Q3 2022 Hecla Mining Co Earnings Call

Hello, and thank you for standing by my name is Regina and I will be your conference operator today at this time I would like to welcome everyone to the Hecla mining company third quarter 2022 earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a quad.

<unk> and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question Press Star One again I would now like to turn the conference over to you <unk>. Please go ahead.

Thank you operator and welcome everyone. Thank you for joining us the head last third quarter 2022 financial and operations results Conference call I remember with all parties to close Vice President of Investor Relations and Treasurer.

Financial results news release that was issued this morning, along with today's presentation are available on hecla's, that's right on.

Today's call will be Hudson, Baker, Hecla's, President and CEO .

Talking about the shipyard senior Vice President and Chief operating Officer and Russell.

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 involves risks that's shown on slides two and three in our earnings release and in our 10-Q 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 cited in the school and the latest slice of bonds and the flight or a news release with that I'll pass the floor. Thanks, and good morning, everyone and thank you for joining our call with this being the first conference call since the <unk>.

September 7th closing the <unk> transaction I want to start with a few comments on Keno Hill.

The week after the closing.

Along with Lauren and our Chief administrative officer, Mike Cleary went to site, we went to Mayo, which is the local town into white horse.

This visit was timed around the biweekly shift change, which allowed us to meet I'd say about 140 of the 170 employees and the enthusiasm of the workforce was palpable.

Palpable.

Crews are excited to have resources and plans that allow them to be successful. So we're going to have our challenges, but I think we're starting at a very good place. We also met with the Yukon Federal and community leaders.

And there's a recognition that Keno Hill is a high profile project for the Yukon and that's important.

And this project is important for the success of mining development in the Yukon. So I'm confident that we're going to receive all the support that these these folks can get and Lori is going to go into our performance and plans for the rest of the year operationally.

Now the third quarter marked another strong operational performance from all of our mines, where we actually achieved new records in each of them at Greens Creek, we have been working to increase throughput and we began to see the results where we produced a quarterly record of about 2500 tons per day of throughput.

At the Lucky Friday, we produced in excess of a million ounces for the second consecutive quarter, all while executing a very significant capital plan, which is going to allow us to further increase throughput and reliability.

Berardi also continued to achieve new monthly.

Throughput records one of the months during the quarter.

Keno Hill expected to be in production next year.

Friday's growth and Greens creeks consistent performance, we now expect to produce in the range of 17 to 20 million ounces of silver by 2024, and this production will not only be the largest producer.

Silver in the United States, but will also be the largest in Canada. So despite hecla being 130 year old company. We believe we are the fastest growing establish silver producer.

While we are investing our business with large capital programs at each of the mines and at Keno Hill, we ended the quarter with a very strong balance sheet, which we're committed to maintain Russell talk more about that strong operational performance in the year has allowed us to increase our silver production guidance, while maintaining our operating and capital cost guidance.

Despite adding keno Hill, so Laura why don't you give some insights into our operations. Thank you Bill I will start on slide six.

Greens Creek produced two 5 million ounces of silver in the third quarter, two 5% higher than last quarter.

The mine produced approximately 2400 tons per day, and the mill achieved a new all time throughput record of 2500 tonnes per day.

Lower lead grades resulted in the deferral of the silver concentrate shipment to the fourth quarter. The impact of the deferral is lower revenue and cash flow in the third quarter as well as lower cost of sales because the costs related to the shipment were recorded in inventory.

In the fourth quarter there'll be a higher cost of sales with offsetting revenues and cash flows of approximately $18 million is the inventory charges are reversed.

Cash costs and all in sustaining costs for the third quarter increased to $2 65 per ounce and $8 61 per ounce, respectively, driven by lower byproduct production.

Lower byproduct prices and tight labor market that required the use of some contractors primarily in maintenance.

Greens Creek is positioned for another strong year and generated $86 million in free cash flow for the first nine months of the year.

Despite the deferral of the silver concentrate shipments in the fourth quarter minus free cash flow positive in the third quarter.

For the fourth quarter, we expect similar operational performance with a slight decline in production due to approximately 8% lower silver grades related to the mining sequence.

We are affirming our cost guidance for the mine and expect the mine to meet the increased production guidance of $9 three to $9 6 million ounces of silver for a solid finish to 2022.

Moving to slide seven Lucky Friday, silver production exceeded 1 million ounces in the last two consecutive quarters for.

For the first nine months of the year. The mine produced $3 2 million ounces of silver, which already has 90% of last year's production.

Cash costs for the quarter were $5 23 per ounce higher than the second quarter of 2022 due to lower byproduct credits driven by lower lead and zinc prices.

All in sustaining costs for the quarter were $15 98 per ounce due to planned higher sustaining capex spend.

Significant sustaining capital projects in the quarter included work to raise the tailings facility and infill drilling to support the accelerated UCB production pace as we target more than 5 million ounces a year of production.

