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Text: This is Anvita Patil, Hecla's assistant treasurer.
With that, I will pass the call to Phil Baker.
Referring to Slide 4, we had a very strong first quarter, very good operational and financial performance.
We recorded quarterly adjusted EBITDA that was a record for the company.
It was $12 million higher than our previous record.
We had the highest cash gross margin.
And we had the second-highest revenues in our 130-year history.
And all of this was driven primarily by the strong production results and cost performance at all of our operations.
At Greens Creek, we're lowering our cash cost and all in sustaining cash cost guidance for the year, and Lauren is going to speak more about that in a minute.
The fundamentals of our balance sheet reflect these successive quarters that we've had of improving performance by Hecla.
So our balance sheet is in very good shape.
One of the things I want to point out is that typically our first quarter is one of our smallest cash flow quarters.
I went back and looked at the last 30 years, and about 20 of the 30 were the lowest.
There were about 10 where the first quarter wasn't the lowest cash flow for the year.
And when it wasn't the lowest, it was always the second lowest.
So when we consider our operating plans and when we consider the reversal that we'll have of the working capital buildup, we're anticipating this significant free cash flow generation over the rest of the year.
So as good as the first quarter was, we think the rest of the year will be stronger.
And as a result of that, the board has announced an increase to our dividend policy.
Our silver-linked dividend payment that occurs at $25 will be increased by 50% to $0.03 per share annually, and Russell's going to speak more about that.
We're returning about 28% of our free cash flow in the first quarter to shareholders.
And as silver prices increase, shareholders will have the ability to participate in incremental free cash flow generation that we'll have.
We also had a very strong operating performance.
And despite the good performance, we were able to maintain our low all-in frequency rate about 1.71 for the first quarter.
In addition, our sustainability report, which we're going to release in May, with the annual meeting, highlights our ESG performance that we've had.
The report focuses -- in fact, the title of the report is something like Small Footprint, Big Benefit.
Because we have these underground mines that have an extraordinarily small footprint.
And they're largely energized by alternative power, making our greenhouse gas emissions per ounce probably the lowest or among the lowest in the industry.
And we've also focused on policies and activities that really make Hecla a uniquely positive ESG investment.
So we're going to focus a lot of attention on that at the annual meeting.
And also at the annual meeting, we're going to update exploration.
So we're going to wait for now.
We'll wait till the annual meeting.
But, let me just say that we've had some of the best drilling results in the history of the company.
And as you're going to see, in a few weeks, we're in the early days of some of these programs.
But, they have the potential to be extraordinarily accretive.
I really look forward to the rest of the year.
And with that, I'm going to pass the call to Russell.
Turning to Slide 6.
Hecla continued to strengthen its balance sheet as we ended the first quarter with $140 million in cash aided by record margins from higher prices and strong operating performance.
With cash almost doubled since the second-quarter 2020 from consecutive quarters of strong free cash flow, we delivered a net debt to adjusted EBITDA ratio of 1.4 times, well below our target of two times, while providing the liquidity position at $390 million.
Looking at Slide 7, our realized silver margins have continued to increase as costs stay low and silver prices increase with every dollar in margin, translating to free cash flow.
If you look at the gold portion of the bar, you see that our margin this quarter was about double the second and fourth quarter of last year, and about 50% more than the third quarter.
And it gets only partially reflected in our free cash flow, because of working capital changes.
First-quarter free cash flow was $16.5 million after negative working capital changes of $29.3 million using interest payments of $18.4 million and the timing of incentive compensation payments related to 2020 performance and higher accounts receivables from timing of concentration.
But maybe more important is the trailing 12 months free cash flow $121 million.
We see the future 12 months of having the same or better free cash flow the current prices.
Moving to Slide 8 with the growth anticipating our free cash flow over the remainder of the year, the board has approved an increase to our silver-linked dividends of $0.01 per share.
