New York, April 16, 2021 -- Moody's Investors Service, ("Moody's") upgraded
the Corporate Family Rating of Hecla Mining Company ("Hecla")
to B2 from B3, the probability of default rating to B2-PD
from B3-PD and senior unsecured notes to B3 from Caa1. The
Speculative Grade Liquidity Rating was upgraded to SGL-2 from SGL-3.
The outlook is stable.
"The upgrade is supported by a substantial improvement in Hecla's credit
metrics and liquidity, the Lucky Friday mine reaching full production
and Moody's expectations that Hecla's operating performance will
continue to strengthen over the next 12-18 months," said
Botir Sharipov, Vice President and lead analyst for Hecla.
Upgrades:
..Issuer: Hecla Mining Company
.... Corporate Family Rating, Upgraded
to B2 from B3
.... Probability of Default Rating,
Upgraded to B2-PD from B3-PD
.... Speculative Grade Liquidity Rating,
Upgraded to SGL-2 from SGL-3
....Senior Unsecured Regular Bond/Debenture,
Upgraded to B3 (LGD4) from Caa1 (LGD4)
Outlook Actions:
..Issuer: Hecla Mining Company
....Outlook, remains Stable
RATINGS RATIONALE
The upgrade acknowledges the meaningful improvement in the company's
credit profile in 2020 notwithstanding the impact of the pandemic on its
operations, and particularly, Casa Berardi mine in Quebec,
where mining and processing activities were suspended for a few weeks
in Q2 2020. The upgrade also recognizes the successful ramp-up
of the Lucky Friday mine to full production in Q4 2020, continued
strong performance at the company's flagship Greens Creek mine and
cost-reduction initiatives at Casa Berardi which are expected to
improve the operating performance in 2021.
Hecla's B2 CFR reflects its modest scale, exposure to volatile
gold, silver, zinc and lead prices, relatively high
cost position of its gold mine and moderate leverage. Hecla's
credit profile is supported by its good liquidity position and favorable
geopolitical footprint with assets located in the US, Canada and
Mexico. The rating also benefits from the long mine life at key
operations, ample organic growth opportunities, significant
mineral reserves and geologically attractive exploration portfolio of
assets. The rating is constrained by currently still high,
albeit falling, asset concentration risk, given that its Greens
Creek mine in Alaska generated most of the company's operating earnings
and free cash flow in 2020.
Hecla's gold all-in sustaining costs after by-product credits
(AISC) were $1,302/oz in 2020 and are expected to decline
in 2021 with a significant room for improvement at the Casa Berardi mine.
The company's silver AISC remained low despite rising in 2020 to $11.89/oz
from $10.13 in 2019 on higher Green Creek costs and the
inclusion of operating costs at the Lucky Friday mine. While the
company is guiding for higher silver cash costs and AISC for the Greens
Creek mine in 2021, operating costs at Lucky Friday are expected
to decline as the company finally puts the # 4 Shaft that was completed
in 2016, to full use with the resulting full-year of mine
production estimated to exceed of 3.4moz silver in 2021.
Lucky Friday's silver production is expected to grow to above 5moz
in the next few years benefitting from higher silver grades as the mine
gets deeper. However, mining at depth poses some risk to
operations given the history of seismic events at the mine. The
Greens Creek mine is expected to deliver another year of strong operational
performance and substantial free cash flow in 2021.
Assuming gold price of $1,500/oz and silver price of $21/oz,
the top end of Moody's price sensitivity ranges which are notably below
spot prices, Moody's estimates that EBITDA, as adjusted by
Moody's, will reach $180 million and leverage could
increase to 2.8x in 2021. Under this scenario, free
cash flow is forecast to be around $60 million in 2021.
EBITDA could exceed $240 million and leverage could stay below
2.4x in 2021 if the company realizes gold and silver prices of
or higher than $1,700/oz and $23/oz, respectively,
and assuming lead and zinc prices do not decline materially from current
levels. Hecla consistently hedges its longer dated zinc and lead
production and as of 2020, the company had hedged 33% of
its zinc production over 2021 and 2022 at $1.21/lb.
and 39% of lead production for 2021 at $0.88/lb.