Also in the third quarter due to a multi week shutdown at the trail smelter, a 2000 dry metric ton silver concentrate shipment containing approximately 216000 ounces of silver and $2 9 million pounds of lead was deferred to the fourth quarter.

<unk> had an impact of $6 million on the minds revenues. The mine had negative free cash flow of $4 5 million for the quarter, primarily due to the deferral.

Year to date, the mine has been free cash flow positive generating $8 million net of our investments to grow production.

We are affirming production and cost guidance for the mine better lowering capital guidance to <unk> $56 million to $58 million due to the timing of some capital expenditures.

Yeah.

The quarter continues to highlight the UCB mining method success in managing seismicity at improving productivity at the mine.

With grades are getting better at depth and increased throughput the minus except to produce more than 5 million ounces per year in the near future and we believe this my first decade has ahead of it.

Turning to slide eight Casa Berardi produced just over 33000 ounces in line with the second quarter.

All in sustaining costs increased to 17 $138 per gold ounce due to higher sustaining capital expenditures associated with a design change and the expansion of the tailing storage facility and increased exploration spending.

Casa Berardi is costs remained more exposed to inflation that our other mines due to the absence of any significant byproducts and the relatively larger volumes of material buy them processed.

Casa Berardi remains an important part of our operating portfolio with a large under explored land package the.

The operation provides us gold production and scale and our exploration is focused on adding higher grade underground material recent drilling results show good continuity of high grade zones, along the $1 13 and 118 sector.

Casa Berardi generated positive free cash flow for the quarter as well as for the first nine months of the year.

We are affirming our production and cost guidance and are lowering our capital guidance slightly to 42% to $45 million of some capital projects will be completed in 2023.

We completed the acquisition of <unk> in early September from day, one our focus has been on development in the advance rate has increased by 40% since acquisition.

At the end of October we completed about 30% of the total development required prior to starting the mill.

We expect the advanced rate to continue to improve as we embed mining practices are received more equipment.

By the end of 2022, we expect to have completed about 40% to 50% of the development required to start the mill.

Incurring around $4 million a month of cost so in the fourth quarter, we expect capital spending to be in the range of $10 million to $12 million.

We anticipate achieving full production run rates in 2023 with a mill start in the second half of the year, yielding about $2 5 million ounces of silver.

We'll give a more detailed production and cost guidance for 2023 later this year early next.

Slide nine highlights some of the work we have planned at the Bermingham deposit where the focus will be on the <unk> zone.

White highlighted development is what we plan to complete this year and the Red Arrow show is about where we expect to be when we begin stoping.

Moving to slide 10. This image shows our work plans in the upper Lightning zone at the flame and moth deposit as on the previous slide the White highlighted development shows the plan, we expect to complete this year and the Red Arrow show, where we expect to be when we start stoping.

With two deposits of multiple production horizons in each will have a high level of flexibility to meet production demand. This has been a major issue for Keno Hill in the past that we intend to solve.

While our immediate focus is on these two deposits. Let me end with a comment on exploration that gives us confidence in the potential of the district.

Drilling on the other explored coral wigwam target, which is about one three kilometers from Birmingham.

101 ounce drill hole intercept over seven three true feet. These early days of the exploration program, but nonetheless, very encouraging and quite exciting.

With this I'll pass the call to Russell.

Thank you Lauren.

Turning to slide 12 third quarter revenues were $146 million 30, 30% from silver, 42% from gold with zinc and lead at 28% our revenues decreased approximately $45 million from the prior quarter, primarily due to the deferral of Greens Creek, and Lucky Friday silver shipments to the fourth quarter as Lauren has described.

These deferred shipments had an impact of approximately $24 million on revenues and we also saw lower prices across all four metals as we indicated on last quarter's call. We are investing our cash in our operations for future production and cash flow growth due to the revenue reduction capital spend of more than $37 million for the quarter transaction costs incurred from the <unk>.

<unk> acquisition refinancing of our revolving credit facility and working capital changes related to the deferral of revenues as well as interest payments of $18 million in the third quarter of free cash flow for the quarter was negative $62 million, even with relatively lower silver prices and a reduction in both the byproduct prices and production we continue to see.

Solid cash flow and margins from our silver assets, where we had a consolidated all in sustaining cost of just over $10 per ounce year to date with a margin of more than $11 per silver ounce free cash flow generation from our three operations for the first nine months of the year was approximately $98 million.

As we look to the remainder of the year, we anticipate maintaining a cash balance in excess of $100 million, while keeping to our prudent financial policy of maintaining a net leverage ratio of less than two to one.

Turning to slide 13, we have seen in place inflationary environment of earlier this year continue into the third quarter, where prices of key inputs continue to remain elevated at around 15% higher than at the beginning of the year. We are continuing to experience a tight labor market, especially as we recruit for experienced miners and skilled trades, such as mechanics and electricians.

