Q2 2019 Earnings Call
Hello, and welcome to the Q2 2019, Hecla mining earnings Conference call.
At this time, all participants on a listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time.
If anyone should require assistance during the conference. Please press Star then zero on your Touchtone telephone.
I would now like to introduce your host for today's call.
Mike Westerlund you may begin.
Thank you operator, welcome everyone and thank you for joining us for Heclas second quarter, 2019 financial and operations results Conference call.
Our financial results news release that was issued this morning before market opened along with todays presentation and the exploration released from Tuesday are available on Heclas website.
On todays call, we have Phil Baker, President and CEO Lindsay Hall, Senior Vice President and Chief Financial Officer, Lorne Roberts, Senior Vice President and Chief Operating Officer, Larry Roberts, Senior Vice President Chief Technical Officer, and Dean Mcdonald Senior Vice President exploration.
Any forward looking statements made today by management team come under the private Securities Litigation Reform Act and constitute forward looking information under Canadian Securities Law as shown on slide two and three such statements include projections and goals, which are likely to involve risks detailed in our Form 10-K Form 10-Q and in the forward looking disclaimer included in the earnings an exploration releases and at the beginning of this presentation. These risks could cause results to differ from those projected in the forward looking statements. In addition, during this call we may disclose non-GAAP financial measurements.
You can find reconciliations of these measurements to the nearest GAAP measurements in the accompanying presentation, which is available on our website the triple W. Dot Hecla dash mining dot com.
Finally in our filings with the FCC were only allowed to disclose mineral deposits that we can reasonably expect to economically and legally extract or produce investors are cautioned about our use of terms such as measured indicated and inferred resources, which are not reserves and we urge you to consider the disclosures that we make in our SEC filings with that I'll pass the call to Phil Baker, Thanks, Mike and good morning, everyone. The financial performance in the second quarter was poor and impacted by several items and the team's gonna be discussing this in a moment so.
I just want to highlight a couple of points and set the stage for the next couple of quarters.
And you can.
Just following on some of the main points on I think slide before.
We called out in the news releases headline be increasing Greens Creek silver production, which is due to realizing higher grades this year over plan because of newly identified mineralization.
As outlined in our 43 101 over the next five years, we expect to continue to see higher than average reserve grade. So Greens Creek strong cash flows in the first half of the year should be repeated in the second half and into the future.
Of course, the amount of cash flow varies by quarter, depending on prices grade of the byproduct metals volume.
Volume and timing of concentrate ships.
[laughter] and that's part of what happened to us this quarter.
For most of the last decade, we have consistently invested in exploration and growing reserves, which is the foundation of any mining company today, we have among the longest mine lives compared to peers with more than a decade of reserve life at each of Greens Creek, Kasper already and Lucky Friday, plus we also have their resources.
By having these long reserve life.
We can see how to make these mines better with new technologies that can generate returns for many years to come. An example of that is the automated Hologic has said that is that half the cost of non automated.
We also are making discoveries that are immediately going into the mine plan at Kassere, we're seeing them in the east mine seeing that in the east mine and he's going to talk a little bit about that.
So we can generate good value from our exploration and other investments.
But with Nevada, not working as we had hoped we are reducing those expenditures and others by $25 million as we talked about in June .
And in fact, we are working to extract 30 million of costs. Most of it is capital exploration GNS.
This reduction coupled with our anticipated higher cash flows from castle Berardi, San Sebastian and the continued performance from Greens Creek.
These are all assets, which we have a proven track record operating.
Should increase substantially or cash flow over the remainder of the year.
And we're also seeing improved financial performance in Nevada.
So in this third quarter for the first time since the acquisition of Klondex a year ago. Our plans show is generating more cash than we spend so we can start de leveraging by reducing the revolver.
And then with the anticipated cash generation really picking up in the fourth quarter, we expect no revolver debt by the end of the year in its spot prices it may be even better.
In addition to minimizing spending in Nevada, reducing expenses years company wide and beginning in the third quarter. The planned reduction in our revolver debt. We are taking other steps to increase our cash and EBITDA in anticipation of any debt refinancing.
One of those steps is the purchase put options to set up for a $15.13 and $1400 for our silver and gold sales respectively going forward.
Fortunately it looks like we're not going to have to rely on these puts and we'll realize the higher spot prices that we're we're enjoying today.
We are monitoring the market however to purchase more put options for 2020 should the cost of the puts decline there quite expensive at the moment.
Another step was amending.
Certain terms of our revolving credit agreement to give us additional headroom on the net debt to EBITDA metric through the second quarter of 2020, we don't expect any constraints on the availability from the revolver covenants and of course, we don't.
Expect to utilize much if any of that by year end.
Finally, we are looking towards the refinancing of our high yield notes as part of this we are considering all considering all of our options. If we don't use the high yield market to refinance all the bonds as I indicated in June we have a number of possible alternatives. We are considering and since that June release conditions have improved gold and silver prices are higher interest rates are lower.
So we believe the quality of our alternatives has improved since then and we fully expect that within a year, we will refinance the debt.
