Hecla Reduces Spending for Nevada Operations

$25 Million reduction in Company-wide capital, exploration and G&A
expected for 2019

COEUR D’ALENE, Idaho–(BUSINESS WIRE)–Hecla Mining Company (NYSE:HL)
today announced that it is taking action to reduce spending, consistent
with its goal of operating on a cash neutral basis, following the heavy
investment made in Nevada in the First and Second Quarters.

Highlights

  • Significantly reduced planned development investment in Nevada while
    production continues.
  • Expectations for Company-wide capital reduced by $12 million,
    exploration reduced by $9 million, G&A and other costs reduced by $4
    million for a $25 million planned reduction in spending in 2019.
  • Nevada production and cost estimates revised for 2019.

“Hecla has a strong commitment to operate within cash flow as
demonstrated by the positive free cash flow over the past 3 years and
longer,” said Phillips S. Baker, Jr., President and CEO. “However, the
Nevada operations have not generated the cash flow we had hoped for so
we are curtailing most development and reducing the workforce with the
goal of the operation generating positive cash flow in the second half
of the year. We still see lots of opportunities to improve costs, manage
water, improve recoveries and explore but only plan to do it within cash
flow.”

Mr. Baker continued, “We expect that with the company-wide reduction in
spending Hecla will generate sufficient cash flow to nearly eliminate
the need to borrow under the revolver by year end. If borrowing is
required, we expect to be in compliance with the covenants.”

Nevada

A review has been conducted of the Nevada operations and changes are
being made with the goal of turning it into a positive cash flowing unit.

The new approach is to mine the currently developed ore at Fire Creek.
Mining at Midas is expected to continue through the end of the year, but
Hollister will be shut down. As a result, 25% of the Nevada workforce is
being laid off. Some surface exploration drilling and hydrology studies
are still planned to gather information on the deposits to help make
future development programs more successful.

Third-party ore processing arrangements are also being pursued to try
and reduce the transportation and milling costs. This could include
mills that can process ore that is considered refractory. With water
discharge from Fire Creek more than double of a year ago, work is
underway to increase discharge permits and change how the water is
treated.

The Company is still committed to the exploration and definition of
Hatter Graben, which is one of the key reasons the Nevada operations
were acquired. However, the level of development activity is being
curtailed to reduce the cash consumption, and the focus instead is
expected to be on surface drilling with the goal of gaining more
information on potential expansions of the deposit and to help plan the
most efficient route to get to the deposit, once development is
restarted.

The Company is providing revised annual 2019 Nevada production estimates
of 60,000 ounces at a cost of sales of $105 million, a cash cost, after
by-product credits of $1,200 per gold ounce and an all-in sustaining
cost, after by-product credits, of $1,700 per gold ounce.

Revolving Line of Credit

The Company has reviewed its financial projections with its banking
syndicate on the revolving line of credit and believes that there is and
should continue to be at current projections, ample access to liquidity
while the Company continues to evaluate the best options for refinancing
its May 2021 bonds.

The Company continues to view the revolving line of credit as a
short-term liquidity facility rather than a long-term source of funding
and expects the amount drawn on the facility to be relatively steady at
the end of the second and third quarters, and then to be reduced by year
end, potentially being fully repaid at that time. The Company is working
towards a goal of having a debt/EBITDA ratio of around 3.75 by year end
and around 3.0 by the end of 2020.

Setting A Short-term Floor for Silver and Gold Prices

The Company has bought put contracts on 2.9 million ounces of silver and
93,000 ounces of gold which set a floor to the prices for each, locking
in $14.73 per silver ounce and $1,318 per gold ounce for the next four
months. Buying a put sets a floor on the price the Company could expect
to receive but still maintains all of the upside, other than the
transaction costs. More protection may be put in place for the rest of
the year and part of next year. This move gives the Company confidence
in the prices it will receive and reduces the risk of exceeding its
revolver line of credit covenants.

2019 Production Outlook

     

Silver Production
(Moz)

   

Gold Production
(Koz)

   

Silver Equivalent
(Moz)

   

Gold Equivalent
(Koz)

      Original

(if revised)

    Current     Original

(if revised)

    Current     Original

(if revised)

    Current     Original

(if revised)

    Current
Greens Creek     7.7     7.7     50     50     24.0     24.0     305     305
Lucky Friday     0.2     0.2     N/A     N/A     0.2     0.2     N/A     N/A
San Sebastian     2.0     2.0     14     14     3.0     3.0     40     40
Casa Berardi     N/A     N/A     150     150     11.7     11.7     150     150
Nevada Operations     0.1     0.2     76     60     6.1     4.9     77     63
Total8     10.0     10.1     290     274     45.0     43.8     572     558
                               