And our silver operations, we have seen our byproduct credits, which provides some offset against inflationary pressures decline primarily due to the dip.

A decline of byproduct prices, we are focused on managing our cost structure and are reaffirming our cost guidance. Even after we've seen prices of byproducts come down we remain confident that we can execute our mining and development plans at our operations. Even in this current tight labor, an inflationary environment and with that I'll pass the call back to Phil for his closing remarks.

Thanks, Russell and so we'll go to slide 14, which just gives us a huge.

A view of our our guidance for production and for costs.

And what Youll see is our production guidance, we announced earlier in the month or last month that we were increasing our production guidance at Greens Creek because of its strong operating performance year to date.

And as Russell has described we have this inflationary pressure, but we're able to affirm our cost guidance.

And we're also maintaining our our capital guidance.

Because we're lowering.

Capital expenditures at the Lucky Friday and cash to offset.

The development expenditures that we have it.

$10 million to $12 million that you mentioned.

The other thing I just wanted to mention while I'm on guidance is really a call out to our employees for our safety performance.

Our all injury frequency rate for the first nine months of the year was 132, and that's 37% lower than the U S average and it's an improvement of 19% over the same period from 2021. So thanks to all the Hecla employees for this achievement.

So I want it.

And with a number that caught our attention and this is on slide 15.

India imported 200 million ounces of silver in the first eight months of 2022.

And the silver bullion market is.

It's about $1 billion ounce market and so that's 20% of global demand for silver.

Imported over the first four statements and India's increased silver important ports are a key factor that caused the silver and the London votes to be at the lowest levels since 2016.

Silver buying in India was muted during COVID-19. So this is more than double last year's imports three times. The 2020 levels in about the same as 2019, so the messages India.

Indians are back buying silver for jewelry and silverware.

That's about three quarters of the silver purchases are for that.

And where it's really coming from these millennials and the Gen Z population in India are more keen on silver jewelry than gold jewelry.

Changing fashions and the desire for the ability to change their jewelry frequently.

And.

The ability to have lightweight jewelry that compliments, our more professional look and.

Vida is Indiana, and she said to me that her younger cousins, who are in India have expressed a preference for silver jewelry for daily Workwear.

Typically when you hear us talking about silver you hear us talking about the use of silver for energy transition and we still think that's the future for silver, but we do view. The this increased demand in India is providing a great base to the silver price.

Finally, I want to emphasize our commitment to silver.

While we believe in gold and see a need to have gold operations and will probably even grow our our gold operations. We have done a silver company for 130 years, and we think the future.

Could not be brighter for the metal and we see more upside relative to go. So we're working hard to increase our exposure to silver and since I've been at Hecla, We've gone from six to 7 million ounces of production to 10 to 12 and now we're heading to 17 to 20 and all of that production is in the U S and Canada.

And we can expect in the next year or two for our silver revenue to exceed gold and probably probably go over 50% of our total revenues even at the current gold silver ratio, which we expect to improve this will put us in a unique position, especially since other silver companies are seeing a decline in their silver <unk>.

Sure so with that Regina I'd like to open the call for questions.

At this time, if you'd like to ask a question simply press Star then the number one on your telephone keypad to withdraw your question Press Star One again, our first question will come from the line of Michael <unk> with RBC capital markets. Please go ahead.

Thanks, very much operator, and thanks for taking my call.

So I know, we'll get more on Keno Hill as time goes on and thanks for the update today.

Ken can you can you go into any more maybe surprises that you've had since taking over good or bad or anything that we should be watching for in terms of.

Of the update or the start ups anything along those lines.

So I guess I'll, let Lauren.

His views but.

The first thing I would say Michael is that.

If you think about the due diligence process. We went through we had 63 days of people on site.

Before this transaction, which was ever announced and so I think we knew everything that you could know it that at that time so.

From my perspective, not a huge number of surprises Lauren anything that really sticks out to you.

Yes, I guess, the one thing that sticks out to me and it's positive skus with folks.

<unk>.

Is the.

The reception that we received how welcoming the entirety of.

The workforce right down to the miners had been.

To us and I think it just gives us a great platform to start from.

Thats.

We knew we would be well received there but its I.

I don't think any of us recognize how well received.

And the food was pretty good at the camp.

Yeah, you would lead you definitely need to go on some kind of exercise program. If you were there for very long.

Right.

Good to hear I guess.

Okay, I guess maybe.

Couple more from me and I'll hand, it over.

Maybe a similar question on on Capex at Lucky Friday, a number of big projects, you've highlighted as being on the go there with the lower Capex now in 2022.

Should we be expecting more or less a deferral of that capex into 'twenty three I know you're going through the budgeting process, but should we be thinking about a similar type of number in 'twenty three as we saw in 'twenty, two or has any thinking changed along along those lines.

