Hecla earnings continue growth
COEUR d'ALENE - Hecla Mining Co. again reported a strong quarter of profits on Wednesday.
The company reported net income of $17.1 million in the second quarter of 2010, compared with net income of $2.5 million in the second quarter of 2009. After dividends to holders of its preferred stock, Hecla reported net income applicable to common shareholders of $13.7 million, or 6 cents per basic share, in the second quarter of 2010, compared to a loss of $900,000 in the second quarter of 2009. Hecla's mandatory convertible preferred stock will be converted into common stock in January 2011.
"Our mines, operating management and orebodies combined with current prices allowed Hecla to generate an extraordinary amount of cash flow for the amount of production," Hecla President and Chief Executive Officer Phillips S. Baker, Jr., said. "With very low operating costs per ounce, our margin was in excess of $20 per ounce of silver which drove cash flow of $54 million in the quarter, the second highest in Hecla's history. This cash flow enabled Hecla to deploy financial resources to support larger exploration and development programs to build for the future. Importantly, we increased our cash balance."
Highlights of the quarter that ended June 30 included:
• Silver production of 2.6 million ounces
• Gold production of 17,880 ounces
• Cash costs of negative $1.82 per ounce of silver after by-product credits in the second quarter of 2010 and cash costs of negative $2.41 per ounce of silver in the first half of 2010
• Net income of $13.7 million, or 6 cents per basic share, applicable to common shareholders
• Cash flow from operations of $54 million
• Second highest gross profit and cash flow from operating activities in Hecla's 119-year history
• Strong balance sheet with more than $197 million in cash, up from $116 million at March 31, 2010
During the second quarter of 2010, Hecla recorded a gain totaling $8.4 million associated with its base metals hedging program which was implemented to reduce the company's exposure to both provisional price adjustments and to reduce the impact of base metals price volatility. Of the total, $6.4 million was related to its hedging of base metals exposure on provisionally priced metal shipments and a gain of $2.0 million is associated with its longer-dated hedging program. The company reported negative price adjustments of $5.7 million during the second quarter of 2010. During the second quarter of 2010, the company also recorded a loss on impairment of investments of $0.7 million associated with marketable securities held in another mining company.
"Our newly implemented hedging program is achieving our objectives to first avoid swings in earnings and cash flow on provisional pricing and second, to build longer term price protection ensuring our cost structure," Baker said.
During the second quarter of 2010, Hecla realized $18.96 and $1,246 per ounce of silver and gold, respectively, and 89 cents and 93 cents per pound, respectively, for zinc and lead.
Hecla produced 2.6 million ounces of silver in the second quarter of 2010 at a total cash cost of negative $1.82 per ounce, after by-product credits. This compares with 3 million ounces of silver in the second quarter of 2009 at a total cash cost of $3.38 per ounce and 2.5 million ounces of silver in the first quarter of 2010 at a total cash cost of negative $3.03 per ounce. Cash costs in the second quarter of 2010 were higher compared with cash costs in the first quarter of 2010 because of lower prices for lead and zinc in the period.
By-product metal production totaled 17,880 ounces of gold, 21,623 tons of zinc and 11,582 tons of lead in the second quarter of 2010 compared with 15,925 ounces of gold, 19,410 tons of zinc and 10,650 tons of lead for the second quarter of 2009.
The Greens Creek mine in Alaska produced 1.8 million ounces of silver during the second quarter of 2010 at an average total cash cost per ounce of negative $4.56, compared to production of 2.1 million ounces at an average total cash cost per ounce of $2.14 for the prior year period. The decrease in cash costs in the second quarter of 2010 compared to the second quarter of 2009, despite lower silver production, is primarily the result of higher prices and volumes for by-product credits. On a year-over-year basis, silver grade in the second quarter of 2010 was 10 percent lower; however, silver grade improved 14 percent compared with the first quarter of 2010.
The Lucky Friday mine in Mullan produced 797,385 ounces of silver during the second quarter of 2010 at an average total cash cost of $4.47 per ounce of silver after by-product credits, compared to 868,339 ounces of silver during the second quarter of 2009 at an average total cash cost of $6.41 per ounce. Cash costs in the second quarter of 2010 were lower compared with the second quarter of 2009 due to higher prices for by-product credits. Lower quarterly silver production compared to the second quarter of 2009 is the result of rehabilitation work in the exhaust shaft and secondary escape-way. The mine is forecast to produce approximately 3 million ounces of silver in 2010.
In southern Colorado, Hecla is earning a 70 percent interest in the San Juan Silver Joint Venture from its partners, Emerald Mining & Leasing, LLC, and Golden 8 Mining, LLC. The Five-Year Plan of Operations and Environmental Assessment was approved by the U.S. Forest Service on June 15 allowing Hecla to fully access the 25-square-mile, district-controlling land package of the past-producing Creede mining district.
On the San Sebastian property in Mexico, evaluation of targets through drilling and surface prospecting continues.
Hecla reported it is on track to meet its full-year production guidance of 10 to 11 million ounces of silver.