2019 Cost Outlook

      Costs of Sales (million)    

Cash cost, after by-product credits,
per
silver/gold ounce
2,4

   

AISC, after by-product credits, per
produced
silver/gold ounce
3

      Original

(if revised)

    Current     Original

(if revised)

   

Current

    Original

(if revised)

    Current
Greens Creek     $202     $202     $0     $0     $5.50     $5.50
Lucky Friday     N/A     N/A     N/A     N/A     N/A     N/A
San Sebastian     $41     $41     $9.00     $9.00     $12.00     $12.00
Total Silver     $243     $243     $1.10     $1.10     $11.00     $11.00
Casa Berardi     $210     $210     $850     $850     $1,150     $1,150
Nevada Operations     $90     $105    

$900

    $1,200     $1,325     $1,700
Total Gold8     $300     $315     $875     $950     $1,250     $1,325
                       

2019 Capital and Exploration Outlook

      Original

(if revised)

   

Current

2019E Capital expenditures (excluding capitalized interest)     $150 million     $138 million
2019E Exploration expenditures (includes Corporate Development)     $25 million     $16 million
2019E Pre-development expenditures     $2.5 million     $2.5 million
2019E Research and Development expenditures     $3.5 million     $1 million
       

CONFERENCE CALL AND WEBCAST

A conference call and webcast will be held today, June 6, at 12:30 p.m.
Eastern Time to discuss the information included in this news release.
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.

ABOUT HECLA

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 an
operating mines in Quebec and Nevada. The Company also has exploration
and pre-development properties in eight world-class silver and gold
mining districts in the U.S., Canada, and Mexico.