So that gives you a sense of how we see things we're implementing our plans in Nevada, recognizing it will take study like we did at Greens Creek early in its life, we are lowering companywide costs, increasing production in the second half realizing higher prices that are protected by puts and all of which makes heclas stronger by year end.
Before I turn things over to Lindsay, Let me talk about management changes first I'm pleased to welcome back to Heckler Lauren Roberts, who most recently was the chief operating officer at Kinross, and it's taking the role of COO at Hecla. Many of you will know Lorne from his time at Kinross, but for those of you that don't.
He brings 30 years of mining spin experienced mostly underground.
10 of it in Nevada and has good experience working in challenging ground conditions at hot mines and with mechanical mining. So he has a lot of direct experience with the issues, we had in Nevada, Tessa and the Lucky Friday.
And I say welcome back because he used to work from Hecla from 1989 to 1997, we're looking forward to his contribution.
So Larry has taken a temporary position chief technical officer will transition to Lorne, while keeping operating plans on track and having good continuity on our innovations by the way Larry has passed off responsibility to Lauren twice before in their careers.
I want to extend my personal thanks to Dean Mcdonald, who is retiring at the end of September .
He has been a strong leader for the company since joining hecla in 2006 and opening our Vancouver office.
He's led the team that established record silver reserves intend the bulk of the past 11 years, almost all from exploration and impressive achievement. When you consider the overall reserves in our industry has been shrinking.
And I urge you to read that the second quarter results. This is this will be deemed last.
Set of exploration results that he he gets the author for Hecla because of the success that we're having finding new high grade.
Underground Paso and on the El Toro vein at San Sebastian Dean's role is being divided between two of our highly skilled people keep Blair, who becomes chief geologist incurred Allen who becomes director of exploration.
With that I'll pass the call to Lindsay.
Thanks, Phil.
We recorded a net loss of 46.7 million, which represents dps loss of 10 cents for the quarter, which was higher than the market was expecting.
Included in the loss gross loss in our Nevada operations of 20 million, which included some $18 million of depreciation expense.
Because Nevada has a few reserves the depreciation expense will always be greater than that of our other operations going forward, we'd expect a run rate of approximately 14 to 15 billion for each of the next two quarters.
Also this quarter Greens Creek, we sold less base metals at lower prices and more silver at lower prices than last year. So in the case of Greens Creek. The gross profit was lower for the most part because the pricing year over year.
Also included in the net loss was $5 million related to the write down of the pay all assets and expert exploration stage project to go back that we are selling.
So the top quarter operationally of three of our minds, but for different reasons based metal pricing in the case of Greens Creek, Casa summing issues and that's about it just not seeing the gold ore grades we expected.
Turning to EBITDA for the quarter, we have calculated adjusted EBITDA of 22.9 million, some 30 million less than the prior year's quarter again for the reasons consistent with the net income variance lower operational result of Casa and Greens Creek responsible for the lower EBITDA.
We also calculate a debt to EBITDA ratio for the 12 months ended June thirtyth to be 3.9 times.
With the pause in Nevada on most capital expenditures additional revenues from higher commodity prices and if we approve the achievements improvements and the operational performance. We expect this ratio to improve in the coming quarters.
We have worked with our syndicate.
Thanks to relax the debt to EBITDA ratio, while we assess our options to refinance the bonds, which will have spoken about.
Our drawn the revolver today is some 85 million.
With 15 million of cash in the bank and we expect to reduce that net number of $70 million drawdown, the 35 million by the third quarter and reduce it to zero by year end.
Lastly, we finalize the purchase price allocation for Nevada, This quarter, and then of the county valued at 485 million.
Another took a carrying value assessment.
Given the changes Weve changes, we have currently implemented and concluded that a write down in these assets was not triggered at this time.
So overall it was a tough quarter, but we're taking the necessary actions on a timely basis that we think will improve our financial position.
We expect to be cash flow positive over the next couple of quarters. So we should so we're on the right track with that I'll pass it over to Larry.
Thanks, John Lindsay.
We've made some changes to our annual estimates by increasing our silver production estimate and we are maintaining our gold production estimates.
Going to slide eight we have made significant changes to Nevada operations as announced in early June in order to reduce the cash flow impact of the operations, while we work through a number of issues.
As described on slide eight we have nearly stopped all development.
Our plan is to mine out fire Creek by Middle of next year and are exploring options to extend its life further.
Among the issues, we face in Nevada is water keep in mind that we're not overly concerned with the amount of water, which is very small bye.
The standard of Nevada mines.
We are more focused on ensuring that our permits are sufficient to match the expected water outflow.
We are permitted to discharge 100 gallons per minute.
We have approval from the Nevada Division to water resources to increase this rate to 162 GPM. We expect approval from the Bureau of land management for this increase in the near future.
Mine is currently discharging about 90 GPM, most most of which is treated and discharge are evaporating.
Some water is low and contaminants and can be discharged directly without treatment.
As the mine expansion, north and south more inflow as expected.