This equates to a 50% increase in the dividend rate at the $25 per ounce threshold to $0.03 per year.
This increase to the silver-linked dividend reflects our confidence in Hecla's free cash flow generation.
At $25 per ounce realized price, the enhanced dividend policy has an implied yield of 7.4% to the silver price.
The return from this dividend policy, which is tied to the price of silver, distinguishes Hecla from investing in an ETF for that matter and is unique for the industry.
Continued strong operational performance and higher silver pricing drive our 2021 free cash flow expectations, which should continue to grow from our first-quarter performance.
I'll start on Slide 10.
First and foremost is our focus on safety.
Our teams continue their exemplary safety performance, and our all injury frequency rate in the first quarter was 1.71, which is a reduction of 72% since implementing a revised safety and health management system in 2012.
Our operations teams have done an outstanding job of improving this aspect of the business.
While we are a little higher than our 2020 full-year results, we are focused on reducing it further.
On slide 11, at the Green Creek mine, we produced 2.6 million ounces of silver and 13,200 ounces of gold at an all-in sustaining cost of $1.59 per ounce for the quarter.
We're lowering the cash cost and all-in sustaining costs guidance, due to the higher byproduct credits, more favorable smelter terms and lower treatment charges, and the reclassification of mine license tax to income tax.
While smelter terms will be better for all of 2021, in the first quarter, we realized another benefit due to a customer meeting prior purchase obligations.
This benefit will not recur later in the year.
With these changes, updated cash cost guidance for Greens Creek is lowered to $1.50 to $2.25 per ounce and all-in sustaining cash costs are lowered to $6.50 to $7.25 per ounce.
Greens Creek's consistent delivery and low cost combined with high silver prices generate very strong free cash flow.
Going to slide 12, the Lucky Friday achieved full production in the fourth quarter of 2020 and produced 0.9 million ounces of silver in the first quarter of 2021.
Production at the mine is expected to exceed 3.4 million ounces this year.
We anticipate the grades to improve as we mine deeper, increasing the projected production to around 5 million ounces annually by 2023.
No significant planned outlay of capital is required to achieve these goals.
In addition, we are testing and optimizing various mining method changes and other initiatives to improve safety while increasing the productivity of the mine.
We've made no change to our outlook at the Lucky Friday.
Unlike Greens Creek, the Lucky Friday produces a relatively small amount of zinc.
The dramatic improvement in zinc concentrate treatment charges as compared to last year, therefore, has less impact.
At the Casa Berardi mine, shown on slide 13, we had a strong first quarter with production of 36,200 ounces of gold at an all-in sustaining cost of $1,272 per ounce.
Our investments in the mill to improve reliability and recovery are yielding great results.
And the mill has maintained greater than 90% availability since October of 2020.
Our business improvement activities will continue in 2021 and are expected to reduce costs further and to increase cash flow generation from the mine.
Our ongoing focus to improve productivity and to reduce costs are underpinned by multiple factors, and we're starting to see a downward trend in AISC.
All these efforts together with others in the pipeline are positioning Casa Berardi to deliver consistent production at lower costs.
Our 2021 guidance for Casa Berardi remains unchanged and production is expected to exceed 125,000 ounces at all-in sustaining costs of $1,185 to $1,275 per ounce.
Moving to Slide 14, at the Nevada Operations, we produced about 2,500 ounces of gold from a stockpiled bulk sample of refractory ore that was processed at a third-party roaster.
For the rest of the year, production is expected to be in the range of 17,000 to 19,000 ounces of gold, from the processing of oxide ore at the Midas mill and an additional 22,000 tons of refractory ore through third-party facilities.
Roughly 12,000 tons will be sent to a roaster and about 10,000 times to an autoclave.
We expect the Fire Creek mine and the Midas mill will be placed on care and maintenance by the end of second quarter.
We remain very excited about our Nevada properties.
