Q1 2022 Hecla Mining Co Earnings Call

Good day, and thank you for standing by and welcome to Q1, 2022 Hecla mining Company earnings Conference call. At this time, all participants are in a listen only mode.

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Now like to hand, the conference over to your first speaker today and be tough hotel. Please go ahead.

Thank you operator and welcome everyone.

You for joining us for Hecla's first quarter 2022 financial and operations results Conference call I'm on the top part you had less vice president of Investor Relations and Treasurer.

Our financial results news release that was issued this morning, along with today's presentation are available on Hecla's website on today's call. We have been Baker, Hecla's, President and CEO , not and draw that techno senior Vice President and Chief operating Officer, and Russell Waller, Hecla's, Senior Vice President and Chief Financial Officer.

Any forward looking statements made today by the management team come under the private Securities Litigation Reform Act and involve risks as shown on slides two and three in our earnings release and in our 10-K and 10-Q filings with the SEC. These and other risks could cause results to differ from those projected in the forward looking statements.

Reconciliations of non-GAAP measures I did in the skull and related slides are found in the slides on news release, but that I will pass the call to Phil Thanks, Andy and good morning, everyone and thank you for joining our call looking at slide four the world is experiencing a combination of risks and Vince.

We haven't seen for quite some time inflation is the highest in more than 40 years, you have the Russian Ukrainian War 100, plus oil prices rising interest rates supply chain disruptions shortage of skilled workers and of course, the continuing pandemic.

As we consider these events, we remember that Hecla has a 30 130 year old company that has weathered world Wars, the great depression in recession.

Spanish flu the 19 seventies oil embargo.

So as we look at today's challenges, we have prospective to navigate these times successfully and.

Why can we navigate them. The first reason is because we operate in the best jurisdictions in the world, namely in the U S and Canada and if you look at the specific state.

And provinces, we are in the Frasier institutes ranks all of them in the top 10 regions for investment.

And we're not just in these places we are the largest silver miner in the U S producing about 40% of all the silver mined and we're also a substantial gold producer in Quebec.

Second inflationary pressures and costs and capital are impacting everyone. However, our minds are not large consumers of capital and as mature operations with decades of prior investment sustaining and even growth capital are modest we anticipate investing slightly more capital to the normal at the Lucky Friday may be 20 million more.

As we equip our new mining method to optimize it.

We will also see some pressure on our operating costs, mostly at Casa berardi due to the volume of material at mines and processes relative to our other mines.

However, we are proactively managing the risk and we believe we can successfully navigate it and lauren's going to touch on this later in the call.

But probably the most important differentiator of hecla in costs from other silver producers are the revenues from our byproducts zinc and lead we are the United States third largest producer of zinc and lead the byproduct credits from this revenue appeared to be offsetting the inflationary pressure.

Yeah.

Third we operate the best mine silver mines in the World. Our consolidated all in sustaining cost was less than $8 per ounce were 70% margin of about $17 per ounce, so very low cost.

Not only that our silver mines have very long mine lives with more than 14 years and that doesn't include resource conversion or split exploration potential in our reserve base is the largest in the United States.

Fourth each mine again has generated free cash flow for the quarter. In fact, this is hecla's on a consolidated basis, our eighth consecutive quarter of free cash flow generation.

That's $232 million of free cash flow over the last eight quarters.

And when I look back over the last six years, we've generated positive free cash flow in all but one year.

All of these factors culminated in a strong operational and financial quarter, allowing us to returned 21% of our free cash flow to shareholders during the quarter and positions us for strong performance in these times with that I'd like to pass the call to Russell.

Thank you Phil turning to slide six we saw revenues of $186 $5 million, 33% from silver.

39% from gold and zinc in line at 28% Greens Creek had about half the revenue, while Casa Berardi was a 33% and Lucky Friday at 20% Bill mentioned, our capital and I'd like to highlight our limited, but consistent capital spend over the past three years Hecla averaged $107 million of capital spin. This.

Year of capital spend guidance is $135 million due to investments in the Lucky Friday we.