The mine models are in the process of being refined but we expect inflows of approximately 300 GPM.
We are working on getting a non consumptive water right of a thousand GPM. The process of obtaining this water is expected to take 12 months.
Also in Nevada, we continue to work on a toll milling agreement for fire Creek or why is it important it could mean lower truck unit processing cost it could mean ability to process all types of or all of which could enable a reduction in the cut off grade.
Opening up areas of the mine that were considered uneconomic.
If this happens we can turn on the development to these areas quickly and get get them back into production.
For the full year as shown on slide nine we are raising our forecast of 62000 ounces.
Although there is risk in this estimate principally ground conditions, which can be quite variable I believe it is reasonable reasonable estimate due to steps that were taken at fire Creek, which include this decreasing development.
And the stope development is expected to be largely complete in September .
The all in sustaining cost after byproduct credits is projected to be under $1000 for the second half of the year.
I'm also pleased to report that the Midas mine is receiving in the first place Safety award for small underground mines from the Nevada Mining Association in September .
Moving on.
Greens Creek continues to be the main cash flow driver of the company on slide 10.
Greens Creek Silver production is up in several high grade stopes extended further than we had anticipated we are increasing our estimate for silver production to 9 million ounces. This year and base metals production is down so the net benefit is positive from a value point of view, but the cash costs and all in sustaining costs. After byproduct credits have increased because the value of the by product metals has declined this happens once in a while and this is one of those quarters. So we increased the cost estimates this year a bit to reflect this.
Moving to slide 11, the production challenges from the first quarter a category spilled over into the second quarter, which has kept production from fully recovering the principal issue has been mill availability.
Pre crushing or began in July and is planned to continue until year end.
We expect an additional 400 tonnes per day in several thousand ounces from this initiative in the second half of the year.
We also expect grade two improved by 10% in the second half.
Moving to Lucky Friday, we have raised our production estimate for Lucky Friday, which is still a relatively small amount, but it is helping to offset some of the costs from the ongoing strength.
In addition, the fabrication of the remote lean minor as complete as you can see on slide 12.
The unit looks great as you can see in the photo.
The focus now turns to operating it in every rock to test minds, Sweden in the third quarter.
Pending successful testing the plan is for the unit to be disassembled and sensor Lucky Friday and is expected to arrive in the second quarter of 2020.
Moving to slide 13, San Sebastian is on track.
The Hughes own bulk sample shown on this slide is on target and the contractor should begin the long hole mining trial soon.
Exploration drilling at El Toro is encouraging.
As El Toro permitting is on the critical path to a continued operation we are beginning the baseline work now to minimize any production hiatus.
Hecla has an option on Golden minerals, Villar, Danion mill, where we process the oxide material through 2020.
Although gold minerals has announced the potential sale of its subsidiary.
That owns the mill to outline a Mexican mining company, our Austin remains valid.
Although we are only beginning our budgetary planning for 2020, there are three new developments attack, let that give me optimism.
First the plan to move high grade forward in the mine plan at Greens Creek hits full throttle in 2020.
Second the Kasper already drilling success than the 148 and 152 zones that Dean will cover has potential to be brought into additional production in 2020.
And third the El Toro exploration. The name will also cover has the potential to extend San Sebastian production.
Finally, a personal note I welcome learned to Hecla, we worked together in both American Kinross and Im gratified to be handed off to a seasoned professional.
This is my eighth year with Hecla not counting when I worked at the far mine as a minor 1981.
Since joining hecla, we've added mines increased consistency in performance and introduced many innovations that have improves safety and productivity.
As I hand off to Lauren began contemplating retirement after 36 years in the business.
I look back with satisfaction on the work that the team has done.
I will now pass it to me.
Thanks, Larry.
Although exploration budgets have become more constrained we continue to have good success in the second quarter with drill programs at a near our minds, where we are confirming and expanding resources with the potential for increasing reserves in the near future.
A list of important drill intersections is provided in the appendix of the exploration release, which was issued on Tuesday.
At Casa Berardi, we had considerable drilling success along the main trends as shown in slide 15.
Three areas of note are the cluster of high grade underground resources at depth in the 113 through 123 zones in the West mine on the left side of the image.
In the central part of the slide high grade lenses defined closer to surface in the 124 and 128 stones are below and east of the principal pit.
And then the east mine the expansion of the high grade 148, when 52 in 160 zones.
A notable success is the quick evolution of the East mine.
Access to this part of the mine was only reestablished about six months ago.
And already drilled results as shown in slide 16 have defined and expanded a series of high grade lenses.
Extending from the 148 zone.
Along the strike length of 2000 feet. So the 160 zone.
Hi grade lenses in the 148 zone average over 10 feet in width and appeared to persist further east to the 160 zone.
But also present in the when 60 zone, our drill intervals up to 30 feet wide with good grade that may be amenable to more bulk mining methods.
At San Sebastian as shown in slide 17 surface drilling is pushing hard to extend near surface oxide mineralization, along the El Toro vein, which is about a mile and a half so southwest of the current mine.
