Hecla Mining Company · NYSE:HL
Hecla Mining — Morgan Stanley Leveraged Finance Conference 2016
54 slides from Hecla Mining's conference presentation, Nov 10, 2016
Slide 1: Morgan Stanley Leveraged Finance Conference
Morgan Stanley Leveraged Finance Conference Strong Performance November 10, 2016
Slide 2: Cautionary Statements
Cautionary Statements Cautionary Statement Regarding Forward Looking Statements, This presentation contains “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
Slide 3: Why Invest in Hecla?
Why Invest in Hecla? 1. Strong Silver & Gold Exposure 2. Strong Performance Q3 • Silver reserves 175 M oz • Record $179 M Revenue • Gold reserves 2 M oz • 10 M oz AgEq1 Production • Significant zinc and lead exposure • All 4 mines performing strongly *Metal price assumptions: Au $1,150/oz, Ag $14.50
Slide 4: Strategy Creates Per Share Value
Strategy Creates Per Share Value Captive Extend Price Cycles Mine Life Production Reserves & Cash-Flow Resources Long-Lived Capture Low-Cost Mines High Return Price Cycles Investments Improve High Productivity Return Investments LONG TERM GOALS: Investment Grade & S&P 500 Listing –4–
Slide 5: Strategy Has Led to Record Production
Strategy Has Led to Record Production Silver Production Growth AgEq Production Growth1 16.3 Moz 44.5 Moz +154% +211% 6.4 Moz 14.3 Moz 2012 2016E 2012 2016E Gold Production Growth 233 Koz 2016 expected to have the highest silver equivalent +320% production in Hecla’s 125 55.5 year history Koz 2012 20
Slide 6: Strategy Has Generated Financial & Share Performance
Strategy Has Generated Financial & Share Performance Adjusted EBITDA2: On Track For A Record Year Liquidity: Strong and Getting Stronger Cash Revolver $312 M $310 M $292 M $255 M $174 M $200 M $130 M $117 M $212 M $210 M $192M3 $155 M 2013 2014 2015 9 Months 2016 2013 2014 2015 Q3/2016 Outperformed
Slide 7: Strategy Has Increased Value on a Per Share Basis
Strategy Has Increased Value on a Per Share Basis AgEq1 Reserve Per Share AgEq Production Per Share 2012-2015 CAGR 2012-2016* CAGR Peer Group Hecla Peer Group Hecla Average Average +8% +14% -4% +5% OCF – CAPEX Per Share 2012-2016* CAGR Strong growth plus disciplined Peer Group Hecla Average share is
Slide 8: North American Focused Asset Portfolio
North American Focused Asset Portfolio Operations in Greens Creek Low-Risk + Mining-Friendly Admiralty Island, AK Jurisdictions Kinskuch Corporate Offices Alice Arm, BC Opinaca/Wildcat Operating mines Casa Berardi James Bay, QC Vancouver, BC Val d’Or, QC Pre-development Fayolle Val d’Or, QC Montanor
Slide 9: A Roadmap for Further Value and Growth Creation
A Roadmap for Further Value and Growth Creation A Strong Immediate Securing Foundation Growth The Long Term Future Greens Creek Productivity Existing Mines Greens Creek Lucky Friday #4 Shaft Lucky Friday Rock Creek Casa Berardi Casa Berardi EMCP pit Montanore San Sebastian Exploration Drilling –9–
Slide 10: 9 Months 2016: Strong Mine Free Cash Flow
9 Months 2016: Strong Mine Free Cash Flow Numbers in millions (USD) Greens Creek Casa Berardi 67% 23% Conversion $(49) Conversion $105.7 $(35.2) $63.5 to FCF6 to FCF6 $70.5 $14.6 OCF 4 Capex FCF 5 OCF 4 Capex FCF 5 San Sebastian 98% Lucky Friday 53% Conversion $15.4 $(7.3) Conversion to FCF6 to FCF7
Slide 11: Greens Creek: Consistent Low-Cost Production