We generated $38 million of cash flow from operations and free cash flow of more than $16 million. After our semiannual interest payment on our bonds of $18 $5 million, we ended the quarter with $212 million in cash and available liquidity of 445 million bolstered with the strong financial performance our leverage ratio remained.

And at 1.2 times, which remains significantly below our target of two times based on these credit metrics. We saw upgrades from the rating agencies Moody's upgraded us to be one well S&P upgraded us to be plus turning to slide seven and I'll speak more on the margins and free cash flow generation of our operations.

The green portions of the bars in the chart on the bottom left is the quarterly margin and over the past eight quarters, our silver margin has averaged 60% of the silver price realized.

Since June 2020, we have generated $232 million in free cash flow and after paying dividends, we've increased our cash balance by about $136 million to end the quarter with $212 million with this level of cash and the fact that it is growing I frequently get asked about capital allocation our priorities are to make investments that derisk the mines lowered the.

Costs or expand the resource after that we will build a fortress balance sheet and then returning capital to shareholders in the form of dividends.

Turning to slide eight everyone in the industry is seeing inflationary pressures like others in the industry. We are seeing these pressures on various aspects of our costs for us. The biggest driver is labor at 38% of our total production costs and has increased by 14% over the past year.

Other costs that are key but individually small have increased 24% to 56% over the same period, our base metal byproduct revenues that are credits to unit costs were up 23% largely offsetting the inflationary pressure with that I'll pass the call to Lora.

Thanks, Russell I'll start on slide 10.

Greens Creek produced 2.4 million ounces in the quarter, which was the result of mining higher grade than we've seen in the prior several quarters.

The increase in silver production combined with stable operating and capital cost resulted in very favorable margins. The cash costs was negative 90 cents per ounce in the all in sustaining cost was $1 90 per silver ounce, resulting in a margin of almost $23 per ounce and free cash flow of more than $53 million.

One thing I'd like to highlight is at Greens Creek has generated $1 7 billion in free cash flow since 1987 at.

Start up 35 years ago. The mine had a reserve life of seven years today. The mine has a reserve life of 14 years, and we continue to invest in exploration and definition drilling to extend the mine life. This.

This mine is among the best in the world relating to great margin and it resides in one of the best jurisdictions possible.

Sure.

The Lucky Friday mine produced just under 900000 ounces during the quarter, which is just slightly less than Q4 production. This quarter marks the sixth consecutive quarter of free cash flow generation since the mine achieved its target throughput in the fourth quarter of 2020.

Production at the Lucky Friday was impacted by supply chain disruptions, where several pieces of mining equipment key to executing the plan were delivered late because of shipping important ways.

These pieces of equipment are on site and expected to be commissioned during the second quarter.

We anticipate receiving additional units later in the year and we're monitoring delivery schedules closely.

Lucky Friday also was affected by a shortage of manpower, which necessitated the use of contractors to fill in the open positions, thus increasing the costs during the quarter.

We're working hard to build these positions and what the production anticipated to be stronger in the last quarters of the year the cost should come in line with guidance.

At Casa Berardi, we produced just over 30000 ounces of gold, which was within our plan, but manpower shortages in the underground mine resulted in feeding the plant more open pit ore from the F 160 Pitt.

As the grade from the open pit is lower than the underground. This resulted in a higher cost per ounce of production, where we saw the cash costs at over $1500 and the all in sustaining costs at over $800, both higher than our annual guidance.

Looking forward, we are working hard to fill the underground ranks to achieve the target production rate from underground.

Development crews now are close to full staffing and we continue to work on filling out the maintenance crews as we look forward, we anticipate increasing the tons, which are sourced from the underground mines to return to our plant cost profile.

Notwithstanding these challenges the mine continued to generate free cash flow during the quarter, which was aided by higher gold prices.

Although we believe we can successfully navigate the challenges brought on by inflation and supply chain disruptions. We believe Casa Berardi is the operation, which is at most risk of being affected.

In general this is simply due to the amount of material Casa Berardi mine and processes, which inherently causes it to be more susceptible to the underlying input costs for.