It's just a deferral into 'twenty, three and relative to where we were going to be for 'twenty, three which of course is not disclosed.

We will we.

We will be slightly higher with this deferral, but.

Part of it is.

We're deferring it for operational reasons.

Some work was slower to get done and rather than trying to push through that work and this is on the bunker rather than trying to push through that work in the in the winter, we're going to wait until the spring to two completed Lauren anything to add.

That's exactly correct.

We did any analysis.

The potential benefit of working through winter versus the cost of determined it wasn't worth the risk of working through winter on that particular project. So we're buttoning up putting it to bed by roughly the end of November we will come back to it early in April .

So it was a project that we could defer some spending on and made the decision to do so.

Real game changing capital project at Lucky Friday as service hoist and it is on schedule ongoing great without Lucky Friday. This week and got to tour. The building is up the hoist is in place it's being wired in.

Pairing.

<unk> received the guides for the service hoist so about that project is going really well.

Michael is.

There is equipment that slow to come and that's part of the deferrals from 'twenty two to 'twenty three.

So we will make those expenditures and thats not just at the Lucky Friday, that's across the across the company.

Got it thanks, Okay, maybe switching gears quickly to the byproduct credits in the zinc and lead production.

Have you considered breaking out lead and zinc guidance more than you do for some more predictability I know, it's the nature of the Beast to an extent is it just too hard to really predict on a quarter by quarter basis.

What those credits will be.

From Greens Creek and Lucky.

You're the first person to ask for that in 20 years. So we will consider.

Okay. Okay.

I'll take that under advisement.

Maybe just one other silver question you brought up demand in the physical market.

I suppose we're still seeing a spread between physical.

Physical more retail focused silver price and the spot price, maybe narrow or now that we've bounced up off the $18 level over the last few weeks months. So I suppose two questions are are you seeing the same thing and assuming that you do.

Do you see any opportunity to.

Exploit that spread or do you just see it as a maybe a positive sign for future silver prices.

Well, it's really.

The wholesale to retail.

Purchase of silver if you look at thousand ounce bars, there is not that big of a of a spread the spread really is at the retail level of the one ounce.

Coins and medallions and the like in the 100 ounce bars.

So.

So.

We don't we produce our final product we produce at our at our silver mines are is our concentrates. So we don't have.

Physical model to to try to do something at a retail level. So we're not intending to try to do that essentially at this point.

Not so much on the issue.

Sorry go ahead to conceivably you could considerably told the material, we haven't really ever seriously considered that.

Alright, and I mean more is more as a view on the market.

Do you see that is not to suggest you can start producing.

Coins around but do you see.

Do you see that that that retail spread as being indicative of anything that you would see in the broader market and the broader silver market.

Well I think it's not dissimilar to.

What we've seen in India with a with an increase in demand.

And you just it provides that fundamental underlying demand that supports the price makes it going down in a significant way really hard for it to do and it gives you more risk to the upside.

Yes.

Okay very good thanks for thanks for my questions I'll pass it on.

Your next question will come from the line of Lucas pipes with B Riley Securities. Please go ahead.

Thank you very much operator, good morning, everyone.

My first question Phil is on the cost side, so great to see that cost guidance is flat this year and I wondered if you could expand on that a little bit are we seeing.

Yes.

Are we seeing inflationary pressure subsiding.

Or is this really more testament.

To your cost management. Thank you. Thank you for your perspective on that.

It's certainly not subsiding, yet I don't think it's I don't think it's increasing.

But we're continuing to have this inflationary pressure.

I'll just use diesel as an example.

The price of diesel is sick.

Significantly higher than it was.

And we're just very focused on managing our costs and the best way of doing that.

To an extent on a per.

Ounce basis is increasing throughput.

So I'll, let Lauren and Russell add any comments.

I think the.

The denominator is key and so we've been driving to generate more metal more revenue.

We had some visibility that there was going to be an inflationary period and did some budgeting accordingly.

I think it exceeded our expectations in many cases, but we did protect ourselves during budgeting, yes, I think just I think Phil you got it it's certainly not subsiding.

But I think as we've moved through the year and you take into account the budgeting changes that Loren has mentioned I think the cost guidance, what you've seen is that we've been able to taken the inflation into account essentially.

But it's still high compared to what we've seen in the past.

Can you very helpful. Thank you and as a quick follow up on this point are you seeing areas where costs are coming down or.

And Conversely.

What are the what are the key pressures today.

Still running through the system.

Thanks, well, yes, certainly there certainly.

We are seeing some.

Cost reductions on some of the materials, but it's not dramatic it's it is at the margin and not particularly meaningful the more important thing is that they're not going up at the rate that they were I agree and they tend to be the.

The.

