Hecla Posts Fourth-Quarter Net Loss Of $3 Million; Increases Silver, Gold Output

Updates with more detail throughout

Hecla Mining (NYSE: HL) saw a fourth-quarter net loss of $3 million, or 1 cent per share, as low metals prices stung the Idaho-based miner.

Its full-year net loss was $25.7 million, or 8 cents a share, with an adjusted net loss of $12.7 million, or 4 cents a share, the firm said in its quarterly earnings release Wednesday. For the fourth quarter, Hecla’s adjusted net loss was $1.5 million or zero cents a share.

Hecla is one of many miners which were hit by lower precious metals prices last year. Most miners are posting quarterly, if not yearly, losses for 2013.

The firm saw higher silver and gold production in the fourth quarter and over 2012, despite lower prices. Realized silver prices in the fourth quarter and full year 2013 were $20.13 and $21.28 per ounce, 31% and 34% lower than the prior periods, respectively, the firm said. Hecla saw adjustments to provisional sales because of price changes between the time of concentrate shipment and final settlement.

In the fourth quarter, negative price adjustments totaled $900,000, compared to negative price adjustments of $5.7 million in the fourth quarter of 2012. For the full year, price adjustments were negative $17 million compared to positive adjustments of $3.8 million in 2012.

In July, Hecla said it started to forward contract to hedge its exposure to falling silver and gold prices contained in shipped concentrates. The firm specified it does not hedge future precious metals production and added that it has used forward contracts for future base metals sales since 2009.

Silver production was 2.5 million ounces in the fourth quarter, at an average cash cost, after by-product credits, of $7.33 per ounce. This was a 9% rise over the third quarter and a 20% rise over the fourth quarter of 2012. For the full year, silver output rose 39% to 8.9 million ounces versus 2012 and was at the upper end of Hecla’s guidance of 8 million to 9 million.

Gold production was 47,108 ounces, with 32,386 produced at Casa Berardi, at an average cash cost of $824 per ounce, after by-product credits. Fourth-quarter output rose 27% over the third quarter and was up 203% versus the same time period last year. For 2013, output grew 116% over 2012 to 119,989, primarily due to the acquisition of Aurizon Mines.

Hecla forecast 2014 silver production at 9.5 million to 10 million ounces, with the bulk of that coming from Greens Creek, at 6.5 million to 7 million. Gold production is forecast at 180,000 ounces for 2014. It estimates silver-equivalent production will be 17 million ounces, which includes production using a 60:1 gold to silver conversion ratio.

Phillips S. Baker Jr., Hecla’s president and chief executive officer, sounded upbeat about the firm for 2014 on a conference calling with analysts following the release of fourth-quarter earnings.

He said if low metals prices persist into 2014, the mines will deliver enough cash flow to maintain production. “If prices rise, the mines will production significant free cash flow,” Baker said. “2014 will be a good year for Hecla whether prices are up or down.”

The Alaskan Greens Creek mine saw fourth-quarter production of 1.8 million ounces of silver, down 12% from the fourth quarter of 2012, but the full-year output of 7.4 million of silver was up 16%. The firm said higher-grade material was mined at Greens Creek, resulting in higher output.

Cash costs, after by-product credits, were $5.15 and $4.42 for the fourth quarter and full year, respectively, compared to $3.45 and $2.70 for the same respective periods in 2012. The rise was primarily due to lower by-product credits compared to 2012 due to reduced zinc production as a result of a lower zinc grade, lower gold prices, and higher silver production due to increased silver grades, they said.

Lucky Friday, in Idaho, returned to historical full production in September, producing 642,224 ounces of silver in the fourth quarter, a 34% rise, with 2013 output at 1.5 million ounces. The mine reopened in February 2013 after 14 months of rehabilitation and enhancement, the firm said. Cash costs, after by-product credits, were $13.59 in the fourth quarter and $19.21 for the full year. Costs were higher than anticipated because of slower production ramp-up and severe winter weather in December halting 10 days of production.

Larry Radford, senior vice president, operations, said the production cause was due to a frozen pipe and some of the production stoppage spilled over into January and will likely affect first-quarter output. However, it should not affect full-year guidance, he said.

Hecla invested $55.9 million in the No. 4 shaft to expand production during the fourth quarter. Work is more than 60% done and Hecla forecast that it could increase the mine’s output by 5 million ounces as soon as 2017. Total cost is expected at $215 million, with $85 million to be spent over the next three years.

Casa Berardi’s fourth-quarter production saw a 38% rise of the third quarter, to 32,386 ounces of gold. For 2013, production was 62,532 ounces. The mine, based in Quebec, was part of the Aurizon Mines acquisition. Gold cash costs, after by-product credits, were $824 an ounce, down 23% from the third quarter. The firm increased gold production and lowered costs during the year when it accessed higher-grade material. Work on the West Mine shaft is nearly complete, with final work expected to be done by the third quarter of 2014. The new shaft is expected to lower future operating costs and eventually provide a platform for deeper exploration.

Operating cash flow was $21.6 million and was affected by the payment of $19 million for interest related to the 6.875% senior notes issued in April 2013, due in 2021. Another $15.2 million was paid in connect with the Coeur d’Alene Basin environmental liability settlement from 2011.

Losses of $2.6 million also stemmed from equity investments in certain junior mining and exploration companies that were under their cost bases.