For comparison purposes, Casa Berardi mine is approximately eight times the volume of rock and processes about one eight times the volume of war as Greens Creek, while having onsite roughly one five times the number of people.

All of this in an area, which is experiencing incredibly high competition for skilled labor.

At this time, we have not adjusted our cost guidance as we believe we can navigate these challenges, but we do anticipate inflationary pressure at this operation.

With that I would like to return the call to Phil Thanks, Loren and if you'll turn to slide 13.

Today is the 150th anniversary of the United States mining law, and so I'm gonna do something a little different than what we've done when you take a minute or two just to talk a little bit about U S policy toward mining and the supply demand and on silver.

The pandemic and the Ukraine War has really opened the eyes of both the public and policymakers of the need to increase domestic production of minerals here in the U S.

There is an increased understanding that minerals are the first linked in our supply chain needed for energy transformation and National security. So for the first time in my career I saw six of nine Democratic Senators on the natural resource Committee publicly recognized the need to improve the permitting process.

Senator Ron Wyden stated, reducing dependence on foreign minerals is as much a national security issue as it is an environmental question. He's he's a Democrat Senator Angus King Who's from main stated I don't think the permitting process itself should be used as a weapon to stop a project.

Now I'm mentioning this not because I expect quick changes in environmental laws that the U S mines are subject to and these are the clean water clean air endangered species in NEPA, but I'm just mentioning this because theres a change in the in the in the tide.

Then I expect scoring to rise over over time, and it's not just the Senate President Biden invoke the defense production Act because minerals are needed for batteries for national defense and the economy and so this means the department of defense has funds to significantly invest in the U S mining industry and we will invest in.

These investments are that will qualify.

Now the other reason for mentioning this is because the about the mining law is the Biden administration doesn't appear to be completely aligned toward this goal of increasing mineral production.

I expect that you'll see some news today or over the next few days if it's if it's not already out there.

About the mining law and the purpose of the law was to establish.

Land tenure on federal ground, and the rules, establishing permitting and environmental standards are in the other laws that I that I, just mentioned, but what you're probably going to see from the administration is news that the law is old and allows minds to skirt environmental controls.

Just to be clear it doesn't so you will probably see in the news legislative proposals to replace the mining law fit in that new new regulations and in fact there'll be hearings in both the Senate and the house with respect to some some proposals.

So basically there's a struggle within the Democratic party between those who recognize the present and future battle to get the minerals needed for energy and National Security and those who are really fighting the battle of the paas to keep metal in the ground and my sense based on what I see in both the Senate and the house is the desire for Green Transit.

And a stronger national security will prevail.

And what does this mean it means that copper zinc and silver medals that Hecla has very large resources, and then and as the largest as I said, a moment ago. The largest U S. Silver reserve is going to have policies that will encourage mining.

And the and the graph on the right.

On this slide shows the silver market already consuming more than the mine production and recycling supplies and so the deficit is expected to grow this year to about 70 million ounces.

To put that in a context that seven Greens creeks and over the next few decades. The U S energy information agency expects the demand for just solar to be half a billion ounces are half of what is currently demanded for all uses and electric vehicle demand is probably going to grow even.

Faster than solar.

In the same way that demand has doubled over the last 30 years, it's easy to conceive that it will double again over the next 30 for silver the demand for silver.

So that so theres going to be pressure on governments to implement policies to encourage mining and there'll be pressure on the price to rise to encourage miners to build the new mines and increased production and so all of this puts hecla and its shareholders in great position to benefit.

So with that operator, I'd like to open the call to questions.

Thank you.

To ask a question.

Press Star one on your telephone.

We draw your question.

Please stand by while we compile the Q&A roster.

Your first question comes from them.

Heiko.

C. Wainwright your line is now open.

Painful hope all is well thanks for taking my questions.

Your Capex was 21 and a half million, obviously 7 million less and you attribute this to lower spending at Greens Creek and Casa.

We're in Quaky inflationary environments.

Billboard installation was mentioned eight times eight times in the press release and you mentioned it several times on this call. So I'm just curious what do you attribute the 7 million in the savings too.

