Hecla's Gross Profit Nearly Doubles During First Quarter, Silver and Gold Production Cash Costs Remain Low
COEUR D'ALENE, Idaho--(BUSINESS WIRE)--May 4, 2004--Hecla Mining Company (NYSE:HL) today reported net income of $6.2 million for the first quarter of 2004, compared to net income of $6.7 million for the first quarter of 2003. However, last year's net income was aided by a $4 million legal settlement and a $1.1 million positive cumulative effect of change in accounting principle. Net income for the first quarter of this year is a direct result of an over 90% increase in gross profit from operations compared to last year.
Improved sales, gross profit and operating income compared to the same period last year were due to higher silver, gold, lead and zinc prices, as well as decreased silver production cash costs and increased gold production. Hecla's cash costs for gold production also remain low, at an average total cash cost per ounce of $142, making it one of the lowest-cost gold companies. As a result of these factors, gross profit increased from $7 million in the first quarter of 2003 to $13.4 million in the first quarter of 2004.
During the first quarter, approximately 307,000 outstanding shares of Series B preferred stock were exchanged for approximately 2.4 million shares of common stock. As a result of these successful exchanges, approximately 158,000 shares of preferred stock remain outstanding. Although the transaction does not impact the balance sheet or net income, the company is required to report a non-cash dividend expense of approximately $10.9 million on the income statement, which is the primary reason for a "basic and diluted loss per common share available to common shareholders" of 4 cents per share during the first quarter.
Hecla's President and Chief Executive Officer, Phillips S. Baker, Jr., said, "Hecla continues to deliver low-cost gold and silver production. Certainly, the increased precious metals prices allow us to generate remarkable increases in gross profit, but our goal is to remain one of the lowest-cost gold and silver producers with an eye on growth, no matter what the prices may do. I'm very pleased with both our operational performance and our progress in our expanded exploration program so far this year. With the prospects and properties we have in hand now, Hecla can grow dramatically over the next few years while maintaining a conservative balance sheet and high returns."
First Quarter 2004 Highlights
-- Net income of $6.2 million; 93% increase in gross profit to
$13.4 million
-- 2.1 million ounces of silver produced at an average total cash
cost of $1.43 per ounce
-- Nearly 56,000 ounces of gold produced, with more than 37,000
ounces of primary gold produced from La Camorra at an average
total cash cost of $142 per ounce
-- 43% increase in the average price of silver and 14% increase
in the realized price of gold compared to the first quarter of
2003
-- Successful exchange of preferred stock for common stock, with
accompanying $10.9 million non-cash dividend charge on the
income statement
-- $120 million of cash and short-term investments on hand, with
just $5.4 million in long-term debt
-- Increased production at La Camorra and lower cash costs at San
Sebastian and Greens Creek compared to the same period last
year
-- $2.4 million spent on exploration, with good results at Mina
Isidora and San Sebastian
-- Commencement of development on Lucky Friday's 5900 level
Operations
In the first quarter, Hecla produced 2.1 million ounces of silver at an average total cash cost per ounce of $1.43, maintaining its position as the lowest-cost primary silver producer. Gross profit from silver operations more than doubled to $9.6 million in the first quarter of 2004 compared to 2003, thanks to the dramatic increase in silver price compared to a year ago. The company also produced 55,817 ounces of gold, with 37,547 ounces coming from Hecla's primary gold operating unit, La Camorra, at an average total cash cost per ounce of $142. Gross profit from La Camorra increased 37% over the same quarter a year ago, from $2.8 million to $3.8 million in the first quarter of this year.
Baker said, "We continue to focus on growth, with a goal of doubling our gold production by the end of 2008. And in about 18 months, we should see an increase in silver production, as development of the new level of the Lucky Friday makes it possible for us to return to full production of 4 million ounces per year at that mine."
During the first quarter, the San Sebastian silver operation in central Mexico produced 857,100 ounces of silver and 11,474 ounces of gold. The significant gold by-product at San Sebastian allowed the mine to produce silver at the extremely low cost of negative 44 cents per ounce during the first quarter of 2004, compared to negative 7 cents per ounce in the first quarter of 2003. Mining this year is taking place in a lower-grade area of the mine, so silver production decreased from a year ago because the grade of silver was approximately 25 ounces per ton during the first quarter of 2004 compared to 32 ounces per ton during the first quarter of last year. However, with grades of 25 ounces of silver per ton and nearly one-third of an ounce of gold per ton, San Sebastian continues to be a very high-grade mine.