Coming off of an inflationary period, the costs tend to be fairly sticky and they lag the change in the broader market by at least a quarter and the other thing to remember is where our costs and labor is almost 40% of our costs and.

We have had.

During the course of the year, we had increases we think we are at or above market and so that gives us a little bit of room to wait for the market to catch up to where we're kind of our labor expenditures, but.

These these other items, while the costs might be and I'll look at consumables at 18% might be.

Significantly in the aggregate, 18% each individual cost is actually quite quite small as a percentage of our total.

Very helpful. Thank you and then my.

My second theme I wanted to touch on this.

The reshuffling within your Capex guidance not huge numbers, but.

What are some of the.

Thanks, Youre saving at Lucky Friday, and Casa Berardi and.

I am sure you had thoughts about why you had it in the budget in the first place so would appreciate what.

What the tradeoffs.

Lucas Lucas, it's really just a deferral.

And as I as I said, a moment ago and some of it is just operational benefit.

The wait and.

In some cases.

The suppliers have not.

<unk> been able to deliver the equipment and then and then frankly almost every year, our guys are very excited and ambitious and.

We'll project projects that.

They just don't have the time to actually get get to Lauren.

So we see it every year, we tend to forecast our capital expenditures are higher than they materialize, but we generally come pretty close to budget, which will be the case this year.

Got it.

Is it.

Yes.

Is it.

Reasonable to assume there is a catch up then next year. If this is deferral of would you say, it's kind of this happens on an ongoing basis. So it wouldn't be.

How can we catch up we would hope that we would hope that we will catch.

Lucas will hope that will catch up in 'twenty three with the expenditures that we defer into that because it's primarily equipment in a couple of major thats largely growth right. So.

Assuming the projects are executed the way, we expect it to be we should catch up yeah.

It's like I said these are projects we wanted to do.

These are projects that we want to do so.

Okay.

So should we assume higher capex for.

<unk> 2023 Directionally.

We haven't given we haven't given guidance on 'twenty three we're still in the budgeting process. So let me hold off doing that until we're ready.

Fair enough.

Selling team really appreciate the update and continued best of luck.

Thank you.

Your next question will come from the line of Heiko with H C. Wainwright. Please go ahead.

Hey, guys. This is Marcus giannini, calling in for Heiko, Thanks for taking my questions.

So you're talking about.

$3 6 million at <unk>.

In the quarter and you're expecting.

$10 million to $12 million of spend in Q4, which gets us from 30% to 50% of development complete.

How long do you think we can trend line that figure of 20% costing about $10 million to $12 million and then I.

I guess, while you're at it.

How much are inflationary impacts hitting you in that area specifically.

Oh, yes.

Hard to say specifically that.

We certainly feel the same inflationary pressures we do.

Elsewhere the real.

The concern is diesel.

Fact that diesel costs have gone up.

As far as.

The assumption look I think if youre, assuming that will spin sort of at that same level.

During the course of next year and some time, we will turn on the middle probably in the third quarter.

Maybe we'll be able to advance to the second depending on how well the development goes.

And but certainly we will be in full and consistent production by the end of the year that is our objective.

Everything else that we can do that gets us ahead of that is.

<unk> upside for us for us.

And at the end of the year early next year, we will give guidance specific guidance on kino as well as on the other properties things to add.

We expect the development rate to increase over time, it's just learning curve. It's learning the ground and also getting some of the equipment. We have will help accelerate the development rate. So I would expect.

Capital expenditure for development to escalate with development.

Proportional to the development rate.

And then I guess the other thing is we have.

Some capital construction to do which is a seasonal thing so as we hit April may timeframe youll see some of that spending increase.

Yes, I think in general you should look at Keno Hill, Youll, probably see a bit of a ramp up in costs kind of similar to what Loren is mentioning but <unk>.

The lion's share of it is generally a fixed cost.

We've said kind of that monthly spend is about what they incur or we incur up there.

As it relates to inflationary pressures keep in mind, we were looking at this from the lens that we just closed the acquisition in September so.

As inflation high yet, but the changes took place really earlier in the year. So I think it's kind of from a baseline perspective, we have that already.

Sure.

Yes.

Okay Gotcha.

That's really helpful.

And then for my next question has already been touched on quite a bit with Lucky Friday and Casa.

Capex being deferred to towards phase III, So I guess.

I'll ask about equipment availability what types of items are you guys, having difficulty procuring on that front.

Okay. Thanks.

The biggest challenge is filling the mechanical trades ranks.

In terms of equipment, it's sort of a mixed.

You can't even really point to one manufacturer being slower than another and even within a single manufacturer.

<unk> may be incurred at a particular facility, which means it might be one class of machine, whereas we don't have trouble getting another class of machine. So it's really an odd mixed bag there.

It's difficult to say that its that theres a trend other than the industry is strong and there is demand for equipment.

Okay.

