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Friday. While silver and gold prices have dropped, the price of lead has fallen slightly and the zinc price has risen by more than 10 percent. What that does for Hecla – the number-three zinc and lead producer in the United States – is it gives us a natural revenue hedge. It also reduces our dependence on the price of silver and gold. And, of course, we also hedge a portion of our lead and zinc production, cushioning us against further price volatility.
Going forward, we expect to earn more revenue from silver than from gold. We believe that the silver price will outperform gold, bringing the gold-silver ratio back in line with more historical levels rather than the current 75:1 (source: Bloomberg). Additional silver revenue is expected to come from mining higher-grade material from deeper in the Lucky Friday and, potentially, from the high-grade vein discoveries at San Sebastian, Mexico. At Greens Creek I’m seeing the best drill results I’ve seen since I started at Hecla. In fact, over the next two to three years, we should add high-grade resources to the mine plan. It will possibly be not only a higher-grade resource, but also a larger one: three, four, maybe five years’ worth of additional mine life. And the same thing is happening at Casa Berardi. It may end up being more like Greens Creek and Lucky Friday in that the great exploration potential should enable us to find more and better material to extend the mine life.
Low-Cost Profile Leads to a Strong Cash Balance
We set the goal at the beginning of 2014 to operate within adjusted EBIDTA to preserve our financial strength, and we have more than met that objective. In fact, when you look at our cash balance compared to last year’s, you’ll see that we generated sufficient cash flow to fund the second-largest annual capital program in our history and still end the year with basically the same cash balance that we started with. It all starts with production, of course, which drives financial metrics. Revenue increased 31 percent to $500.8 million, adjusted EBITDA increased 29 percent to $174.4 million, and operating cash flow increased $56.5 million, even after the payments of $55 million in the third quarter to satisfy our remaining obligation of the Coeur d’Alene Basin settlement – putting that forever behind us. Cash costs, after
LIQUIDITY
$ 322
Q1 / 2014
available credit facility
$ 322
Q3 / 2014
cash and cash equivalents
$ 310
$ 308
(US$ millions)
$ 208
$ 222
$ 222 (1)
$ 210
HL . 4
Q2 / 2014
Q4 / 2014
(1) Includes $14.1 million of warrant proceeds subsequently paid over to the plaintiffs in the Coeur d’Alene Basin Settlement.
by-product credits, per silver ounce declined almost 30 percent to $4.81 – industry-leading numbers that led to operating cash flow for the year of $83.1 million, a 212 percent increase. Cash costs, after by-product credits, per gold ounce declined by 13 percent to $826.
Who Is Hecla?
One of the things I’ve come to realize recently is that our nearly 125-year history can be a double-edged sword. Whether it’s analysts who have followed HL for years or long-time shareholders, there’s a tendency to think of Hecla the way it was 10 or 20 years ago. But quite honestly, while we have the same values and core competencies we’re not the same company. Our mines have the benefit of our 100 percent ownership and years of exploration and capital investment that reduces operating risk, lowers costs, and extends their lives. We’re challenging the conventional wisdom that precious metals companies don’t generate free cash flow – a notion that stems from other companies making poor investments that force them to take big write- offs. Over the last five years, Hecla has invested in the largest capital, exploration, and pre-development projects in our history. We settled the Coeur d’Alene Basin litigation, and we continued to grow by acquiring the Casa Berardi gold mine, all while maintaining a cash balance of over $200 million.
Smart Mining
Lately, we’ve been focusing on technology and process