Longitudinal shows the vein has a mineralized strike length of 5000 feet and localized high grade pods are located between the surface and the 450 and 450 feet of depth.
There is a substantial increase in the within grade of the vein, whereas strong hanging wall vein intersects the main El Toro vein.
Both veins remain open for expansion.
Significantly as shown in the cross section in Slide 18, this hanging wall vein appears high grade and merges with the main El Toro vein at depth as well as along strike.
Although both veins have additional exploration potential the current combination and configuration of veins look attractive and are being evaluated for a number of mining scenarios.
Yell Turo area May provide an extension of bauxite mine production past 2020.
It's sometimes easy to forget about Greens Creek, because it's so robust and dependable, but drilling continues to upgrade resources in the upper in central part of the mine as seen in slide 19.
Recently exploration drilling has begun to evaluate extensions to the south.
The opportunity to continue to extend mine life at Greens Creek is readily apparent in some of the stronger trends are defined with the red arrows in the slide.
Surface drilling is began south of the fire Creek mine.
In the south notice area to evaluate a series of strong geophysical targets that resemble the Gi geophysical features of the veins already being mined.
At the Hollister mine important surface drilling is about to start as we begin drilling east of the current hotter Groben resource.
We're confident we can make the hotter groben substantially larger.
This was recently reinforced by the discovery about crop along trend.
Over a mile East of the current hotter resource as seen in slide 20 of the very prominent solidified dike with veins that are reminiscent of hotter mineralization.
Over the last 13 years I've worked with a great exploration team that has been very effective at leveraging our budget to sustain and grow the reserves and resources throughout that period, regardless of commodity prices and fluctuating budgets.
I am retiring, but our succession plan has been in place for a number of years and I believe that with occurred and Keith and the rest of the exploration team the successes will continue.
And with that I'd like to pass it back to Phil.
Thanks, Thanks, Steve why don't we go ahead and open the line for questions operator.
Ladies and gentlemen at this time, if you like to ask a question. Please press Star then the one key on your Touchtone telephone.
Let's start with a question.
My question has been answered.
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Our first question comes from the line of John Bridges with JP Morgan Your line is open.
Good morning, Phil everybody.
I guess the elephant in the room is still the.
The refinery.
You mentioned that.
You options would become high quality.
As a result.
It'll prices could you give us a bit more color as to where the extent to which they things have improved and to which.
Avenues, you most focused on.
Yes, John at this point, we're still considering all all options were not at the moment.
Focusing on any one the initial thing to do was to make the changes that we've made in Nevada, and and start to generate the free cash flow and so you'll see that over the course of the next couple of quarters and then.
On the back of that we we.
We'd expect to do something.
But all all options as to how we might handle the refinancing or on the on the table Lynsey anything to add no I'd say, John the little bit as to how you will market's a little bit more positive today than it was maybe a few months ago.
So we see that as a positive for us as an avenue to refinance the loan yes, our bonds or.
I don't know trading it.
The yield that's.
Maybe four percentage points better than it was.
Two months ago. So.
We're going to we're going to get things a little bit of time.
I expect but having said that you know you will wake up and.
Be conscious of what the market's doing and be prepared to move quickly if it makes sense.
Okay. Okay, and then just as a follow up the the water situation.
What sort of non consumptive, what's your watches that you buying a range that you can put water on to like some of the other others in Nevada.
No no it's not the Larry no. It's it's it's basically because as it as it is described you're not consuming anything it's a government.
Awarded.
Water it.
Okay, Okay and.
If I'm basically came on the toll treatment do you have refractory mature you can see that would go into a toll treatment or is this.
Positioning.
Ahead of what you're going to find with current drilling.
Yes, yes, we're aware that we have.
Material that would would be great feed for.
An autoclave.
Well, we're a roaster and so we just see it as an opportunity.
Very good yeah. There there is a one head in that that's a north and as viral threats and far north of in mine.
That is in.
Hi material with a high sulfide content in fact, we've sent some of it out for testing and to third parties for their evaluation.
Okay. Thanks.
Dean Best of luck in your new endeavors. Thank you.
Thanks, John .
Thank you next question comes from the line of Matthew Fields with Bank of America Merrill Lynch. Your line is open.
Hi, Matt, Hey, Lindsay and everybody and congratulations on your on your career and good luck.
I just I don't know if I heard it correctly Lindsay did you say earlier in the call that there was 70 million drawn on the revolver as of today.
Yes, that's correct, Matt net Okay, 85, less 15 15 cash from Belgium.
Today 85 drawn less 15 of cash.
Yes.
Okay.
So as of quarter end there was.
52.
Net meaning there was more drawn less nine.
And a half million of cash.
I don't understand the net.
On to all we do is take the cash draw less the cash is what we call. The net so if you use 52 to 70, that's the increase in the net draw.
Okay.
I heard you than today have you printed a financial statement today would say 70 or 85.
85 on the drawn 50 million of cash.
Okay. Thank you.
So just.