Moody's would also expect the company to generate over $120 million
in positive FCF under this price scenario in 2021.
The stable outlook reflects Moody's expectations that Hecla will reduce
operating costs at the Casa Berardi mine and position the Lucky Friday
mine to safely grow silver production in the next few years, improving
the overall cost structure and strengthening the company's ability
to withstand, on a sustained basis, the volatility in prices
of precious and base metals. The outlook also assumes that Hecla
will maintain its good liquidity position.
Hecla faces a number of ESG risks, typical for a mining company,
including but not limited to environmental and asset retirement obligations,
water management and water rights, social risks and litigation matters
associated with Nevada operations.
Hecla's SGL-2 rating reflects the company's good liquidity profile
with $130 million in cash and cash equivalents as of 2020 year-end
and $230 million (net of L/Cs) available under the undrawn $250
million revolving line of credit (RCF). The company generated $93
million in free cash flow in 2020 and is expected to remain substantially
FCF positive in 2021. The RCF is secured by assets of some of Hecla's
Nevada subsidiaries, Casa Berardi mine, the company's assets
in the Greens Creek mine JV and equity interests in certain domestic subsidiaries.
Moody's does not expect the company to draw on the revolver unless gold
and silver prices decline materially and sustain at low levels for an
extended period of time. Financial covenants include a senior leverage
ratio (debt secured by liens/EBITDA) of no more than 2.5x,
a minimum interest coverage ratio of 3x and a leverage ratio (total debt
minus unencumbered cash/EBITDA) of no more than 4x. Moody's expects
the company to remain in full compliance with the covenants.
Under Moody's Loss Given Default for Speculative-Grade Companies
methodology, the B3 rating on the senior unsecured notes,
one notch below the CFR, reflects their lower priority position
in the capital structure and their effective subordination to the RCF
(unrated). The notes will be guaranteed on a senior unsecured basis
by the majority of the company's subsidiaries. Non-guarantor
subsidiaries represented about 5% of Hecla's FY2020 sales and total
assets as of December 31, 2020.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade would be considered if the company improves operating performance
and reduces costs at Casa Berardi mine as planned, demonstrates
stability in its credit metrics and solidifies its ability to generate
sustained positive free cash flow at various commodity prices.
Quantitatively, Moody's would consider an upgrade if the company
maintains an adjusted leverage of below 3.0x (debt/EBITDA) and
EBIT margin of at least 8%.
A negative rating pressure could develop if free cash flows are expected
to be negative on a sustained basis or if the company experiences material
operational issues at its mines which could result in lowered production
and higher costs. Quantitatively, Moody's would consider
a downgrade if the leverage ratio increases to and is sustained above
4x and (CFO - Dividends)/Debt) declines below 20% of outstanding
debt. A significant reduction in borrowing availability or liquidity
could also result in a downgrade.
The principal methodology used in these ratings was Mining published in
September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1089739.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Headquartered in Coeur d'Alene, Idaho, Hecla Mining Company
("Hecla") is primarily a silver and gold producer with zinc and lead by-products.
The company operates mines in Alaska (Greens Creek), Idaho (Lucky
Friday) and Quebec Canada (Casa Berardi) and owns Mexico (San Sebastian)
and Nevada mines as well as multiple other exploration and pre-development
properties, including the geologically attractive Hatter Graben
vein system on its Hollister property in Nevada. For the twelve
months ended December 31, 2020, Hecla generated revenues of
$692 million.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
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same series, category/class of debt, security or pursuant
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provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
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Regulatory disclosures contained in this press release apply to the credit
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review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
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The Global Scale Credit Rating on this Credit Rating Announcement was
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Botir Sharipov
VP - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Glenn B. Eckert
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
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