Guess, what I'm asking is how did you say such a meaningful number of cash given that you talk about inflationary pressures with cost cutting you released.

Well, it's just it's basically just the timing of the expenditures.

We still anticipate we'll spend 135 million I I I order of magnitude, we double the amount of capital in quarters, two and three.

And then we have a roughly the same amount of capital and in the fourth quarter.

So it's it's it's it's it's all in line with what we would expect.

And this is not unusual heiko.

We tend to under spend in the first quarter end and then during the summer months.

Remember Greens Creek as you know where it's located in the summer months, we are we have.

Significantly more capital.

Right now though.

And so it makes a lot of sense.

You talk about the castle was constrained by a lack of available manpower.

Traditional skilled workers in the EBIT to be mentioned some of the earlier on this call as well purely out of curiosity what positions would you say you had the most challenges filling and what did you see with wage inflation I guess building on all of that we're halfway through Q2.

Is any of that or people get in the second quarter.

Well, it's you know we we.

Everywhere you have positions you have difficulty with skilled positions, particularly miners and people and and maintenance of the equipment.

You know is it a is it going to abate.

You know I.

I I can't predict what it will do Lauren any any.

Comments on labor issues.

The way that that we should think of it as with strong metal markets come high demand for the skilled trades and buy skilled trades for us the biggest impact that we're seeing is in maintenance personnel. It's by far the most challenging positions to fill and keep bowl.

Followed secondarily by our what we would refer to as full cycle miners and then to a lesser degree.

Electricians and some of the other technical trades.

Okay, I'll answer and just salary wise what have you seen.

When as far as as far as increasing wages well you know you can see on our slide that shows the inflationary pressure.

A lot of that is I don't remember what we have on that slide what do we have so what we did see if you look at Q2 into Q1 of 'twenty. One over Q1 of 'twenty, two we saw labor down by about 14%.

And that's going to be spread amongst all of the mines ugly.

Just as we try to to remain competitive.

Perfect.

You're all very much and stay safe.

Great. Thanks, Thanks Heiko.

Your next question comes from my Chair.

From Scotiabank. Your line is now open.

Thank you operator.

Phil at Lucky Friday, you mentioned, you're expecting some new equipment deliveries and I, just wondered kind of on the back of Heico's question there.

Will any of that new equipment kind of offer some relief on the maintenance issues at lucky or is it really like you were talking about it Lorne was saying just really getting enough skilled maintenance workers.

Yeah. It certainly helps Ah Theres no Theres no question, but you know, it's just a few loaders that.

That we're having delivered in their larger pieces of equipment than what we've had in the past for the for the most part though it Lauren anything to add.

Yeah. It's it's it's exactly what Phil says Trevor the the new gear is part and parcel to the new mining method.

The two units in question that we that we spoke about where large loaders are larger loaders. So what we've had in that mine historically.

So they were pretty key to some of our planning for the year and I'm happy to report that they are on the ground and in the process of being disassembled reassembled and commissioned we do have some more units coming that also support the mining method. So far they are tracking reasonably well for delivery.

But in addition to.

Reported the mining method.

You raise a very good point that new gear requires less maintenance and so it should start to help relieve some of the pressure on the maintenance groups, but you got a lot of gear, yes, we have a lot of gear.

And that's a relevant point because we are reducing.

Number of total gear, when we add the new units so it should be a virtuous cycle.

Right, you're you're going to get more capacity per unit and maybe more availability per unit and therefore I would assume you could slowly pull some of the amount of maintenance down overtime.

Is the plan.

Thank you and then I just wanted to ask a couple of quick questions on the on the more development exploration front first one was a hotter graben you talked about the water inflows and I just wondered if that's something that can be handled simply with more pumping capacity or if you also have any issues with discharge.

To limits and have to think about things from a permitting perspective.

And that's the drivers the permitting.

We do need more <unk> capacity and said that's has slowed us down and our ability to dewater.

Dewater. It so that we can get back underground to do the year to do the exploration drilling.

And it's just going to take us towards the end of the year to get there.

