Hecla Mining Company - Q2 2023

Transcript

Operator (participant)

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 second quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-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. To withdraw your question, press Star one again. I would now like to turn the conference over to Anvita Patel, Vice President, Investor Relations and Treasurer. Please go ahead.

Anvita Patel (VP of Investor Relations and Treasurer)

Good morning, Regina, thank you all for joining us for Hecla's second quarter 2023 financial and operations results conference call. I'm Anvita Patel, Hecla's Vice President of Investor Relations and Treasurer. Our financial results news release that was issued yesterday, along with today's presentation, are available on Hecla's website. On today's call, we have Phil Baker, Hecla's President and CEO, Lauren Roberts, Hecla's Senior Vice President and Chief Operating Officer, and Russell Lawler, Hecla's Senior Vice President and Chief Financial Officer. Any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act and involve risks as shown on slides 2 and 3 in our earnings release and in our 10-K and 10-Q filings with the SEC. These and other risks could cause results to differ from those projected in the forward-looking statements.

Non-GAAP measures cited in this call and related slides are reconciled in the slides or the news release. I'd like to remind you, if you would like to have a call with the management, you can do so by using the link under the section Virtual Investor Events in our earnings release that was issued yesterday. With that, I will pass the call to Phil.

Phil Baker (President and CEO)

Thanks, Anvita. Good morning, everyone. Thanks for joining our call. This second quarter was a good quarter for safety, production, cash flow, and starting changes at Casa, but maybe the most significant event of the quarter is the restart of the Keno Mill. When you combine that with what is happening at Greens Creek and the Lucky Friday, I think that Hecla is now in another period of substantial growth in silver production reserves, and maybe even faster than what we had over the last five years. If you look at slide four, you can see why I'm saying, saying that, 'cause what that shows is what we've done over the last five years. Those, the numbers for those five years are pretty remarkable.

27% growth in revenue, 79% growth in silver reserves, 37% growth in production, $750 million of free cash flow from our, from our three mines. It's no longer a question if Greens Creek Mill can operate at 2,600 tons per day, or maybe even 2,800 tons per day. It's now more of a question of whether we can maintain mining at that rate or even higher. The Lucky Friday, without the service hoist in the bunker, which is in operation this month and the fourth quarter, respectively, is already producing about 20% more ore than 18 months ago and is at a five million ounce run rate. At the restart of Keno, we have...

are having, you know, we'll have our teething problems, but if you look, we have an exceptional district, given the grade of the ore, the recoveries that we're experiencing, and the remarkable exploration success with continuous discovery of mineralization. Over the last five years, we had that 37% growth in production, and we expect 40% over the next three years and close to 20% growth just this year. We probably will also see growth in our reserves, more free cash flow generation, and I think all of this should result in share performance, positive share performance. Hecla is a silver company with gold exposure, and we believe gold exposure will always be important to our portfolio for many reasons. It gives us diversification from the concentrate market, it hedges against silver's higher volatility, especially during recessions, it gives us scale to grow.

These are the reasons Casa Berardi is important to our portfolio. As we've indicated for the last year and a half, Casa has been impacted more than our other sites by inflation, causing underground mining costs per ton to double. Underground grades have declined as, as we expected, and tailings construction costs are higher because it requires more buttressing. While we are permitting the higher grade pits, we are moving quickly to mine only the 160 pit. Lauren's going to talk more about Casa in a moment. Now what I'd like to do is move to slide five for a few comments specifically on the quarter. I think it was a great second quarter, and I think the first half silver production is evidence of the point I started with, and that's that our silver production is growing even faster now.

With this quarter, Lucky Friday produced 1.3 million ounces, four out of the last five quarters, we've produced more than 1.2 million ounces. At that rate, Lucky Friday is close to being the thirtieth largest silver mine in the world. Just to put that into context, in 2021, Lucky Friday was producing about 40% less than what it's doing now. As I mentioned, we restarted the mill at Keno Hill, and the improvements we completed leading up to the restart are performing well. The secondary crushing circuit modifications are proceeding on schedule, the grade's better than modeled, and we anticipate being at full production by year-end. Of course, all this performance was underpinned by Greens Creek's consistent 2.4 million ounces of production and $36 million of free cash flow.

Our All-Injury Frequency Rate was the lowest in the history of the company at 1.18, an accomplishment that reflects our focus on changing behavior and engineering out risk. I think the best example of engineering at risk is the UCB mining method, which puts miners in places that are safer, doing safer tasks. We will be focused on how low the injury frequency rate can go at the Lucky Friday. Lauren, who's going to retire at the end of the year, will talk more about each property. Now, silver revenues are growing relative to gold. We're almost 45% for the quarter, and I think we'll likely have more than 55% of our revenues from silver by the end of the year.