Trying to work through the second half because if you're if you're going to have nothing on the revolver drawn that means that free cash flow generation of at least 52 million.
And even at 1500 gold and 17 silver and with the higher production at Greens Creek I still don't even get you close.
Is there an asset sale baked into your expectation.
No Theres no asset sales there is no financing its all free cash flow generation from the mines.
So then let's just worked backwards because if we're at 52 of cash flow if your guidance.
For Capex is 138 that means you have 67 of Capex to go you have about $20 million of interest that means you need 139 million of EBITDA over the second half roughly.
To get $50 million of free cash flow.
And I am I missing.
Okay. That's I think those numbers are right.
Sorry about the background noise.
Okay.
Great is there a cap is the message that the Capex guide of 138 is too high and you're going to cut that significantly.
No.
Okay.
There are no big working capital release baked baked in here.
No, there's just normal sort of working capital changes.
Okay.
All right that's a that's it for me good luck.
Okay. Thanks, Matt.
Thank you.
Our next question comes from the line of Jake.
The koski.
Capital Your line is open.
Hey, guys. Thanks, I take questions.
Just.
Looking at Greens Creek and was in line sensitivity to base metal prices have you put in place or have you put one start under putting some hedges back in place on those base metals to sort of smooth out some of that out, especially given the recent run in prices persist.
To put additional hedges and while we periodically put in hedges.
And typically they're at higher prices than where we are now.
Yeah.
Can you are you able to hear me.
Yes, yes.
Okay, there's some background noise that.
So.
So if you look at if you look at the hedges that we put in place for the most part they've the zinc hedges have been.
Roughly 100 dollar 25 per pound and.
Lead hedges have been roughly 95 cents per pound or higher.
So when when we think about.
When to put in new positions generally speaking we are.
Not putting in positions when we think the.
The exposure to the downside is less than the opportunity to the upside so its Jake I think it's unlikely that you'll see us put in many new positions.
Okay, Thats, probably certain things like the prices a little bit higher before.
Yes, we just don't while we see prices could go down some where we're not inclined to lock in these levels.
Fair enough.
And then just on the exploration front in the Bill for opening at San Sebastian It sounds like it might be a source of.
Some more oxide material there and I know, it's early but can you maybe just provide some color on what you're hoping to see regarding timing.
Maybe even costs in developing that.
Dean.
Yes, well.
Yeah, we're certainly still working on costs and.
Evaluating both open pit and underground scenarios.
When we look at in terms of permitting and acquiring the land, it's probably about a one year time frame.
And so you know we're looking at that one year and slightly beyond for be it open pit or underground EMS got it okay Thats all from my end thanks, guys.
Thanks, Mike.
Thank you. Our next question comes from the line of Cosmos Chiu with Big RBC. Your line is open.
Hi, Phil and Lindsay and thanks, and good luck to Larry Angie.
Maybe first off on Casa Berardi here.
Looking at your production in the first half as you mentioned, you'll need a better second half to hit guidance.
Could you give us a bit more color in terms of you know the higher grades coming out historically I guess as you go deeper into the mind, it will be higher grade, which.
Zones are you isn't a mine plan for the second half is it 118 123.
What is it.
I believe it's 123 I'll look it up right now.
So we'll look at will look that up kosmos to okay, well, okay. So it was pretty much at all but just just to be clear.
Depth does not seem to suggest higher grade or lower grade right Deane.
No it's really what happens I think.
In General Kosmos is you get into these zones specific zones and as you know they have fairly short strike lengths, but the down plunge direction is is whats critical and so with the 128 and and we've been mining that off and on for the last few years.
That is tends to be a high grade.
Zone with good recoveries.
Not unlike what we're seeing now with the 148 and 152 zones.
Mhm.
So Larry so first half, which which zones. They Joe mine and again what are you mining in the second half.
Well it doesn't really change is first to second half it's just.
There are.
Just basically stopes that are taken in sequence that that come out higher.
We could find them earlier, if we chose to but we'd end up sterilizing something.
Oh, no it wasn't lower grade into first half more or less plant is a is that what you're telling me Larry.
It was absolutely plan and.
It's also worth.
Noting cosmo that the.
Open pit as higher grade in the in the second half as well.
So yes, the plan has always been higher grade over the the.
During the course of the year. The thing that was not planned was lower tonnage that we have seen that in the first half of the year that was that was where we had the shortfall and as we've talked about in previous calls.
It started as a as a as a problem and that came as a result of the new crusher that we put in and as we had to then.
Modify the the mill.
And so theres those modifications have been completed and we now have an in pit crusher.
Try to catch up.
Yes, Larry anything to add to that yeah. I just took a quick scan through the what I call double digits Stopes, where were about 10 grams and it's not one particular area. There's 123 there's.
Principal of 124 area. So it's it's just just in sequence if they come out.
Later in there, but it's great. It's the same zone, we mined through all year.
And then.
You know could you remind me right now is there anything coming out of the East mine at this time.
No no.
Production yesterday, but we just we just reopened that six months ago. Yeah. Okay, and then and then you know if I remember correctly from a.