Greens Creek: Consistent Low-Cost Production in a Wilderness Area and National Monument Silver Gold Cost Cash cost, after by-product Production Production of Sales credits, per Ag oz8,9 Q3 2016 2.45 Moz 12 koz $58.4 M $4.80/oz 2016E 8.5 Moz 53 koz - $5.00/oz 2016E Capital $48 M (Includes $14M for ta
Slide 12: Greens Creek: Investing in Productivity Improvements
Greens Creek: Investing in Productivity Improvements Average Recoveries Have Increased 7% Improving Mining Based On Data Adding $100 M Value, More Projects to Come CCO2 80% SCALP Silver Recovery % 75% CO2 pH 70% Control 65% 2014 2015 Working to Reduce Power Costs Installing Tele-Remote Mucking & Aut
Slide 13: Resource Conversion to Reserves
Resource Conversion to Reserves Indicated: 484,400 silver ounces and 7,000 gold ounces East Ore Resource Main Ramps Inferred: 11.4 million silver Mined Stopes ounces and 105,900 gold ounces Reserve Plan Measured Resource Indicated Resource Inferred Resource Indicated: 4.1 million silver ounces and 3
Slide 14: Lucky Friday: Positioned for Growth and Longevity
Lucky Friday: Positioned for Growth and Longevity Cash cost, after by-product Silver Production Cost of Sales credits, per silver oz 8,9 Q3 2016 887 koz $19.5 M $9.07/oz 2016E 3.4 Moz - $9.00/oz 2016E Capital $37 M (Including $20 M for #4 Shaft) 2P Reserves 78.7 Moz silver @ 15.5 oz/t Ag M+I Resourc
Slide 15: #4 Shaft: Increasing Grade with Depth
#4 Shaft: Increasing Grade with Depth Silver Shaft ORE GRADE VALUES *AgEq Grade (opt) > 24 18 - 24 4050 Level 12 - 18 #4 Shaft 6 - 12 <6 4900 Level Mining Activity 5900 Level Dec. 31, 2015 *Ag Equivalent Values Based Upon: Resource Prices $20.00/oz Ag, $0.90/lb Pb, $0.90/lb Zn 5900 Level 6500 Level
Slide 16: #4 Shaft: Access to the Expanding High-Grade Zone
#4 Shaft: Access to the Expanding High- Grade Zone at Lucky Friday ORE GRADE VALUES *AgEq Grade (opt) > 24 18 - 24 20 Years 12 - 18 Past Mining 6 - 12 <6 Mine Face (Galena) Dec. 31, 2015 97.2 opt Silver 6500 Level 47.5% Lead *Ag Equivalent Values Based Upon: Resource Prices $20.00/oz Ag, $0.90/lb Pb
Slide 17: Casa Berardi: Making a Good Mine Great
Casa Berardi: Making a Good Mine Great Cash cost, after by-product Gold Production Cost of Sales credits, per gold oz8,9 Q3 2016 32 koz $36.3 M $915/oz 2016E 145 koz - $700/oz 2016E Capital $61 M (Includes $19 M for EMCP pit) 2P Reserves 1.3 Moz gold @ 0.13 oz/t gold M+I Resources 1.3 Moz gold @ 0.1
Slide 18: Improved Throughput by 34%
Improved Throughput by 34% Consistency of Operations Since 2013 Hecla Buys Aurizon EMCP Pit Consistency, Improvement Firefighting –18–
Slide 19: EMCP Pit is Transforming Casa Berardi
EMCP Pit is Transforming Casa Berardi Creating Value Optimizing the mill: ~2,300 tpd (2015A) to ~3,100 tpd (2017E), adds 5,000 Au oz (2016E) and 30,000 Au oz (2017E) Increasing operating flexibility: More consistent operations Strong Returns: IRR of 90%1 on 2016 Capital of $19M & Total Capital
Slide 20: Casa Berardi: Multiple Stage Pits Move Up Cash Flow
Casa Berardi: Multiple Stage Pits Move Up Cash Flow New permit increases throughput Previous permit: 1,100,000 tonnes per year (1,213,000 tons) New permit: 1,250,000 tonnes per year (1,378,000 tons) –20–
Slide 21: Investing in Productivity Improvements
Investing in Productivity Improvements Automated Shaft and Rock Breakers Jumbo/Stope Drill Automation: Drilling During Shift Change $200K investment Adds 15M/day Internally sourced Increased drilling Increases efficiency accuracy 2 automated development drills in operation 1 stope dril
Slide 22: San Sebastian: Hecla's Newest Mine
