting requirements in the United States for disclosure of mineral properties are governed by the SEC and included in the SEC's Securities Act Industry Guide 7, entitled “Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations” (Guide 7). Although the SEC has recently issued new rules rescinding Guide 7, the new rules are not binding until January 1, 2022, and at this time the Company still reports in accordance with Guide 7. However, the Company is also a “reporting issuer” under Canadian securities laws, which require estimates of mineral resources and reserves to be prepared in accordance with Canadian National Instrument 43-101 (NI 43-101). NI 43-101 requires all disclosure of estimates of potential mineral resources and reserves to be disclosed in accordance with its requirements. Such Canadian information is included herein to satisfy the Company's “public disclosure” obligations under Regulation FD of the SEC and to provide U.S. holders with ready access to information publicly available in Canada.
Reporting requirements in the United States for disclosure of mineral properties under Guide 7 and the requirements in Canada under NI 43-101 standards are substantially different. This document contains a summary of certain estimates of the Company, not only of proven and probable reserves within the meaning of Guide 7, but also of mineral resource and mineral reserve estimates estimated in accordance with the definitional standards of the Canadian Institute of Mining, Metallurgy and Petroleum referred to in NI 43-101. Under Guide 7, the term "reserve" means that part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination. The term "economically", as used in the definition of reserve, means that profitable extraction or production has been established or analytically demonstrated to be viable and justifiable under reasonable investment and market assumptions. The term "legally", as used in the definition of reserve, does not imply that all permits needed for mining and processing have been obtained or that other legal issues have been completely resolved. However, for a reserve to exist, Hecla must have a justifiable expectation, based on applicable laws and regulations, that issuance of permits or resolution of legal issues necessary for mining and processing at a particular deposit will be accomplished in the ordinary course and in a timeframe consistent with Hecla's current mine plans. The terms “measured resources”, “indicated resources,” and “inferred resources” are Canadian mining terms as defined in accordance with NI 43-101. These terms are not defined under Guide 7 and are not normally permitted to be used in reports and registration statements filed with the SEC in the United States, except where required to be disclosed by foreign law. The term “resource” does not equate to the term “reserve”. Under Guide 7, the material described herein as “indicated resources” and “measured resources” would be characterized as “mineralized material” and is permitted to be disclosed in tonnage and grade only, not ounces. The category of “inferred resources” is not recognized by Guide 7. Investors are cautioned not to assume that any part or all of the mineral deposits in such categories will ever be converted into proven or probable reserves. “Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of such a “resource” will ever be upgraded to a higher category or will ever be economically extracted. Investors are cautioned not to assume that all or any part of a “resource” exists or is economically or legally mineable. Investors are also especially cautioned that the mere fact that such resources may be referred to in ounces of silver and/or gold, rather than in tons of mineralization and grades of silver and/or gold estimated per ton, is not an indication that such material will ever result in mined ore which is processed into commercial silver or gold.
Qualified Person (QP) Pursuant to Canadian National Instrument 43-101
Dean McDonald, PhD. P.Geo., Senior Vice President - Exploration of Hecla Mining Company, who serves as a Qualified Person under National Instrument 43-101, supervised the preparation of the scientific and technical information concerning Hecla’s mineral projects in this news release. Information regarding data verification, surveys and investigations, quality assurance program and quality control measures and a summary of sample, analytical or testing procedures for the Greens Creek Mine are contained in a technical report prepared for Hecla titled “Technical Report for the Greens Creek Mine, Juneau, Alaska, USA” effective date March 28, 2013, and for the Lucky Friday Mine are contained in a technical report prepared for Hecla titled “Technical Report on the Lucky Friday Mine Shoshone County, Idaho, USA” effective date April 2, 2014, for the Casa Berardi Mine are contained in a technical report prepared for Hecla titled "Technical Report on the Mineral Resource and Mineral Reserve Estimate for the Casa Berardi Mine, Northwestern Quebec, Canada" effective date March 31, 2014 (the "Casa Berardi Technical Report"), and for the San Sebastian Mine are contained in a technical report prepared for Hecla titled "Technical Report for the San Sebastian Ag-Au Property, Durango, Mexico" effective date September 8, 2015. Also included in these four technical reports is a description of the key assumptions, parameters and methods used to estimate mineral reserves and resources and a general discussion of the extent to which the estimates may be affected by any known environmental, permitting, legal, title, taxation, socio-political, marketing or other relevant factors. Information regarding data verification, surveys and investigations, quality assurance program and quality control measures and a summary of sample, analytical or testing procedures for the Fire Creek Mine are contained in a technical report prepared for Klondex Mines, dated March 31, 2018; the Hollister Mine dated May 31, 2017, amended August 9, 2017; and the Midas Mine dated August 31, 2014, amended April 2, 2015. Copies of these technical reports are available under Hecla's and Klondex's profiles on SEDAR at www.sedar.com.
The current Casa Berardi drill program was performed on core sawed in half and included the insertion of blanks and standards of variable grade in every 24 core samples. Standards were generally provided by Analytical Solutions Ltd and prepared in 30-gram bags. Samples were sent to the Swastika Laboratories in Swastika, Ontario, a registered accredited laboratory, where they were dried, crushed, and split for gold analysis. Analysis for gold was completed by fire assay with AA finish. Gold over-limits were analyzed by fire assay with gravimetric finish. Data received from the lab were subject to validation using in-built program triggers to identify outside limit blank or standard assays that require re-analysis. Over 5% of the original pulps and rejects are sent for re-assay to ALS Chemex in Val d’Or for quality control.
Dr. McDonald reviewed and verified information regarding drill sampling, data verification of all digitally-collected data, drill surveys and specific gravity determinations relating to the Casa Berardi mine. The review encompassed quality assurance programs and quality control measures including analytical or testing practice, chain-of-custody procedures, sample storage procedures and included independent sample collection and analysis. This review found the information and procedures meet industry standards and are adequate for Mineral Resource and Mineral Reserve estimation and mine planning purposes.