You know.
Cover the cost so for a long time.
The east mine into positive issues in terms of ground conditions, especially with graphite.
You know during your exploration and what your exploration program at this point in time is that is that still sort of an issue.
Well that was an issue for east and West and it's it's really what orders on solved.
That was sort of the big success that they had and and we've just further debt and improved upon what they've done and so now we're going to apply it to the east mine, Larry Yeah, I mean, the the graphite fall.
Extends the full length, just oh the operation.
We have a very.
Disciplined approach to going through it.
In short rounds, inspiring and shot Creed and and.
Very very procedure oriented.
And we've changed our approach to how we access the stopes now the stopes used to terminate up against the graphite Paul now were mining the other side. So we don't.
We only have to go through once.
No that's not the development. So it's it's been managed through the years very well.
Yeah, and then I guess I'm, taking a step back here in terms of the overall cost guidance for the year in 2019.
As you touched on I, just want to confirm so I guess the silver all in sustaining costs guidance increased due to buy products.
And then how about the the cost increase for the gold segment.
So so with respect to the silver is you are absolutely right. It is the.
The fact that we have lower volumes lower prices for the base metals that has caused that to increase.
Hum for the Golden aggregate.
I thought we were.
Yeah were just slightly slightly higher and it's a result of the higher Castle Castle Berardi.
For the for the course of the year.
We just.
They are not able to to maintain that guidance for cash.
And I guess going back to a previous question here in terms of.
Did the hedges.
I guess I have two questions on the hedge is number one you're talking about the gold and silver hedges I just want to make sure Lindsay is it so substantially all of the production for the rest of 2019 into the early parts of 2020 now there is a floor of 1400 Bucks an ounce and 15 13 I believe is that.
Is that the case would like so essentially yes.
Yes, that's correct okay.
And how much how much of that cost was it was expensive.
Well it always seems expensive.
Particularly when the prices are 100 there.
Dollars higher than than that.
The.
Hi, I think you know doing everything was about 12 million or something like that yes, 12 that with my understanding as well.
And you didn't did you consider like a color or you didn't want that cap.
Pretty upset correct when we didnt want the cap I mean, the way we look at it is that cost.
Or at least the way I look at it is that cost is well worth paying you can afford to pay when you have higher than than those prices right. So I would rather lose that cash and realize.
Which turned out to be significantly higher prices than we could have gotten into color and same with the same put strike. So have we haven't I have no no issue with the fact that.
But we've had to pay that price.
And retained the upside.
And then I guess moving to the base metal had just someone else asked a question, but you know right now it's about 13% I believe your base metal that's hedged.
Clearly base metal prices have been a lot more volatile than precious metal prices and as you know Phil as you mentioned at this point in time, you wouldn't consider putting on more.
Base metal hedges, but at what point would you consider it because you know that was part of the reason why you had to increase your all in sustaining cost guidance as well at Greens Creek and overall for silver.
At what point would we put new hedges then yes, yes, or no is there like a target right now is about 13% would you want it to be higher than 13% of your production being hedged.
Yeah, I'll, let lynsey.
Answer as well, but.
My view is.
We the <unk>.
Likelihood of significantly lower lead and zinc prices for a significantly longer period of time is pretty low I do expect that they're going to go down.
Some over the course of the quarter, but we're we're more.
We're not trading the the the base metals hedges were this is really just to protect ourselves and so I I don't see us putting in a lot of positions at these prices but.
Because I'm just go back to 18, what we did because the prices.
18.
For like the prices with hedge more but races.
Kinda onto addressing to us as Phil alluded to like.
Downward pressure is probably not that great. So we're fine with where we're at but.
We'd like to hedge things, but not at these prices and go back to 18, and what we did and then certainly should prices decline you could see us unwind the hedge as you've seen us do that before as well mhm yeah for sure.
And maybe one last question from me in terms of the line of credit.
Oh, you you drew about $50 million on our line of credit I believe 85 at the end of the month.
As of right now you know in the past to my understanding was that a you need a lot of credit for working capital purposes at Greens Creek between production and shipment and payment.
I guess clearly that was not.
Hundred percent of the case in Q2 I'm just wondering do you still need a lot of credit for that purpose.
As we look into the second half of 2019.
Well you know what.
Our expectation is you'll see it decline during the course of the third quarter.
And then by the end of the year that will be unutilized.
At least close to it and then if you net it against the cash so.
Do we do we need to have some level of either cash or a line of credit to deal with the Lumpiness of Greens Creek absolutely.
And so what we would expect is.
Toward the end year started next year, they will be cash that will be relying on rather than the revolver.
Great. Thank you that's all I have.
Yes.
Thank you.
Our next question comes from the line of Heiko Ihle with H.C. Wainwright.
Your line is open.
Hey, guys. Thanks for taking my questions.
Sure thing Heiko.
Most of my have been answered for some people decided to ask Fyfe Kip five questions in the queue here, but.
I apologize, bringing up the hedges again I know in the third person in the queue and I'd to do so, but you guys called it a short term for for silver and gold prices in your release.