San Sebastian: Hecla’s Newest Mine Silver Gold Cost of Cash cost, after by-product Production Production Sales credits, per Ag oz8,9 Q3 2016 0.98 Moz 8.2 koz $6.5 M $(4.03) 2016E 4.35 Moz 35 koz - ($2.00/oz) 2016E Capital $2 M 2P Reserves 8.0 Moz silver @ 27.7 oz/t Ag M+I Resources 9.3 Moz silver @
Slide 23: Drilling Brings Low Cost Growth Potential
Drilling Brings Low Cost Growth Potential Opportunity to expand pits with drilling/resource conversion (low cost) Exciting high grade discoveries West of Middle Vein (65.1 oz/ton silver and 0.68 oz/ton gold over 7.8 feet) No acquisitions required –23–
Slide 24: Middle Vein Resource Upgrades and Exploration Potential
Middle Vein Resource Upgrades and Exploration Potential 2016 Exploration Drilling Area NEW 2016 CURRENT OPEN PIT (In Progress) RESOURCE AREA MINING AREA 0.24 oz/ton gold and 50 oz/ton silver over 8.6 ft. 0.60 oz/ton gold and 0.28 oz/ton gold and 149 oz/ton silver over 4.7 ft. 58 oz/ton silver over 5
Slide 25: Rock Creek & Montanore: Securing Hecla's Long-Term Future
Rock Creek & Montanore: Securing Hecla’s Long- Term Future Each project has the potential for 20-30 year mine life Low acquisition cost: Revett $19 M and Montanore $54 M of Hecla stock Big potential: Each project has ~230 M oz Ag and~2 B lbs Cu* Advanced permitting: Rock Creek (SEIS), Montanore** (F
Slide 26: Rock Creek & Montanore Silver Resources Greater Than Hecla's Reserve
Rock Creek & Montanore Silver Resources Greater Than Hecla’s Reserve Total Hecla Rock Creek Montanore (proven & probable)10 (inferred resource)11 (inferred resource) 175 million oz. 229 million oz. 231 million oz. Silver Silver Silver 2 billion lbs. 2 billion lbs. Copper Copper -26-
Slide 27: Similar Development Project Timelines
Similar Development Project Timelines Montanore Rock Creek Donlin Creek 2016 Permitting Permitting 2017 Permitting Evaluation- 2018 Feasibility 2019 Evaluation – Feasibility 2020 Construction 2021 Construction 2022 Construction 2023 2024 Production Production Production Montanore litigation betwee
Slide 28: Rock Creek & Montanore Combined Are About Half the Metal of Donlin Creek
Rock Creek & Montanore Combined Are About Half the Metal of Donlin Creek Significant Unrealized Value Donlin Creek Rock Creek Montanore 482 Moz 484 Moz Silver Eq. Silver Eq. 1,656 Moz Inferred Inferred Silver Eq. Resources Resources Resources Average Analyst Value Average Analyst Value Nominal = $1.
Slide 29: Improving Debt Metrics
Improving Debt Metrics LTM* Adjusted EBITDA2 Net Debt/LTM Adjusted EBITDA15 $234 M $177 M 3.1x 3.0x $128 M $117 M 2.0x 1.4x LTM Q4 2015 LTM Q1 2016 LTM Q2 2016 LTM Q3 2016 LTM Q4 2015 LTM Q1 2016 LTM Q2 2016 LTM Q3 2016 Four Consecutive Quarters of Improving Debt Metrics * LTM = Last twelve months –
Slide 30: Strong and Improving Financial Position
Strong and Improving Financial Position $292M Liquidity Improving financial flexibility $292M of liquidity at end of Q3/16 $192M Cash & Cash $87.0M in Q3/16 operating cash flow Equivalents $27.7M in Q3/16 free cash flow5 $100M Undrawn Revolver Capital Discipline Net Debt/LTM* Adj. EBITDA = 1
Slide 31: Diversified Revenue Stream Q3 2016
Diversified Revenue Stream Q3 2016 Mitigates Risk and Enhances Economics #1 Silver and #3 Lead and Zinc Producer in the U.S. 23% 25% Greens Creek 48% of 45% 8% 52% Total Revenue 9% Silver Production: 4.3 Moz Cash Costs, after by-product 17% 21% Zinc Production: 14.8 Ktons Realized Price: $1.01/oz cr