The silver operations have good cash flow generation. If prices can strengthen a little bit, the second half should be even better. Russell will have more on this. We maintained our consolidated silver production and cost guidance. We have adjusted the production cost guidance for Casa Berardi and the production based on the impact of the wildfires and the fact that we're moving quickly to open pit-only operations. Now I'll pass the call to Russell.

Russell Lawlar (CFO)

Thanks, Bill. I'll start on slide seven. Hecla has long been known as a leader among the silver miners and the largest U.S. silver producer. As we look at this slide, it is easy to see why we're over the past six months, the margin at our silver mines was 56%, and they've already produced more than $105 million of free cash flow this year. We're excited to see what Keno Hill will add to this profile. Over the past three and a half years, the Greens Creek and Lucky Friday mines have generated more than $560 million of free cash flow.

This has allowed us to invest in exploration to grow our production and silver reserves, as well as acquire and invest in Keno Hill, which we anticipate will both add to our production profile and improve our balance sheet and debt metrics. This leads me to slide eight, where I'll discuss our first quarter revenue profile and balance sheet. Silver accounted for 40% of our revenues in the first half of the year, which continues to show the strength and consistency in our silver mines, with approximately 34% of our revenue coming from gold and 26% from base metals. We ended the quarter with $107 million of cash on our balance sheet and have liquidity of $219 million.

We also monetized our zinc hedges for approximately $7.6 million, as the zinc price declined to its lowest point in the second quarter since April 2020. The strength of our balance sheet and financial flexibility with a net leverage ratio of less than two times remains one of our most important objectives. As of the end of the quarter, we were slightly higher than our goal. This is primarily due to the suspension of mining operations in June at our Casa Berardi mine due to Canadian wildfires, as well as our continued investment in Keno Hill. I expect that as we come into the third quarter, this will revert to being less than two times due to the production of both of these mines during the quarter. I'll now turn the call to Lauren.

Lauren Roberts (COO)

Thanks, Russell. Let me start by saying it's very satisfying that our succession and development planning have put us in a position to fill the VP Ops role and to backfill that vacancy internally. Carlos and Chris have steady hands and will do a great job. As for me, I haven't hung up my spurs just yet. There's a lot to accomplish in the next five months, and with that, I'd like to turn to slide 10. Greens Creek, our cornerstone asset, turned in another solid quarter with production of 2.4 million ounces of silver and free cash flow of $36 million, for a total of more than $73 million in free cash flow for the first half of 2023. Gold production remained strong at 16,000 ounces due to better grades than planned and improved performance in the gravity circuit.

Cash cost for the quarter was $1.33 per ounce, and the AISC per ounce was $5.34. Both metrics are slightly higher than the previous quarter, primarily due to a lower zinc byproduct credit due to lower zinc price. Capital spending was $8.8 million in the quarter, for a total of $15 million for the year. Our expected capital spend at Greens Creek is now between $49 million-$52 million for the year, which is a slight decrease over the previous guidance. We are increasing our gold guidance for Greens Creek and lowering our AISC guidance because of the lower sustaining capital spend planned for the year. Moving to slide 11, Lucky Friday produced 1.3 million ounces of silver at an AISC of $14.24 per ounce in the second quarter.

This quarter marked the fifth consecutive quarter of silver production, exceeding one million ounces, the highest quarterly production in the past 23 years, and a new safety record with an All-Injury Frequency Rate of 0.52 at the end of June, a remarkable achievement. Capital spending at the mine was $16.3 million as we focused on two key projects: the service hoist, which was completed earlier this month, and the coarse ore bunker, which we anticipate completing by the fourth quarter. The service hoist is expected to debottleneck our production hoisting capacity, while the coarse ore bunker will decouple the mine and the mill by adding the capacity to stockpile ore for multiple days. Both projects are critical to achieving our production goal of 425,000 ore tons per year, the rate we expect to achieve by year-end.

Free cash flow generation for the first half of the year was $34 million, reflecting the mine's strong performance during the year. We are reiterating the production guidance, increasing the cash cost guidance for 2023 to $4.00-$4.70 per silver ounce and all-in sustaining cost of $11.50-$13.00 per ounce. This increase in cost guidance is due to higher labor costs of $2.5 million related to the wage increases in the new collective bargaining agreement, lower zinc byproduct credits because of lower zinc production and prices, higher sustaining capital related to the timing of mobile equipment deliveries, and increased development to achieve our throughput target. We're increasing the capital guidance to include higher sustaining and growth capital spend, which is primarily related to our two major debottlenecking projects.