Okay.

And then hopefully somewhere where you don't have to worry about that any way down at San Sebastian.

I was looking at the La Rocha target you talked about where you think you may have an entire intact epithem will system and you intersected some thick veins already but you want to test those a little deeper I just wondered when do you think we might see the results of some of that deeper drilling is that something we get by the end of the year.

Yeah, I would anticipate that.

Okay great.

That's all I had Phil thank you.

Okay. Thanks Trevor.

Your next question comes from Lucas pipes of B Riley Securities. You May now proceed with your question.

Hey, good morning, everyone.

So I wanted to also ask about Lucky Friday.

You mentioned that.

Preceding questions the equipment.

Productivity gains there, but at the mine has been.

Proofing productivity here for some time.

I Wonder if you kind of.

Good.

Share your view on on how productivity gains will be balanced with our inflationary pressures.

Operation specifically.

As we look out into 2023, thank you very much.

Okay Lucas.

You know I I.

I guess I'll, let Lauren I don't have really an immediate response to the question Lauren.

But it just it does seem to me that as we improve that with the new equipment and just the mining method itself is just more productive I mean do you think about historically the muck the stopes have been shut down 25% of the time.

For seismicity and we don't we don't have that that sort of lack of access so that's going to be helpful where it all ends up you know how good can it get it's.

It's it's not clear to me I think I think there's a lot of opportunity to optimize which has the I guess the potential to offset some of the inflationary pressure, but loren.

Certainly the way I think we should think about about this lucas's.

You know as we improve productivity, we have the opportunity to take the gain.

They're in delivering more with fewer people or the same amount with fewer people or delivering more ore to the mill and because of this mill is not yet at full capacity by farther to better economic choice for us is to fill the mill and.

And so that is the direction, we're moving as we increase productivity, where increasing the feed to the mill and over the next 18 months or so we should see steady increases in the mill throughput until we fill the mill to capacity.

Even even with that significant increase coming.

The volumes of material moved at Lucky Friday are quite small and consequently, the inflationary pressure is muted there compared to safer Casa berardi. So so the.

So really the revenue is growing while costs will inflationary costs will increase the revenue will increase difference is much more much faster.

Okay.

And on a on a per unit basis.

Equation.

The parents are in plate inflation should.

Quite muted too.

Correct.

Certainly relative to what it was.

Yeah.

So it's still idle in the park.

We're mindful of that but.

The increase in volume of metal produced as far going to outstrip out here and I, just think that there's a lot of opportunity to optimize the method I mean, we've been we've been added a year and a half it's been very successful, but it has been you know remember this is a mining method no one else has ever done before.

It's been very successful, but yeah theres a lot that we're still learning from it.

Over the course of the next year, we're only now getting all the equipment that we would desire to have for this method. We've made it work with the gear that we had in the ground, which is smaller and older and in some cases modest fit for purpose. So we're quite excited to see what the future can bring.

And on the equipment that the deliveries.

Fully behind you are or are there other.

Important piece now theres going to be there's got people, there's going to be more theres a whole series of equipment. That's why the capital you know I mentioned the capital at the Lucky Friday is.

In aggregate is about $50 million in about 20 of that is.

More than what we typically would spend in order to have this growth.

And.

So there's more coming it's these were the two.

Kind of key large pieces of equipment that we're kicking off with with the with the change in equipment.

It's kind of interesting what happened there.

The manufacturer.

Have the units ready to ship exactly according to the schedule, but the manufacturer gave us the problem was getting a ship nominated to move them out of the out of the home Port facility.

And it was it was very delayed and then when the ship was nominated in the units arrived off the West coast. It happened right at the time that the ports were completely plugged up in and we incurred further delay there getting them off at a ship.

So I think that was a bit of an anomaly of just a strange confluence in time, we do have about four more major production units in four pieces of support equipment coming this year. Some additional ones next year and we're monitoring those I don't think we'll see the same sort of unusual shipping problems.

But we are starting to see some pressure for delivery of machines out of the factories.

Very helpful really appreciate that.

A detail.

Switching topics.