Okay Fair enough that's it for me I'll hop back in queue. Thanks, guys.

Your next question will come from the line of Joseph Reagor with Roth Capital Partners. Please go ahead.

Hey, Phil and team thanks for taking the questions.

A lot of stuff I wanted touch on what was already hit on but I'm.

Just kind of a follow up a little bit on Keno Hill and make sure I fully understand that.

Once you guys start the mill up we should expect.

Development capital to trail off correct.

So what will happen is there'll be a split and the development capital between continuing to advance that.

Primary development that that ramping system that you saw on that slide with the green.

And maybe call it maybe half of the expenditures will be related to that sort of development and the other half will be related to that.

Stope access development.

And stoping so.

Recall that these these are mines with more than 10 years of life. So theres a lot of development remaining to be done there.

Yeah, Yeah fair enough.

Okay.

And then.

Looking at cost.

<unk>.

This this quarter.

Costs total costs exceeded revenue I know that there's some accounting stuff behind that but.

Any concerns about the inflation, there and you know kind of a weak gold environment and putting you guys in a position at some point that.

If coal doesn't recover from this level that you guys have to reconsider whether or not to continue operating the mine.

Well I think that's probably too strong too.

Two.

C <unk>.

<unk> the mine it really a question of how much capital investment you can make because we do have the objective.

Trying to have all of our mines be cash flow positive.

<unk>.

We've really had that as a mantra for some some time.

While we are willing to have periods of time for them to.

And the need to meet capital infused these our operating mines that should be be able to.

Free cash flow positive and generate returns.

Overall Corporation so.

Are we looking at ways of improving the performance at cost So yes, absolutely all the all the time.

So so.

Yeah, Lauren anything to add to that we're always looking to optimize plans and based on the cost structure inflation a metal price. We're we're always optimizing both the underground and the open pit plans and the open pit plans are really about the bigger lever I would say because of the volumes of material.

From a cost perspective, that's the bigger labs.

The lever on the revenue side as the underground mine. So we're always balancing those things.

And fundamentally we think we have this 37 kilometer strike on the Casa Berardi break.

Ed.

It's very very perspective, it is very under explored.

And that's where the growth comes from.

So youre going to see us continuing to explore.

Continuing to look for that higher grade material that the drilling that we're doing in the $1 13 is it's interesting there is some high grade that we've seen but.

And if you'll recall going back a decade that was the $1 <unk> was the real high grade material that.

That drove the value of the mine.

So we can find some more of that material.

It's a it's a whole different proposition at Casa Berardi.

Okay Fair enough and then just on inflation.

I guess.

Have you guys soon.

To quantify.

What part of the inflation, you've seen you feel will be.

Sticky versus what part.

Do you think might.

Have some kind of pulled back as the world Normalizes again at some point in the future.

Is it 50 50 60 40, you know how do you feel about that.

Look labor will be sticky.

Contractors will vary.

Diesel will vary.

And the others will be slow to move but they will vary the steel.

That's sort of items in the consumables.

Okay. Okay.

So with lately.

Slaver goes up it's hard to have it come down.

Yes.

Okay.

Alright fair enough I'll turn it over thanks for answering the questions.

Sure.

Your next question will come from the line of John Tumazos with John Tumazos very independent research. Please go ahead.

Okay. Thank you.

I wanted to congratulate you on your 10, 15% creative cost growth.

I keep a log of three dozen companies, where the seven quarter accumulative cost increase is 41%.

6% per quarter.

In Nevada Gold mines open pit mining costs per ton rose, 50% cumulatively over seven quarters or 7% per quarter.

So Phil I want you to tell us how youre going to keep doing so well, particularly.

There's 1 million ounce of level, we're lucky Friday tops out and.

And this 2500 tonnes a day level.

Greens Creek tops.

Those productivity gains continue and help you keep costs under control.

So so at Greens Creek.

Our objective is to try to get to 2600 tons and put that in perspective, we were around 2100 tonnes a day when we.

Started operating the mine. So so that's a big increase and it's mostly cut and fill mining and my hat is off to the the performance that those guys pad because we've been at 2500 tons.

A day.

But this year and so youll see us try to continue to increase the throughput.

At the Lucky Friday, we've gone to this new mining method.

We it's much more productive much safer.

And.

I think that the ability to increase the throughput there we've already demonstrated we've gone from 800 tons a day to 1100, we're on a path to <unk> hundred.

And Lauren that won't like this but.

I think theres more beyond that there is always more.

Just what the curve looks like.

So that's really the China increased productivity, so I E not add additional people to the extent you can avoid that but improved the productivity per per person. There are some technologies that we're certainly looking at that we think will be constructive, but I will tell you that we are on the cutting.

Edge of <unk>.

Technology, when we look at some of the stuff we're trying to do at Greens Creek for example, with <unk>.

I've made haul trucks.

Our vendors say we are.