Moving now to slide 12, at Keno Hill, we remain on track to achieve full production in the fourth quarter. We restarted the mill in the second quarter using lower-grade stockpiled ore for the start-up. The mill produced 184,000 ounces in the quarter while operating with a temporary portable crusher. The next milestone in the mill is to complete the secondary crusher improvements, which we anticipate in the third quarter. We expect capital spend at the mine to be $47 million-$49 million for the year, slightly higher than our initial guidance, due to increased development and mill improvements. I'm encouraged by our progress at Keno Hill. While we have a limited sample size, the resource model is performing well through the second quarter. The mill-to-model reconciliation is showing slightly fewer tons at better grades for the same silver and lead content and more zinc.

The improvements we made in the mill prior to restart, including advancing the level of process control, are performing as expected. Silver recovery met and exceeded our target of 94%, and the concentrate quality is very good. We're looking forward to commissioning the upgraded secondary crushing circuit in the third quarter and expect it to improve the reliability and efficiency of that circuit. In the mine, we are going through the typical ramp-up learning curve. We've learned how to manage the ground in the primary development headings and are now working through the process in the ore headings. The Bear Zone is requiring more shotcrete than expected, and that is being incorporated into the mining cycle. Our key underground infrastructure project should be completed in the third quarter, and we look forward to a strong finish for the year.

We are reiterating our production and cost guidance at more than 2.5 million ounces and an all-in sustaining cost between $12.25 and $14.75 per ounce. I'm excited about the future of Keno and expect the mine can produce up to 4 million ounces in 2024. On slide 13, the left-hand photo shows an excellent example of very high grades we're encountering in the Bear Vein. The photo's a little difficult to discern in the presentation, but you can see a lot of glean in there, and that's a 160-ounce space, which is pretty impressive. The right-hand slide shows our progress on the secondary crushing circuit, where we're replacing most of the components except the crusher itself.

Turning to slide 14, Casa Berardi produced approximately 19,000 ounces of gold for the quarter at an all-in sustaining cost of $2,286 per ounce. Production was lower due to wildfires in Abitibi, which caused access road closures for the majority of June. As Phil said in his comments, Casa Berardi has experienced declining head grades and increasing cost pressure over the past several years. As noted in our technical report, Casa becomes an open pit-only operation in the future. After careful evaluation, we decided to make some changes now to better prepare for that future. We conducted a stope-by-stope margin analysis of the remaining underground reserves and resources during the quarter. We concluded that the East Mine did not yield attractive economics and closed it. For the West Mine, the analysis showed attractive economics until about mid-2024.

These changes put more production pressure on the One Sixty Pit, and we made the decision to begin the process of insourcing the mining there. We authorized the purchase of $16 million in surface mobile equipment, about $12 million of which has been delivered, and we are busy assembling it and training operators. As our crews ramp up and the balance of the equipment is received, we expect to take over all of the open pit mining by the end of 2024. Much of the waste rock being produced by the stripping is being directed to the construction of tailing Cell seven this year and through calendar year 2026. We're adjusting our production cost guidance to reflect these changes.

Previously, our plans modeled with the 160 pit, combined with the underground production, would act as a bridge until we get the permits to mine the higher-grade open pits. With the changes I just described, it will not be possible to avoid a production gap, which we estimated about two years between 2028 and 2030. Once 160 is fully mined, we anticipate permitting it as our long-term tailing storage facility for the higher-grade pits. Until then, we will build multiple raises on our existing Cell seven tailings facility. In consultation with our Engineer of Record and Independent Review Panel, we've determined that increasing the height of the facility will require us to build a substantial buttress for it. That capital has been reflected in our ongoing plans. I think the way to think about Casa is in 3 phases.

Over the next four years, we'll make some modest investments that are returned in the period to produce the remaining permitted reserves and resources. There will be a period of investment while we complete the permitting of the higher-grade pits, invest in the infrastructure and equipment necessary to complete the transition to a fully surface operation, and to expose the first ore. Once the first ore comes, and that's expected in 2030, positive free cash flow generation follows quickly and then builds over the coming years. Before I pass the call back to Phil, I want to emphasize Casa's long reserve life and the significant exploration potential on a large land package on the Casa Berardi break. We're making the right decisions today to put Casa back on the path of free cash flow generation and a brighter future.

With that, I'll pass the call back to Phil.

Phil Baker (President and CEO)

Thanks, Lauren. Turning to slide 15, we're reiterating our silver production and consolidated AISC guidance. With our changes at Casa, we're revising our three-year gold production and cost guidance for the year. Capital guidance is increasing to $225 million-$235 million, mostly due to the increase at the Lucky Friday and at Casa Berardi for the reasons that Lauren has explained. I'd like to go to slide 16, and before I end my remarks, I want to emphasize the critical role that silver plays in the transition to renewable energy. Silver demand in photovoltaics was about 140 million ounces in 2022, and that's about 12% of total silver demand. In 2023, some technologies that are known as TOPCon and HJT- are expected to account for 80% of all the new photovoltaic manufacturing facilities.