You spent some time talking about in the prepared remarks.

The changing attitudes.

Towards mining in the U S and kind of a.

Maybe a bit more consensus across the aisle.

Is it too early for Hecla to take.

To take that and feed it into your strategic outlook of where you deploy capital how you deploy capital.

Would appreciate your thoughts on that.

Well it certainly it certainly encourages us to continue to explore at our operate at our various properties that we have in the United States and so youre seeing some of that this this year, but just to be clear I'm, not suggesting a sea change happening tomorrow, but it it I think it will be.

Build momentum over the course of the next few years and I think.

Aye.

I was surprised to learn that there that some of the solar farms that are people are wanting to put in place are that the environmental laws are being used.

Weaponized as as Senator King said.

To prevent these projects going forward. So what's happening is there is now starting to be an element of the environmental community that is supportive of changes and the permitting and the environmental regulatory.

Regime, but it is very very early days.

Having said that I'm I.

I mentioned it because it is very encouraging and it is a real change and it seems to me. There's an inflection point that has happened as a result of the pandemic and Ukraine more.

Yeah.

I appreciate that thank you and then on that topic, you mentioned theres, a theres going to be something coming out here.

Either today or in the coming days, so can you remind us what.

What what the wells on that.

Yeah. So so again this is the anniversary of the mining law of 18 72. So 150 years that has been in place and there is a event that's happening at the White house today.

That I would anticipate there will be news coverage as a result, and both in the Senate and the house.

There are hearings I at least I know in the house and two days there'll be hearings on the mining law.

On on potential changes to the mining law My comment to you is it is unlikely that those changes will go anywhere.

So it will be you know what.

Things that happen, we'll be done regulatory Ali.

But I think the more important thing is longer term, there's probably changes to environmental laws.

Rather than the mining law I would not anticipate a change to the mining law.

But youre going to hear people, suggesting that it will be changed so I wanted to have our investors realize that it is not likely to occur.

Thank you.

My.

My final question for now.

On on the topic of.

North American supply in and.

Projects in the pipeline can you give us an update on the Montana assets and what.

Yes.

Procedurally needs to happen here.

And in the short term to move these projects forward.

Yes, so recall, what we did.

Earlier. This year is we changed course and because the hang up for these projects is not with the regulators. It was it was with the court and so what we've done is we've changed course to try to design the path forward that will.

B.

Difficult for the court to push back on and that is making it a exploration only permit.

The permits that process that we inherited which had the full Monty was to have it where we could actually take it all the way into production.

We've just concluded that that.

While it would be ideal if you could get that we've just concluded that that's not likely to be able to get through the district court in Montana wildly exploration only will and if we can do that then we can prove not only the exploration so that we can do.

<unk> mining plan that is.

Our modern mining plan realize that the that what we inherited was really a plan of 15 years ago.

What we can do is develop a mining plan that is even better environmentally as well as do the drilling necessary to confirm the hydrology. So that's that we're in that process with with the forest service developing the the all the documents necessary to have the.

Permit and so we would anticipate that's a year 18 months sort of process part closer to 18 months in a year.

Two to achieve cheap that and then with that.

And then then we'll see if someone brings suit and if they do then we'd have to deal with it in the courts and that's that's just the way the system works in the U S and that's what I would anticipate over the course of the next maybe it's a decade, maybe it's less that you'll you'll see this change in <unk>.

In the environmental and regime, if we're going to seriously deal with the shortages of minerals in the United States.

If we're in a deal with the shortage of minerals necessary for the energy transformation. So.

That's that's.

My view of it.

It's it's remarkable so you've been.

That was that's been worked on this parameter for 15 years now you're settling for an exploration permit this will take another year to 18 months.

And after that.

So that gets this underground at the end and once your underground we actually think once your underground and there is the recognition that the the.

Mental impact is quite minimal.

Got it.

And realize what the issues are are relates to fish and bears. It's the exact same issues that we have at Greens Creek that is also in a wilderness area and and and and it's in a national monument. So all the challenges that we are subject to for the projects in Montana, we have been dealing with successfully for them.