The Greens Creek mine, located near Juneau, Alaska, is a joint venture with Kennecott Greens Creek Mining Company, a subsidiary of Rio Tinto. Hecla holds an approximate 30% interest in the operation. In the first quarter, Greens Creek produced 744,967 ounces of silver and 6,743 ounces of gold for Hecla's account, at an average total cash cost of 98 cents per ounce of silver. Increased gold, zinc and lead prices favorably impacted Greens Creek's cash costs, as those metals are important by-products at that mine. Greens Creek's cash costs per ounce decreased 41% compared to the first quarter of 2003.
The Lucky Friday silver mine is located in northern Idaho, and Hecla has been operating this mine since 1958. During the first quarter, Lucky Friday produced 483,418 ounces of silver at an average total cash cost of $5.44 per ounce, compared to $4.47 per ounce a year ago. However, due to the increases in silver and lead prices, Lucky Friday's sales and income from operations both increased significantly compared to a year ago. The mine's costs have increased because the access to ore continues to get further away from the 4900-level drift, resulting in longer haulage times. The decision has also been made to mine lower-grade material because of the increased metals prices. This increases cash flow, but it also results in increased cash costs. Once the development of the 5900 level is complete, Lucky Friday's cash costs are expected to decrease to well below $5.00 per ounce of silver because haulage lengths will decrease. In addition, the mine will be able to ramp back up to full capacity of approximately 4 million ounces of silver per year. Work is progressing as scheduled on the 5900-level drift, with four crews working 24 hours a day. Miners have advanced approximately 450 feet to date on the drift, which leads from the Lucky Friday Silver Shaft and will run approximately 5,465 feet to the expansion area where about 28 million ounces of silver resource have been identified. The schedule calls for completion of the drift and commercial production from the new level by the end of 2005.
Hecla's primary gold producer is the La Camorra unit, located in eastern Venezuela. During the first quarter of 2004, La Camorra produced 37,547 ounces of gold at an average total cash cost of $142 per ounce. Production increased compared to the same period last year, with slight increases in tonnage and grade. The ore grade mined in the first quarter was 0.84 ounce of gold per ton, compared to 0.82 ounce of gold per ton a year ago. Work continues on construction of a 2,000-foot-deep production shaft at La Camorra, where the ore is currently hauled out of the mine via a decline ramp and trucks. Although La Camorra is a very low-cost mine, as the mine gets deeper, haulage times and costs increase. The production shaft will allow more efficient removal of the ore. Completion of shaft construction is scheduled for the end of 2004, with construction costs estimated at $12 million.
As previously reported in a March 2004 news release, approximately 5,000 ounces of gold worth about $2 million was provisionally withheld from export from Venezuela, pending an administrative review of export documentation. Hecla has provided all documentation necessary to satisfy the review and received a court order directing the release of the gold back to the company, subject to further court proceedings. In the meantime, La Camorra continues normal operations, and all subsequent gold shipments have been exported out of Venezuela on schedule.
Exploration
Hecla spent about $2.4 million on exploration in the first quarter of the year, and is projecting to spend approximately $12 million to $15 million on exploration in 2004. Progress on the Mina Isidora deposit in Venezuela is especially promising, and earlier in the year, Hecla reported a proven and probable reserve there of 327,000 ounces of gold. A decision on developing the deposit is expected in the near future. An ongoing deep directional drilling program at Hecla's La Camorra mine has also been successful, with one hole intersecting ore grade material at a depth of 3,300 feet, more than 1,300 feet below the current mining area. The deposit now appears to be continuing at depth in a more easterly direction, and several holes drilled into that area show ore grade material as well. In addition, several drilling programs are planned on Hecla's very prospective land position surrounding the La Camorra mine and on the Block B concessions, where Mina Isidora is located.
About $1.2 million was spent in the first quarter on exploration surrounding the San Sebastian mine in central Mexico. Geologists remain convinced of the long-term potential on the 190-square-mile property position, which is located on trend with some of the oldest and richest silver mines in the world. An aeromagnetic survey and a geologic characterization study have now been completed on the entire concession. Thousands of soil samples were collected during the quarter, and geochemical results have been received on about half of the samples. Anomalies in gold and silver have been identified to the west, north and east of the Francine vein. Five exploration drill holes were completed during the quarter testing for a second, separate and lower mineral band below the currently identified reserve and resource area. Visual indications are encouraging; however, assays are pending and the program is in its very early stages.