Cautionary Statements Regarding Forward Looking Statements

This release contains and the telephone conference call referenced
herein will contain “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. Where a
forward-looking statement 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.
Forward-looking statements often address our expected future business
and financial performance and financial condition; and often contain
words such as “anticipate,” “intend,” “plan,” “will,” “could,” “would,”
“estimate,” “should,” “expect,” “believe,” “target,” “indicative,”
“preliminary,” “potential” and similar expressions. Forward-looking
statements in this news release may include, without limitation: (i)
achieving the goal of operating on a cash neutral basis; (ii) 2019
company-wide capital, exploration, general and administrative (G&A) and
other costs planned to be reduced by $25 million over the remainder of
the year in an effort to improve cash flow; (iii) the goal of the Nevada
operations generating positive cashflow in the second half of 2019; (iv)
improving costs and recoveries at the Nevada operations; (v)
company-wide reduction in spending expected to generate sufficient cash
flow to nearly eliminate the need to borrow under the revolving credit
facility (“Revolver”) by year end; (vi) any borrowings under the
Revolver in 2019 are expected to be in compliance with Revolver
covenants; (vii) continuing access to the Revolver; (viii) surface
exploration drilling and hydrology studies at Fire Creek are still
planned to gather information on the deposits to help future development
programs be more successful; (ix) mining at Midas is also expected
through 2019; (x) the ability to negotiate and enter into third-party
ore processing/milling agreements; (xi) the ability to manage water
issues at Fire Creek through obtaining increased permitted discharges
and to change how water is treated; (xii) that surface drilling at
Hatter Grabben will provide more information on potential expansions of
the deposit and to help plan the most efficient development route to get
to the deposit; (xiii) revised annual 2019 Nevada production estimates
of 60,000 ounces at a cost of sales of $105 million, a cash cost, after
by-product credits of $1,200 per gold ounce and an all-in sustaining
cost, after by-product credits, of $1,700 per gold ounce; (xiv) the
ability to refinance the Company’s bonds due in May 2021; (xv)
expectation of the amount drawn on the Revolver to be relatively steady
at the end of the second and third quarters, and then to be reduced by
year end, potentially being fully repaid at that time; (xvi) the Company
is working towards a goal of having a debt/EBITDA ratio of around 3.75
by year end and around 3.0 by the end of 2020; (xvii) that the put
contracts entered into will (a) establish firm prices the Company will
receive for its gold and silver production that is the subject of the
contracts and (b) lessen the risk of the Company breaching certain
financial covenants under the Revolver; (xviii) 2019 production outlook
at our individual mines and the Company as a whole; (xix) 2019 cost
outlook for the individual units and the Company as a whole; and (xx)
2019 capital and exploration outlook at the individual units and the
Company as a whole. Forward-looking statements in the telephone
conference call related to this release may include, without limitation:
(1) we expect our assets to operate on a cash positive basis; (2) cash
consumption is expected to be significantly lower and our future
activities have a higher chance of success; (3) the limited development
we plan at Fire Creek, we expect to mine all of the developed ore
available for near-term production, primarily off of spiral 2 by early
2020; (4) of the expected production of 60,000 ounces of gold for the
year in Nevada, 12,000 are expected in Q2 and 38,000 in the second half
of the year; (5) We anticipate costs in Q2 will be about the same as Q1,
but should improve in the second half of the year; (6) Over the second
half we believe we will generate about $7 million of free cash flow in
Nevada at current prices using this strategy; (7) We think the Nevada
assets can be profitable over the long-term; (8) There is a lot of
resources and mineralization and it is relatively high grade but the
current cost per ton and development costs are too high. So we are going
to be focused on the goals we started with, which was to improve the
processes, lower the cutoff grade to move known resources into reserves,
to improve the rate of development so we can have enough working faces
and identify the ore so we can process it with better recoveries. We are
approaching it on a slower pace so we have better control over the
spend; (9) When we get to the end of mining primarily off spiral 2 in
2020 as we expect, we will see where we go from there. If the things we
are working on come together then we would then mine off spirals 4 and
3. We will also look at how we can do enough development to drill the
highest priority targets like Hatter Grabben; (10) While we will assess
whether we have a triggering event to determine impairment at the end of
the second quarter, I don’t currently anticipate that the potential
impairment would be large; (11) We think we can improve the operations
and results of Fire Creek; (12) First, our expectation was that Nevada
would be about 18% of our 2019 revenues. We now think it will be 14%;
(13) We expect exploration spending in Nevada for 2019 to be $3 million
split almost equally between Fire Creek and Hatter Grabben; (14) The
capital expenditure reductions are primarily in Nevada but we expect
there will also be a little less at each of the operations; (15) While
we have cut back we still have room to reduce costs more if necessary;
(16) The $25 million reduction in expenditures should help us in our
goal to operate on close to a cash-neutral basis during this time of
relatively weak prices; (17) We have talked about our ability to pull
levers to throttle back our activities if needed, and we are taking
specific actions to do just that. This should help us with our line of
credit covenants; (18) A financial step we have taken is buying puts on
about 93k ounces of gold at $1318 and 2.9 million ounces of silver at
$14.73 to assure Hecla’s revenue stream for the next four months; (19)
Buying a put gives us a floor on the price we can expect, but we still
maintain all of the upside, other than the transaction cost, so from an
investor perspective we are lowering risk and still giving exposure to
the upside, which we believe could be significant. Think of it as
insurance; (20) We are considering putting more protection in place for
the rest of the year and part of next year; (21) The lenders have
reviewed our plans, and I believe they will modify the revolver to
assure Hecla’s access to the capital we might need in current and
projected price environments; (22) We expect our financial position to
improve particularly in Q4; (23) We will continue to draw down and repay
the revolver to fund working capital expenses, but when we look forward
at our expected cashflow, we expect borrowings at the end of Q2 and Q3
to be about the same; (24) I think many of you have heard me say that
when I came to Hecla 18 years ago that I was struck by the financial
flexibility the company had to manage cash generation. I expect that we
will see that flexibility over the next 18 months; (25) We think that
Hecla can be cash-flow positive over the second half of 2019 and
possibly generate as much as $50 million of free cash flow in 2020 at
current prices; (26) We believe that cash generation can quickly change
our debt to EBITDA ratios as commonly calculated; (27) We hope over the
second half of the year to demonstrate Hecla’s cashflow generation
potential, which we believe will help with the potential refinance of
our bonds; (28) However, if the bond market doesn’t have enough appetite
to place all the bonds or if the coupon is too expensive when we decide
to refinance then Hecla would have a number of potential options; (29)
The point is that with the quality of our assets and the jurisdictions
they are in we believe we have a number of viable options in addition to
the bond market that could materially change how much we need to refi in
the bond market and at what price; and (30) We believe the Nevada issues
are short term and the steps we are taking combined with the quality of
our assets should maintain and improve the balance sheet.

Estimates or expectations of future events or results are based upon
certain assumptions, which may prove to be incorrect, which could cause
actual results to differ from forward-looking statements. Such
assumptions, include, but are not limited to: (i) there being no
significant change to current geotechnical, metallurgical, hydrological
and other physical conditions; (ii) permitting, development, operations
and expansion of the Company’s projects being consistent with current
expectations and mine plans; (iii) political/regulatory developments in
any jurisdiction in which the Company operates being consistent with its
current expectations; (iv) the exchange rate for the USD/CAD and
USD/MXN, being approximately consistent with current levels; (v) certain
price assumptions for gold, silver, lead and zinc; (vi) prices for key
supplies being approximately consistent with current levels; (vii) the
accuracy of our current mineral reserve and mineral resource estimates;
(viii) 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 (ix)
counterparties performing their obligations under hedging instruments;
(x) sufficient workforce is available and trained to perform assigned
tasks; (xi) weather patterns and rain/snowfall within normal seasonal
ranges so as not to impact operations; (xii) relations with interested
parties, including Native Americans, remain productive; (xiii) economic
terms can be reached with third-party mill operators who have capacity
to process our ore; (xiv) availability of a waiver or forbearance from
the syndicate of lenders if required; (xv) there is no significant
negative developments in the high yield bond market which impact the
ability to finance notes when they mature; (xvi) maintaining
availability of water rights; (xvii) factors do not arise that reduce
available cash balances; and (xviii) sources of financing will be
available to us and on terms acceptable to us.