Last 30 years at at Greens Creek. So we think we're really well positioned once we get underground to be able to.

Get over the line for a for a final permit but the key is getting underground in this is that it seems to us as the path of least resistance.

Very helpful.

Film team really appreciate.

Your time this morning and best of luck.

Thanks Lucas.

Your next question comes from my true Safra.

Yes.

Your line is now open.

Hey, Phil and team. Thank you for taking the questions.

So most of the stuff I want to touch on is already been.

And touched on by prior callers, but you mentioned that.

The biggest concern as far as inflation and.

And supply chain issues related to Casa berardi.

If inflation doesn't let up and the.

The supply chain issues don't let up at for the rest of this year.

What's the order of magnitude of upside.

And cash costs and operating costs at that mine.

No I can't.

Speculate as to what that might be but what I would suggest to you is.

We're anticipating.

More production over the last three quarters of the of the year and therefore.

You know the free cash flow generation, we think we'll we'll continue to occur at the mine Lauren anything to add from Nashville.

Okay.

And then.

You know are there any opportunities out there too.

Lock in some hedging on any of your costs to prevent further impacts of inflation.

You know when you think about our costs, it's largely labor I mean that is that is by far what 38% of the total cost. So so you cant hedge that yes. It.

As I look at it.

Excuse me.

<unk>, it's at 38% you see on slide number eight we called out contractors, because that's a portion as well and that'll be one of those those areas we look to.

<unk> the contractors with employee we've already talked about the tight labor markets, but we'll look to do that.

The item that tends to fall out to be hedged would be diesel.

And we really don't consume a whole lot of diesel.

In 2020 in this first quarter 2022, 5% of our costs for diesel.

Or fuel as a whole and you want as such you you just don't see a lot of benefit to that and that really just plays to the fact, especially on the silver mines. These are small mines Casa Berardi, you see a little bit more but frankly, not not a huge amount more than you'd say at Greens Creek as a percentage of the cost so Joe remember that.

Most of our power generation is hydro.

<unk>.

For most of the year in most places Greens Creek on occasion, we'll have periods of time that we're generating.

Generation power at site, but that's that's gosh it hadn't been done very often over the last four or five years, but there is the potential for that so it is it is really hard to see where we can do cost hedging. So what we have done is we have managed on you know on the Rev.

New side to make sure that we are confident in the cash flow generation from the lead and the zinc and and so we hedge a portion of that and then we realize the benefit of the even higher prices that we are that we're seeing so so we're we're in pretty good shape in terms of half.

The revenue offsetting the inflationary pressure.

Only thing I would add to that from the Casa Berardi perspectives, we do hedge the Canadian dollar and so that puts gives us some consistency.

Some benefit at least as it relates to the past few years anyways and that includes the direct production costs, we have hedges going out over the next few years, but also in 2022, we have a portion of the capital spend that we've hedged as well.

Okay, and then one final thing kind of big picture.

As in the past I've made some acquisitions.

The you know, let's call it explorer explorers and developers have been under significant pressure on their share prices for.

Over a year now.

Are you seeing any opportunities out there where you guys could be.

Opportunistic.

And potentially acquire the next Hecla mine.

You know we are always sort of engaged in the M&A World and I'll just tell you Joe it's come few and far between because it takes two to tango unless you're willing to do something on a hostile basis, which.

We were reluctant to do that and you know unless theres a transaction maybe that gets gets announced we would prefer to do something collaborative with the with.

Other other companies.

So.

Stay tuned, we'll we'll continue to be in that market and you know as things develop we'll see where it comes out but having said that we're fortunate in that we have mine lives that will go on for decades.

We have growth that's occurring with the Lucky Friday from higher grade and then growth on top of that from the new productive method.

So we don't feel compelled to acquire things.

But we certainly stay and the market because you know we want to find these large land positions that have the potential for long lived low cost assets. So you got to keep that keep engage too to get those things.

Okay. Thanks for the color I'll turn it over thanks chip.

Your next question comes from John Tumazos.

Very independent research you May now proceed with your question.