Baker said, "The exploration results we're beginning to get are very exciting and we're moving forward as quickly as we can. It takes time to identify and explore targets and eventually develop them into a mine, but we believe that by having our land positions located in these world-class mining districts, we'll be very successful long-term with these programs. We expect to be exploring and mining for a long time to come in these districts."
At the Hollister Development Block gold exploration project in northern Nevada, Hecla reported in the first quarter that it received notification of approval of the federal permits needed from the Bureau of Land Management (BLM), subject to a public comment period. The project is an earn-in to a joint venture with Great Basin Gold. The BLM has also reviewed the bonding calculations and is expected to complete the bond adjudication process soon. Once an acceptable interim arrangement for property access and work authorization is reached (with a land transfer expected in the future), Hecla can begin site preparation work, with commencement of actual underground exploration ramp construction expected this summer.
Hecla Mining Company, headquartered in Coeur d'Alene, Idaho, mines and processes silver and gold in the United States, Venezuela and Mexico. A 113-year-old company, Hecla has long been well known in the mining world and financial markets as a quality silver and gold producer. Hecla's common and preferred shares are traded on the New York Stock Exchange under the symbols HL and HL-PrB.
Statements made which are not historical facts, such as anticipated payments, litigation outcome, production, sales of assets, exploration results and plans, costs, prices or sales performance are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, and involve a number of risks and uncertainties that could cause actual results to differ materially from those projected, anticipated, expected or implied. These risks and uncertainties include, but are not limited to, metals price volatility, volatility of metals production, exploration risks and results, project development risks and ability to raise financing. Refer to the company's Form 10-Q and 10-K reports for a more detailed discussion of factors that may impact expected future results. The company undertakes no obligation and has no intention of updating forward-looking statements.
Cautionary Note to Investors -- The United States Securities and Exchange Commission permits mining companies, in their filings with the SEC, to disclose only those mineral deposits that a company can economically and legally extract or produce. We use certain terms in this news release, such as "resource," that the SEC guidelines strictly prohibit us from including in our filing with the SEC. U.S. investors are urged to consider closely the disclosure in our Form 10-K. You can review and obtain copies of these filings from the SEC's website at http://www.sec.gov/edgar.shtml.
Hecla Mining Company news releases can be accessed on the Internet at: http://www.hecla-mining.com
HECLA MINING COMPANY
(dollars in thousands, except per share, per ounce and per pound
amounts - unaudited)
HIGHLIGHTS First Quarter Ended
----------------------
FINANCIAL DATA Mar. 31, Mar. 31,
2004 2003
---------- ----------
Sales of products $ 36,650 $ 26,441
Gross profit 13,409 6,955
Income from operations 6,857 6,502
Net income 6,180 6,735
Basic and diluted income (loss) per common
share (1) (0.04) 0.06
Cash flow provided by operating activities 4,909 4,750
SALES OF PRODUCTS
Silver operations (2) $ 24,967 $ 16,924
Gold operations 11,755 8,976
Other (72) 541
Total sales $ 36,650 $ 26,441
---------- ----------
GROSS PROFIT
Silver operations (2) $ 9,647 $ 4,160
Gold operations 3,834 2,789
Other (72) 6
---------- ----------
Total gross profit $ 13,409 $ 6,955
PRODUCTION SUMMARY - TOTALS
Silver - Ounces 2,085,485 2,398,199
Gold - Ounces 55,817 53,412
Lead - Tons 4,560 5,627
Zinc - Tons 6,072 6,685
Average cost per ounce of silver produced (2):
Cash operating costs ($/oz.) 1.19 1.58
Total cash costs ($/oz.) (3) 1.43 1.67
Total production costs ($/oz.) 2.93 2.83
Average cost per ounce of gold produced:
Cash operating costs ($/oz.) 142 137
Total cash costs ($/oz.) (3) 142 137
Total production costs ($/oz.) 234 206
AVERAGE METAL PRICES
Silver - Handy & Harman ($/oz.) 6.71 4.69
Gold - Realized ($/oz.) 379 333
Gold - London Final ($/oz.) 408 352
Lead - LME Cash (cents/pound) 38.3 20.8
Zinc - LME Cash (cents/pound) 48.5 35.7
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