I was going to ask you. If you wanted to continue doing it but you previously said in your prepared remarks, but I mean your current hedge goes through Q1 20.
So something likely get stung coal it next quarter or maybe even this quarter.
We cross 5000 goal to the source of 17.
At what point in time, if ever would you ever be looking into a costless color I mean, the thought being you know so you get yourself hundred 50 Bucks, an upside 150 Bucks and downside it costs, you more or less nothing and you are still pulling in the money to you know keep your balance sheet safe.
Look it's you'd never would say that never to that but but I'm very reluctant to sell upside because.
If I can if I can buy it and lock it in and I can do it at that.
At the highest price possible, then I would prefer to do that.
Because you you just see the precious metals prices move dramatically and nobody predict can predict it.
But you're going to have that a that increase.
I think probably a two weeks ago three weeks ago, there weren't very many people thinking a price of silver would be $17 and and so I think we would be.
Sure changing our shareholders. If we were to to sell that upside so I'd be reluctant to do it but lynsey and others could convince me.
I aligned with my boss Mr.
They grow this consist of better.
Fair enough.
In Nevada, or any any estimate how many people are currently actually working at the sites and then if you can break this down between fire Creek and all those sort of it might be useful as well.
And then following up on that any idea how many people are going to be their coal at December 31st.
Well well, we really don't have people working at at Hollister does to speak of so Larry where are we with fire Creek.
Total headcount is 163.
In Nevada right now.
There's a handful of minors at Midas doing some remnant mining there and nearly all of the efforts at fire Creek right now.
And.
We do expect a well actually we.
We brought in a few temp employees, because we're still selling at fire Creek, and we will be selling for another two months.
And we have had attrition.
But once we finish that selling then than.
We should be pretty pretty well right size.
As far as attrition and and.
Concern about it Oh, we have a we still have enough electricians onsite, but that's kind of the area that we just need to keep an eye on and make sure we have enough.
Okay and then just.
Sorry to bring this up again, she said there was essentially no one at Hollister. So its a five people 10 people 20 people.
At Hollister, Yeah, that's just airtight.
Yes, because remember we're at we've stopped development. So we're we're drilling from surface.
And treating water I mean, but it's just it's just basically care team and.
Remember this is heiko were just pausing as we've talked about in June .
We're fully committed to Nevada, but what we thought we could do we were not able to do so we're we're taking a step back and we're making sure we thought through how to proceed with Nevada.
Oh, Yes, no nothing has changed in terms of our view of the value.
There. So so don't misinterpret the fact that we're not actively.
Mining there that there's there's any lack of.
Lack of commitment the important thing at the moment is too.
Make sure we have our balance sheet in place those reserves the reserves the resources the exploration potential is.
He is going to still be there.
We're just having to delay the time that we're we're realizing that.
Boris actually I'll get back in queue. Thank you.
Thanks Heiko.
Thank you.
Our next question comes from the line of Anthony.
Your line is open.
Good morning, everyone.
Well good morning, with regard to where in Nevada.
The you had mentioned that you looked at the asset values I over there at Nevada, and decided not to write them down was that just your decision or indeed accounting rules and regulations prohibit you from writing down the value.
Yes, they did it add that's absolutely right you got to follow the procedures.
Provided for in gap and that's what we've done and this is the outcome that we can come to Lindsay no.
All the.
The regulations under Us GAAP.
In assessing it.
Okay very good my other questions have already been answered. Thank you and best of luck to Dean.
Thank you.
Thank you. Our next question comes from the line of Adam Graf with B. Riley. Your line is open.
Thank you Hey, Phil Lindsey Edina, Larry Thanks for taking my question most of my questions have been asked.
Just a quick confirmation so the access.
In Nevada from Hollister over to Hatter that the progress on that access has has been.
He has been halted.
That's right so weve halted that where we set it up for being able to go back in and complete it but we're we're going to manage our cash flow to make sure that we hit the numbers that I talked about earlier.
In the call.
All right and then the the the exploration slide but you show you guys showed over at a at had or with the with the out crop.
Am I understanding correctly you guys think you can extend the been known veins at hatter over to the east or you think you found something separate.
You know a parallel or fault it off.
System, there that has some surface expression.
I'm not sure we know exactly what we found we just know that that's an exciting thing to see as far away from patter as it is being given to you. What we do know there has been a few historic drill holes.
Between.
The hotter Groben resource and Deo crop that that's in the presentation and so we have a bit of information.
It's certainly a long trend.
You know that it's a fault offset of one of the hotter veins or if it's something parallel and completely new we really don't have.
The information to say that categorically, but it's certainly part of what I would.
Suggest is the hotter system.
<unk> is the is the thought there on the exploration strategy to start on the east side of what you know at Hatter and sort of start to start working your way over towards that our crop with widely spaced drill holes.
That's exactly it and at this point, we don't have a plan with respect to.
Two.
The out crop that we've seen where we're still getting assays and still trying to evaluate what it is.