And in addition to the exploration spend in Nevada, we'll be investing in other $5 million in pre-development activities this year at Hollister to access the Hatter Graben.
Let's go to Slide 16.
And this shows our consolidated production guidance for 2021 through 2023.
And at this point, nothing has changed in that guidance.
So, let's focus on where the slide shows our cost outlook.
And you can see there that we've significantly lowered our silver cost outlook, primarily because of the byproduct credits and the lower treatment charges at Greens Creek that Lauren talked about.
Now this new guidance, if you look at this, it adds about $3 an ounce to our expected margin.
So at current prices, we think we have about $10 an ounce of free cash flow generation just from the silver operations.
The other thing to point out is that with the consistency that we have at Greens Creek and Lucky Friday at full production, and the increasing grade that we see at Lucky Friday that our U.S. silver production's expected to reach about 15 million ounces by 2023.
And this is double what we had in 2018.
And if you look at Slide 17, I want to do this because this time is really like no other for silver.
If you think about it, the photographic demand decline, which was a governor on total demand over the last 20 years is now long over.
Industrial demand has been growing at a 2% growth rate for the last decade.
And it's continuing to grow, and we think will be fueled even more by the same factors that are fueling copper, this energy transformation.
Industrial demand has generally been strong for the last 20 years and looks to be even stronger with the current fiscal and monetary policies.
And then, finally, miners are challenged to substantially reverse a five-year annual decline in mined silver production.
We actually mined 110 million ounces less than the high of 2016.
So, getting back to where we were is going to be hard.
Now it's just industrial demand continues to grow at the same rate as the last decade so that 2% growth rate.
And we think this is going to understate it, because of the energy demand we're going to have.
The world's going to need 70 million more ounces of silver per year.
Now this doesn't sound like much, because it's only 7% of the current market, until you realize that to meet that demand, even if no mines are exhausted, you need seven new mines a year that are the size of Greens Creek, which is the United States largest silver mine or you needed to produce about 150% more or you need Codelco who has a substantial byproduct of silver production to produce three times as much silver.
And so our view is it's not likely that even combining all the different companies that are in the industry that are trying to grow their silver production that we're going to be able to produce silver that is equivalent to seven Greens Creek mines.
But if we do, they're going to be in riskier jurisdictions.
And we believe that over the next decade, we are in a market that's well-positioned for a silver squeeze to happen.
Now this is not the sort of silver squeeze the Reddit investors were thinking about, but it's a squeeze nonetheless, because it's just that demand has already risen faster than supply, and it's positioned to continue to do so.
The result of this squeeze and -- prices will rise and the shortfall is going to be met by above-ground stocks.
And I'm struck, if you look at what happened in 2020, when ETF and coin demand rose dramatically, prices rose 50% over the roughly average silver price of 2018 and 2019.
So what do we think the high end and low silver price will be over the coming decade?
Let's first give you the lows.
We think we'll have higher lows.
We don't think we'll have lows for any significant period of time to be below $18 to $20 an ounce.
And for the highs, there's no reason, silver highs will not do what gold and copper have done.
They both either exceeded or have just come in just below their all-time highs.
So to see a $50 plus silver price is not unreasonable.
So one final thought on how you should think about silver.
What it has become is the precious copper or the industrial gold.
And the reason I say that is there's really no metal quite like silver.
It's needed an application similar to copper, but unlike copper, it's an investable metal with lots of investment options.
You have the above-ground stocks, you have ETFs, you have coins.
And silver is like gold, but unlike gold, only about 20% of the demand for silver is an investment.
And for gold, only about 10% is industrial demand.
So think of silver as precious copper or industrial gold.
And, of course, Hecla is in a unique position as the largest silver producer in the U.S.
We produce a third of all the silver produced in the United States, and that production is growing.
We're the oldest silver mining company.
And we have a history of outperforming silver and every other mining company when the silver prices went up, which obviously we think that's what's going to happen over the course of the coming decade.

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