Hecla Mining Co. #B# Rating Placed On CreditWatch Positive On Announced Acquisition Of Mines From Klondex

Stocks and Financial Services Press Releases Tuesday March 20, 2018 10:03
NEW YORK--20 Mar--S&P Global Ratings

NEW YORK (S&P Global Ratings) March 19, 2018--S&P Global Ratings today placed its ratings on Coeur d'Alene, Idaho-based silver and gold producer Hecla Mining Co., including the 'B' corporate credit rating, on CreditWatch with positive implications.

Our 'B' issue-level rating on the company's $500 million senior unsecured notes due in 2021 has also been placed on CreditWatch with positive implications. The recovery rating on the debt is '3', indicating our expectation of meaningful (50%-70%; rounded estimate: 65%) recovery prospects in the event of a payment default.

The CreditWatch placement follows Hecla's announcement that it will acquire all outstanding shares of Klondex Mines Ltd. for $462 million, using a combination of cash and shares of Hecla common stock and a newly formed company consisting of the Klondex Canadian assets (Klondex Canada). Klondex is a high-grade Nevada underground producer with its Fire Creek, Midas, and Hollister mines. Hecla plans to fund the cash portion of the consideration entirely from cash on the balance sheet. As of Dec. 31, 2017, the company reported $186 million cash and equivalents and $97 million availability under its $100 million revolving credit facility.

The CreditWatch placement with positive implications indicates we could affirm or raise the ratings after we review the transaction. We expect to resolve the CreditWatch within 90 days, after we assess the impact of this transaction on Hecla Mining's credit quality. This will include reassessing Hecla's competitive position, as well as expectations for credit measures.

We could raise our corporate credit rating on Hecla if we expect adjusted leverage to be sustained below 4x. This would be consistent with the contemplated increased production volumes and EBITDA margins above 25%.

We could affirm the corporate credit rating if we expect debt to EBITDA to approach 5x. This could occur if we expect lower-than-anticipated production volumes or a gold price decline. We could also affirm the ratings, if the new mines do not meaningfully improve the company's competitive position.

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