And then we'd have to find the budget to spend yeah.
But certainly at this point the intention is go from known to less known.
Mhm.
And just sticking with.
Nevada for a moment.
You guys have any guidance or expectations roughly for the mining cost per tonne at fire Creek in the in the second half of ballpark.
It's roughly $300 a ton.
Pretty rough.
And where do you guys.
Is that.
Is there any future thought there when you guys have operations back to where you'd like them to be where that mining cost would be.
Yeah. That's that's that's really the question that we have to answer.
Certainly toll milling is something that could have a.
A big impact.
Given that we've got that large Midas mill and so the cost per ton is quite high the mill it.
So so.
And that's.
And of course, Lorne skin is has joined us and Lorne has quite a bit of experience in Nevada. So maybe we'll have some ideas as to how to.
Improved the cost the cost picture it.
At Nevada operations.
And just to be clear the $300 per ton. That's just the mining cost at fire Creek.
Not the not extracting milk milling rate thing else.
A million in transportation in the second quarter. It was about a $100 ton do you have something like that.
Okay, and any effort to or any thoughts about getting outside or two to told bill through the through Midas.
Yes, that's that's something that we've contemplated and certainly as prices rise.
There is probably going to be more opportunity to to do that.
And we also have the.
The mill you know another mill in Nevada.
And the Aurora mill and.
I mean, we've had people that have approached us to toll mill through that facility.
So we're working through some of those things as well.
Liberty those near term opportunities are those all.
Longer term now look I wouldn't I wouldn't put value in it.
Other than just Optionality and it just shows the sort of.
Options that we have a lot more than maybe people realize.
And then just.
If you guys permit me just one more question on El Toro in Mexico.
Are you guys does does that look.
I know in the past recent past since about you guys have been happy to have San Sebastian kind of be free cash flow neutral.
It.
It does El Toro give you the potential to to throw some significant cash flows there like San Sebastian in the earlier days.
Yes.
First I'll, just just say our expectation for San Sebastian is it's going to be a generate a fair amount of free cash flow in the second half of the year, particularly the fourth quarter.
You know as far as is longer term with Phil El Toro. It's it's still early days to be able to say, what that's going to look like we're doing the mine planning now.
Clearly, we're we're excited about its potential to to maintain oxide production, but we're not going to do it just to maintain it we're going to do it because it generates returns.
So so we see the potential for that now can it be as good as.
San Sebastian was in 2016.
That's that's probably unlikely that's a.
That year to send special generated 80 million of free cash flow. So we were not expecting that.
But you never know right Deane the.
All right perfect. Thank you so much for answering my questions.
Thank you.
Our next question comes from the line of John Tumazos, John to models Independent Research. Your line is open hi, John .
Hi, John Thank you for taking my question.
[noise] trying to phrase this in a way that you can answer and maybe I'm not clever enough to do that.
If you refinance towards a public bond.
We're guess speed that it might be 9% or if you refinanced with the bank.
Might add cost, 6% or what can you guide us for our spreadsheets heard or financing cost and 2021 and 22 two for the new instrument.
You know.
I think the best thing I can just tell you until to look at where the bonds are trading in and maybe look at some of the some of the other precious metals companies and.
It appears to me at the moment, you're talking about something with an eight handle.
And as far as far as.
And of course interest rates seem to be declining and there again the outlook seems to be pretty good to see further declines I'll. Let you, let you add to it and then.
And then as far as the banks go up.
To the extent, it's floating rate debt it could be quite quite low again, and certainly that 6% or less blends and yes, I would agree John .
There's other bond funds like ours trading out there and that gives you an idea of what we could enter into the market today.
So listen we certainly can say below nine handle tender is getting more interesting than it was maybe into two two months ago too as well.
Center of what we thought there was a financing.
Printed earlier this morning.
Sure goal did 90 million or strat landing.
Restart Madsen mine and.
Red Lake.
And I think this financing had more technical than I have fingers.
But the main part was about 6% over ly bore.
And part of it was 25 of the $90 million was a stream. So you are saying you can you're not going to have.
More technicals and fingers and its theres not going to be a stream and it's not going to be six points over LIBOR.
Simplicity is a great thing John .
I believe the answer thank you and good luck.
Okay I appreciate it.
Thank you.
At this time I would like to turn the call back over to Phil Baker for closing remarks.
Oh, thanks, very much for participating in the call.
The thing I'm struck by probably more than anything is.
Is that.
About two months ago, when we talked last we had a.
The plan that we needed to execute we are well on our way of executing that that that plan.
And.
And in the meantime, we've seen precious metals prices rise dramatically and we've seen interest rates decline. So the outlook for Hecla I thought it was it was okay. Good two months ago I think it's it's has improved dramatically over the course of those last two months and so we appreciate you following the company and we would encourage you. If you have any other questions to give Mike or I had a call and be happy to walk through that so thanks for taking the time.
Talk to you again soon thanks.
Ladies and gentlemen that concludes today's call. Thank you for participating you may now disconnect everyone have a wonderful day.