Slide 32: Priority Uses for Growing Cash Flow
Priority Uses for Growing Cash Flow Creating Shareholder Value Sustaining and High-Return Dividends, Debt M&A Organic Growth Buyback Projects Organic Growth Projects: San Sabastian: ROIC= +1,000% Casa Berardi EMCP: IRR = +90% Greens Creek Recovery Improvements: IRR = +600% Prioritize investmen
Slide 33: 2016 Expectations: Higher Production, Lower Cost
2016 Expectations: Higher Production, Lower Cost Bold=Improved estimate Cash cost, 2016E12 Silver 2016E Gold Mine after by-product credits, Production (Moz) Production (oz) per silver/gold ounce8 Greens Creek 8.5 53,000 $5.00 per silver oz Lucky Friday 3.4 $9.00 per silver oz San Sebastian 4.35 35,0
Slide 34: Thank You
Thank You #4 Shaft Excavation Complete, Operational by Year End –34–
Slide 35: Appendix
Precious metal companies… Appendix –35–
Slide 36: Endnotes
Endnotes 1. Silver equivalent is calculated using the average market prices for the time period noted. 2. This release refers to a non-GAAP measure of adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"), which is a measure of our operating performance. Adjuste
Slide 37: Mining Industry Has Destroyed Value But Hecla Is An Exception
Mining Industry Has Destroyed Value But Hecla Is An Exception Silver Reserves Gold Reserves Total Project +3% 0% Write-downs 2013 - 2015 -60% -18% $0 PM Group1 Hecla Peer Group1 Hecla $34.3B Silver Production Gold Production PM Group Hecla +30% +58% 0% +5% 2013 to 2015 Comparison PM Group1 Hecla PM
Slide 38: Higher Grade Mines Than Peers
Higher Grade Mines Than Peers BMO Silver Coverage, Silver Equiv. Reserves vs. Grade Higher Grade HL Source: BMO Capital Markets (07/08/2016) –38–
Slide 39: A History of Beating Forecasts
A History of Beating Forecasts 2013 2014 2015 2016E MET BEAT BEAT Orig Rev Silver Production (M oz) 8-9E 8.9A 9-10E 11.1A 10-11E 11.6A 14.0E 15.75E BEAT BEAT BEAT Gold Production (K oz) 60E1 62.5A1 180E 187A 185E 189A 207E 233E Cash cost, after by- MISS BEAT BEAT product credits, per silver oz $5.00
Slide 40: Silver and Gold Margin Expansion
Silver and Gold Margin Expansion Silver Margins Gold Margins $1,341 $1,254 $1,187 $19.53 $1,121 $1,089 $17.26 $426 32% 34% 52% $14.93 $406 $14.54 $15.85 $328 29% $14.26 $653 46% $498 $13.46 81% $11.77 78% 48% 61% $8.71 79% $7.02 $591 $915 $793 $781 $601 $7.52 $5.55 $3.16 $3.80 $3.68 Q3 2015 Q4 2015
Slide 41: HL Less Impacted by Lower Ag Reserve Price
HL Less Impacted by Lower Ag Reserve Price Hecla: Reserves 1.5% Pan American: Reserves -6.6% 300.0 Moz 175.4 Moz 172.9 Moz 280.1 Moz $18.50 $17.25 $17.00 $14.50 2014 2015 2014 2015 Newmont: Reserves -21.1% Coeur*: Reserves -48.7% 143.6 Moz 303.9 Moz 113.3 Moz $20.00 $19.00 $19.00 155.9 Moz $17.50 *
Slide 42: Increasing Share of Modern Demand
Increasing Share of Modern Demand Modern demand increased from 260 M oz in 1992 to 544 M oz in 2014, an increase of 109%, and an annualized increase of 4.0% 0% 5% 43% 36% 29% 30% Modern Modern 24% 29% 4% 1992 2015E Modern Investment Jewelry & Photography Coins & Medals Silverware Source - GFMS -42
Slide 43: Silver Consumption per Capita Increases
Silver Consumption per Capita Increases Increasing Silver Consumption Per Person in China and India 0.80 0.80 Japan 0.70 0.70 South Korea 0.60 0.60 Silver Ounce Per Capita Silver Ounce Per Capita 0.50 0.50 United Japan 0.40 0.40 States Germany 0.30 0.30 United 0.20 States 0.20 Germany South 0.10 Kor