They're at the forefront of what what anyone's able to Loren why don't you add to it.

Comments.

The key really for US is to get the very most we can get out of the capital we've already invested and in some cases, we make additional investments, where we see incremental opportunity, but it's very much a denominator game and so being efficient and moving more tightens up more model works.

Those same or slightly increased resources, it's a winning combination for us and I just just.

A comment on you mentioned, Nevada gold mines and the thing to remember is we have small underground mines, which is a huge advantage in this inflationary environment because we just don't have.

The amount of cost per per ton.

In aggregate not per ton, but in aggregate and so a move and the diesel price for them is much more meaningful than it is for us.

So could you run through with the natural bottlenecks are women and factors are.

Greens Creek.

Lucky Friday and Casa Berardi.

<unk> mill capacity.

Hoisting underground mining which are.

The limiting factors at each site.

Sure.

Why don't we together starting at the Lucky Friday.

So so the Lucky Friday.

Fortunately has had a large amount of capital and that's true for all of the mines. The large amount of capital that's been put into the mine and so we are clearly able to get to 200 tonnes a day without.

Reaching any bottlenecks.

Now that's true because of the service hoist that we're putting in otherwise the hoist to have would have been the bottleneck to get to that 200 tonnes. A day when we get to 200 tons a day it starts to come in the middle.

At the Lucky Friday, we continually have to expand tailings facilities at the Lucky Friday and we're fortunate in that we now have a land package that.

<unk> allows us to.

Have tailings for as far out as we can really see.

And so I think we're in pretty good shape at the Lucky Friday to get beyond 200 tonnes. A day is really about the comments about the mill.

Chase bottlenecks around there, but most of them can be resolved with a modest investment.

The.

The Hollywood problem would be if we.

In other zone into production a meaningfully needed to change what was happening in the mill.

But even so it would be just expanding the grinding circuit. So.

<unk> investment.

So the Greens Creek.

The real issue. We thought was was the mill, but we keep increasing the throughput of the mill and with very small adjustments and so as I said, we've gone from the 21% to 25%.

We think we'll be able to get to 2600 without any meaningful investments.

We're now in a position where the mine itself is the bottleneck and part of the issue with the mine is the the linked with the haulage that we have.

Go to the 200, south that is about a 40 minute hall from the bottom of the mine, maybe even 50 minutes.

And Thats a lot of time.

A lot of people that have to be.

<unk> engaged in that activity and so that's one of the reasons why we're trying to figure out. If there is an automated solution are quasi automated solution to try to improve the haulage.

Back fill us in delivering of the backfill throughout the mine is as a bottleneck.

But I don't think theres going to be much issue as far as getting to the 26%.

Anything to add no I agree.

And then of course tailings at at <unk>.

Greens Creek and we're in the process of permitting the next tailings, even though we just completed the permitting on the last tailings what two years ago I guess.

So we see it as about a 10 year process to permit and construct tailings I guess eight years and so so we're well on track for for that.

Cassa.

We've been able to increase the throughput of the mill, we doubled it we were at 2000 tons roughly we're at 4000 tonnes.

Yes, so growing.

That mill production is not really what we're focused on it's really about improving the grade of the material that comes into the mill.

We've looked at ore sorting there we've looked at.

But fundamentally it comes finding more higher grade underground material.

Thank you for the rundown.

Sure thing John .

Our next question is from the line of Lucas pipes with B Riley Securities. Please go ahead.

Thank you very much for taking my follow up I.

I wanted to ask another question on Casa.

With the.

Diesel price increases this year.

Can you speak a little bit to the tradeoff.

Surface versus mill utilization therein.

Todd.

Any light you could shed on underground versus surface costs, and how that might help.

Our mix might help to optimize our costs at the site going forward. Thank you for your perspective on that.

So Lucas you broke up a little bit, but I think what youre asking is sort of the <unk>.

The relationship between the underground production and the surface production and generally speaking wed like for it to be about 50 50.

But it all depends on what the grade of the underground.

That's what we tried to get to it's difficult because of the amount of development that you need to do for these relatively small stopes remember that those numbers, but its pretty challenging development rate.

To to be able to access the stopes.

That's correct.

I think the way to think about the underground as is right now we need to turn around 140 to 150 <unk> year underground to sustained target production rate to the mill.

Our operating philosophy, there has been two <unk>.

Maximize.

The throughput and reliability of the mill.

We have achieved and then feed the mill the best possible grades so underground preferentially backed up by open pit, but always keep the mill full so thats been the operating philosophy.

And when you think about this mine over the long term.

Where this mine will generate a huge amount of cash flows when you stop development and you stop.

Land back.

They open pits and all Youre doing is mining the ore then this thing becomes a huge cash flow generator, but we're trying not to get to that point.

We're trying to continue to extend the mine life generate free cash flow in the meantime generate returns two to us in the meantime.