Hey, Phil.

Hi, John .

I'm worried that.

Our guys in Washington, or in the smartest people in China.

Go.

Hi, guys.

It was transitory.

And they seem to be held tight.

Tightening.

Even if a recession is already started.

And there's a lot of evidence of inflation.

I looked at the Pittsburgh newspaper this morning in the electric utilities raising rates, 45% in Western Pennsylvania.

That hasn't had the CPI yet.

So anyway Phil.

If our guys in Washington, screw up and raise rates too much.

18 months.

How much of your silver and gold do you think you can go without selling.

How bad.

Things up in the short term.

Yes, $200 million of cash do you think you can not sell five or 10 million ounces of silver and just hold it.

So the short answer is no because we we don't actually produce.

Silver bar, we produce concentrate.

And we don't have a place to store that concentrate.

Well you know, we and we and then we also have framed contracts, where we're obligated to deliver so so no we're where we will not be.

Not selling silver could you conceivably not so gold Yao conceivably you could do that.

It's I would not be inclined to to do that so Jon I as much as that has an appeal to it.

We probably will.

Do we will sell what we produce on the other hand, what I'll suggest he is we got low cost. So we can weather whatever the price decline might be with that.

Significantly higher interest rate.

The other thing to remember is you know this better than I do is that just because you have higher interest rates don't doesn't mean you have low.

Gold and silver prices, we certainly have seen in the past and you know you've got to have that.

Events come together to make this happen, but we've seen in the past.

Metals prices be quite high with high high interest rates.

So.

Phil.

Having a hard time coming to grips.

<unk> is up this year 17, 96, or so last year.

Silver is down.

25.

Last year roughly.

Why do you think.

I know we've had the big ETF buys on gold.

Why do you think silvers.

It's just hard for me not understood.

John I don't understand it either in and but what I would suggest to you is given the.

Demand that's required in this industrial energy demand that's required for a silver I just look at it and say. This this is just going to make the highs higher win when things turn.

<unk>.

And then better.

I agree yeah, so Phil.

Inflation today is partly a monetary phenomenon, but partly a structural phenomenon we have wars.

If theres fertilizer shortages and the farmers harvest 10%.

Lower productivity.

All of the Covid.

Chain disruptions or lower productivity.

And I'm really worried that the fed is trying to solve things with interest rates that can't be solved with interest rates.

Maybe it's time to.

Go to prison.

But.

Could you do.

Other than.

Sure Battened down the hatches in case, there is a bad short term.

Well, that's what I think is the most prudent thing for us to do I mean, you would see us pull back on expenditures, we have the ability to do that because we don't have the same pressures that others. Other seven I don't know you guys said my only comment to that all of these mines than we were.

Operating have.

<unk> lines that are decades ahead of it so in terms of the short term. These things will operate through those environments. We have we have a strong balance sheet with lots of cash and we also have some levers to pull as it relates to reducing expenses.

You know we're talking about.

Frankly kind of a bump in the road that this company has gone through in the past.

I think John we've spent this Laura and John we spent the last several years and really culminating in this year.

Reinvesting in our infrastructure at our three primary producers.

And I think those mines now are in very good condition in terms of.

The physical equipment fixed equipment and facilities and so it is possible for us to pull back our capital outlay.

In future years, if we need to do so we've invested while the business was good which is always prudent.

But I think we're well positioned.

Thank you and good luck. Thank you.

Thanks, John .

Again, if you would like to ask a question just press star one on your telephone keypad.

I wanted to ask a question.

There are no further question at this time I will now turn the call.

For any closing remarks. Please go ahead, sir yet.

The only thing I'll say is that we do have these.

Time slots available. So if you do want to have a conversation with one of the executives at Hecla, we are priding ourselves and being available to all.

Investors and interested parties.

So you have the opportunity these are what 30 minute.

Time slots my recollection, yeah. So so.

Those are available to you and then so please take advantage of them. If you have some more questions that weren't answered. Thanks very much have a great day.

And this concludes today's conference call. Thank you everyone for participating you may now disconnect.

Okay.

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