Slide 44: Focusing on Potential High-Grade Underground Zones
Focusing on Potential High-Grade Underground Zones -44-
Slide 45: Proven & Probable Reserves
Proven & Probable Reserves (on Dec. 31, 2015 unless otherwise noted) Reserves and Resources - 12/31/2015 Proven Reserves Silver Gold Lead Zinc Silver Gold Lead Zinc Copper Asset Tons (000) (oz/ton) (oz/ton) % % (000 oz) (000 oz) Tons Tons Tons Greens Creek (a) 10 20.8 0.12 3.7 9.0 210 1 370 910 — Lu
Slide 46: Reserves & Resources
Reserves & Resources (on Dec. 31, 2015 unless otherwise noted) Measured Resources Silver Gold Lead Zinc Silver Gold Lead Zinc Copper Asset Tons (000) (oz/ton) (oz/ton) % % (000 oz) (000 oz) (Tons) (Tons) Tons Greens Creek (b) — — — — — — — — — Lucky Friday (2)(b) 13,762 6.1 — 4.1 2.3 83,711 — 569,19
Slide 47: Reserves & Resources
Reserves & Resources (on Dec. 31, 2015 unless otherwise noted) Inferred Resources Silver Gold Lead Zinc Silver Gold Lead Zinc Copper Asset Tons (000) (oz/ton) (oz/ton) % % (000 oz) (000 oz) (Tons) (Tons) Tons Greens Creek (b) 3,255 12.8 0.09 2.8 6.7 41,730 300 89,630 219,540 — Lucky Friday (8)(b) 4,
Slide 48: 2006 – 2014 Reserve Table
2006 – 2014 Reserve Table Silver Silver Gold Silver Gold Proven Reserves Tons (oz/ton) Gold (oz/ton) (ounces) (ounces) 2011 Proven Reserves Tons (oz/ton) Gold (oz/ton) Silver (ounces) (ounces) 2006 Proven Reserves Greens Creek - - - - - Greens Creek (29.73%) - - - - - Lucky Friday 628,976 13.10 - 8,
Slide 49: Cash Cost GAAP Reconciliation
Cash Cost GAAP Reconciliation Reconciliation of Generally Accepted Accounting Principles (GAAP) measure to Cash Cost, Before By-product Credits, per Ounce and Cash Cost, After By-product Credits, per Ounce, for Greens Creek, Lucky Friday & San Sebastian (dollars and ounces in thousands, except per o
Slide 50: Cash Cost GAAP Reconciliation
Cash Cost GAAP Reconciliation Numbers in thousands (USD) 1. Includes 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 and marketing expense, on-site general and admin
Slide 51: Adjusted EBITDA Reconciliation to GAAP
Adjusted EBITDA Reconciliation to GAAP Numbers in thousands (USD) This presentation refers to a non-GAAP measure of adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which is a measure of our operating performance. Adjusted EBITDA is calculated as net loss
Slide 52: Adjusted EBITDA Reconciliation and Net Debt Reconciliation to GAAP
Adjusted EBITDA Reconciliation and Net Debt Reconciliation to GAAP Numbers in thousands (USD) As of and for the Twelve Months Ended 30-Sep-16 30-Jun-16 31-Mar-16 31-Dec-15 30-Sep-15 Net Income (Loss) $ (13,676) $ (49,355) $ (100,138) $ (86,968) $ (7,100) Plus: Interest expense, net of amount capital
Slide 53: Cash Cost GAAP Reconciliation
Cash Cost GAAP Reconciliation Reconciliation of cost of sales and other direct production costs and depreciation, depletion and amortization (GAAP) to cash cost, after by-product credits, per silver ounce (dollars and ounces in thousands, except per ounce – unaudited) Lucky Friday Greens Creek Q3/20
Slide 54: Greens Creek Free Cash Flow Reconciliation
Greens Creek Free Cash Flow Reconciliation Dollars are in thousands 1987-2015 Performance Revenue $4,640,526 Treatment Charges (911,508) Net Revenues 3,729,019 Freight & Selling Expense (188,234) Net Smelter Return 3,540,785 Cost of Goods Sold (1,648,047) NonCash Costs (567,499) Exploration Expense
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