Very helpful color again best of luck and thanks for taking my questions.

Good thing.

Our next question will come from the line of Jeff Mckenzie with individual. Please go ahead.

Okay.

Hello, Thank you for taking my call good morning.

My question was.

What are some of the current and looming potential.

Potential for.

Aluminum challenges for <unk>.

Hecla mining as you move forward.

Well look the issue that we have as do most.

Companies, both mining and otherwise these people.

We are on a.

Continual recruiting effort, we have more much more.

Focus on them that we've ever had in our in our history and so it's really about getting the people that you need.

If you think about mining engineers there.

Coming out of school.

Super small number compared to what it was 10 years ago 20 years ago 30 years ago.

So maybe you have to repurpose other engineers from other other disciplines, but.

Yes.

That is the big challenge for Us.

For the industry.

Yes that makes sense. Thank you so much thank you.

Youre welcome.

Our next question comes from the line of Jeff <unk> with <unk>. Please go ahead.

Okay.

Thank you for taking my question.

You guys of course.

You too.

Capital expenditures for Greens Creek, but yes.

Yes, so far better to spend quantified.

Despite the fact that we use to understand in the winter months.

Due to the timing of the payments are all U.

Fast forward costs.

Green score.

Deferring some expenditures to quantity.

Yes.

Back weighting of the capital at Greens Creek relates largely to equipment.

We've had we've seen delayed debt that we've ordered.

That would be sort of the largest item anything anything else no.

Wrapped up our capital construction for the year.

<unk> completed as expected.

So the equipment.

Okay. Thank you.

On the in person coaching.

So hill.

I wonder what at what time at what point in the future are you looking to put out.

<unk> update.

Yes, so we're evaluating.

Our resources at all of our properties, we do that every year and so youll see something.

With the.

In early 2023.

Having said that.

We do not have the opportunity to do the infill drilling.

Keno.

That is going to be required for a significant.

Update in the resource to reserves or conversion of resource to reserve so.

It might be really until the end of 'twenty three before you see.

And a significant significant move and those resources are.

Reserves.

And remember, we Havent, we havent front of us.

We have in front of us.

37 million ounces of reserves that <unk> had.

At least.

An eight year mine life, and we're pretty confident that that Birmingham deep material will eventually convert which would take this out to plus 10 year mine life. If it does.

Thank you.

A follow up question on Keno Hill.

Ken Hill is a small mine than you have previously.

The electrical management that talks about increasing the throughput to 500.

Cost per day is that something that you want to initiate as soon as possible once it's.

It's up and running or how would you view that obviously.

Talking about expanding beyond that throughput level.

Yes, the first step is to get into full and consistent production and then we will look at as we do at all of the mines, increasing the throughput from there.

So 400 tons a day is the first objective.

Okay great.

Our final question will come from the line of Sean <unk> with Deutsche Bank. Please go ahead.

Hi, good morning.

I'm just curious.

On slide 13, you sort of show that components of production costs the.

One bucket other is 24%.

Any way you could give us a little more detail surrounding what's in that bucket.

Sure.

Sure I think.

Power realized that were on hydro at all of our mines.

So so that's a component of that.

That's the largest component I think powering a third of that total.

Thats, probably correct as well as you know as I said as I sat there and thought about that same box. The other one that sticks into my mind us something like the lease for the boating.

Great that's an expense that would fit into that.

Into that bucket as well so it's things along those lines that don't really fit into the rest of the.

The pieces of the pie, but but sometimes can be relatively large like power.

Alright.

How has your hydro power expense.

Yes.

How has that Dan over the course of this year has it been up or down.

Table, it's stable it's stable.

That's one of the advantages that we have both in terms of the cost of power is quite low and in terms of the inflationary pressure on on power.

Alright.

That's helpful and then.

I think you've reached one nine turns of net leverage now.

Are you trying to remain right around that two times leverage target is there anything related to that sort of remaining around there or would you potentially take this lower as your production increases and your free cash flow began to change.

Where we're at.

Would like to see it get lower but we're committed for it not to get higher.

Understood understood Okay.

Along those lines, we were we were at one one just.

Coming in at the end of last year right. So we've we've seen is significantly lower.

But to Phil's point, we're committed to remain prudent with our balance sheet and keep it less than two to one.

Okay.

Yeah.

Thank you thanks.

Alright, well, we appreciate everyone.

Participating in the call.

And what we would.

Mind, you that is if you would like to have a one on one call with us those are available.

Blocked out time, so just reach out according to the instructions on the on the press release.

Otherwise, we look forward to.

Speaking to you again, either towards the end of this year or early next year I appreciate it thanks, everyone.

Ladies and gentlemen that will conclude today's meeting. Thank you all for joining you may now disconnect.

Please wait the conference will begin shortly.

Sure.

Sure.

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