In addition, material risks that could cause actual results to differ
from forward-looking statements include, but are not limited to: (i)
gold, silver and other metals price volatility; (ii) operating risks;
(iii) currency fluctuations; (iv) increased production costs and
variances in ore grade or recovery rates from those assumed in mining
plans; (v) community relations; (vi) conflict resolution and outcome of
projects or oppositions; (vii) litigation, political, regulatory, labor
and environmental risks; (viii) 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; (ix) the
failure of counterparties to perform their obligations under hedging
instruments; (x) our plans for improvements at our Nevada operations,
including at Fire Creek, are not successful; (xi) we are unable to
obtain covenant relief from the lenders under our revolving line of
credit; (xii) we are unable to refinance our outstanding bonds due in
May 2021; (xiii) our estimates full year performance at our Nevada
operations are inaccurate; (xiv) we are forced to take a material
impairment charge on our Nevada operations; (xv) litigation claims
against us or our management relating to the Klondex acquisition cause
us to incur significant costs or a material judgment is awarded against
us; and (xvi) we are unable to obtain required financing at all or on
terms acceptable to us. For a more detailed discussion of such risks and
other factors, see the Company’s 2018 Form 10-K, filed on February 22,
2019, and Form 10-Q filed on May 9, 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 presentation, 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.

Non-GAAP Measures
(Unaudited)

Reconciliation of Cost of Sales and Other Direct Production Costs
and Depreciation, Depletion and Amortization (GAAP) to Cash Cost, Before
By-product Credits and Cash Cost, After By-product Credits (non-GAAP)
and All-In Sustaining Cost, Before By-product Credits and All-In
Sustaining Cost, After By-product Credits (non-GAAP)

The table below presents reconciliations between the most comparable
GAAP measure of cost of sales and other direct production costs and
depreciation, depletion and amortization to the non-GAAP measures of (i)
Cash Cost, Before By-product Credits, (ii) Cash Cost, After By-product
Credits, (iii) AISC, Before By-product Credits and (iv) AISC, After
By-product Credits for our operations at the Greens Creek, Lucky Friday,
San Sebastian, Casa Berardi and Nevada Operations units and for the
Company for the estimated amounts for the twelve months ended December
31, 2019.

Cash Cost, After By-product Credits, per Ounce is a measure developed by
precious metals companies (including the Silver Institute) in an effort
to provide a uniform standard for comparison purposes. There can be no
assurance, however, that these non-GAAP measures as we report them are
the same as those reported by other mining companies.

Cash Cost, After By-product Credits, per Ounce is an important operating
statistic that we utilize to measure each mine’s operating performance.
We have recently started reporting AISC, After By-product Credits, per
Ounce which we use as a measure of our mines’ net cash flow after costs
for exploration, pre-development, reclamation, and sustaining capital.
This is similar to the Cash Cost, After By-product Credits, per Ounce
non-GAAP measure we report, but also includes on-site exploration,
reclamation, and sustaining capital costs. 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. Cash Cost, After By-product Credits, per Ounce and AISC,
After By-product Credits, per Ounce also allow us to benchmark the
performance of each of our mines versus those of our competitors. As a
primary silver and gold mining company, we also use these statistics on
an aggregate basis. We aggregate the Greens Creek, Lucky Friday and San
Sebastian mines to compare our performance with that of other primary
silver mining companies and aggregate the Casa Berardi and Nevada
Operations units to compare our performance with that of other primary
gold mining companies. Similarly, these statistics are useful in
identifying acquisition and investment opportunities as they provide a
common tool for measuring the financial performance of other mines with
varying geologic, metallurgical and operating characteristics.

Cash Cost, Before By-product Credits and AISC, Before By-product Credits
include all direct and indirect operating cash costs related directly to
the physical activities of producing metals, including mining,
processing and other plant costs, third-party refining expense, on-site
general and administrative costs, royalties and mining production taxes.

Contacts

Mike Westerlund
Vice President, Investor Relations
800-HECLA91
(800-432-5291)
Investor Relations
Email: hmc-info@hecla-mining.com
Website:
www.hecla-mining.com

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Author: dmnnewswire