These two technologies use 30% and 120% more silver, respectively, than the currently widely used PERC technology. Silver demand in solar is set to grow further as the transition to clean energy accelerates. I'm not going to be surprised if 30%, maybe even 40% increase in demand in silver per solar happens this year or next, raising solar to more than 15% of total silver demand. If the economy slows, I'm confident that the commitment that's been made to renewable energy will cause the growth of silver and solar to continue. It seems inevitable that solar is going to swamp other silver demand categories, with maybe the exception of investment demand. With that, Regina, I'd like to open the call to questions.

Operator (participant)

At this time, if you would like to ask a question, simply press star one on your telephone keypad. Our first question will come from the line of Lucas Pamatat with Canaccord Genuity. Please go ahead.

Lucas Pamatat (President and Co-Head of Canadian Investment Banking)

Good morning, and thanks for taking my question. Just wondering about Casa Berardi. You know, could you provide more color on how much you expect to invest in, in those 3 years that the mine is closed down, and over the next 18 months? Because I think you had previously said it would cost $100 million-$220 million to transition to open-pit mining. Just wondering if, if that number is still valid, and if so, how much of that is baked into the revised CapEx guidance?

Phil Baker (President and CEO)

Yeah, the short answer is that number is still valid, and that was without stripping. If you, you know, add the stripping costs and it's order of magnitude, $200 million-$250 million. This is out in 2028, 2029, maybe a little bit in 2030. So it's not anything that's an immediate capital outlay. We are making some relatively small, you know. The free cash flow of Casa does not cover all of the capital costs that we'll make in this year and next year, but it's a relatively small amount. I think that each year it's some $30 million-$40 million.

Then the following years, it's free cash flow positive, and we'll, we'll return that capital that we're investing in 2023 and 2024 over the, you know, 2025, 2026, 2027 time frame. 20, yeah, those three years.

Lucas Pamatat (President and Co-Head of Canadian Investment Banking)

Got it. Thanks. Just one more from me. You had talked in the past about how you were hesitant to shut down the mine just because of, you know, due to the sort of demand for labor in that area. You know, what are you planning on doing with those employees, or how are you planning on retaining them, I guess?

Phil Baker (President and CEO)

Well, you know, the, the need to retain employees is, you know, certainly something we want to do and something we want to, you know, we're, we're the largest private employer in the region. The reality is that, that the mine has to be economic. So we went through and looked very carefully at what stopes we could mine, made the determination of the need to shut down the East Mine, and we'll mine the West Mine stopes that are economic. We'll have that workforce through that, that period of time, and then we'll move to open pit, an only open-pit mine. So we'll have certainly some of those people that will transition into those, those roles. Warren, what would you like to add to that?

Lauren Roberts (COO)

We've already begun that process of transitioning some of the underground workforce into the open, open-pit roles. A significant number of people that were displaced from the East Mine are going into the new fleet that we purchased to operate the new fleet.

Lucas Pamatat (President and Co-Head of Canadian Investment Banking)

Got it. Thanks, guys. I'll get back in the queue.

Operator (participant)

Your next question comes from the line of Lucas Pipes with B. Riley. Please go ahead.

Lucas Pipes (Managing Director)

Thank you very much, operator. Good morning, everyone.

Phil Baker (President and CEO)

Hi, Lucas.

Lucas Pipes (Managing Director)

My, my, my first question is also on, on Casa and, and kind of thinking through the transition there. It was touched on a little bit in the prior question in terms of, of, of transitioning labor. Can you frame up what the net impact would be over the coming years and, and how you would manage, manage that? Is there kind of idle mine cost for the underground works following the exit from underground operations? Just trying to understand if there's anything we need to model longer term as it relates to the underground workings. Thank you very much for that.

Phil Baker (President and CEO)

Lucas, before you... can you repeat the, your second question? I'm not sure I understood it.

Lucas Pipes (Managing Director)

No, essentially, when you abandon the underground section of Casa, is it, do you just pull the plug and walk away from the underground workings, or do you have remaining costs, maintenance costs for the underground works, even as you don't actively produce underground anymore?

Phil Baker (President and CEO)

It does not sterilize the underground. We will have to make a determine in the, in the future as to, you know, what level of maintenance do we do on, on the underground. You know, stay tuned. We'll see where we, where we come out on that. You know, certainly, what we will do, we'll, we'll attempt to maintain the ability to, to go back into that mine, underground. Different price conditions, different cost environment, you know, the underground could be revived, plus exploration. We're continuing to drive the exploration drift to do further drilling to the, the west of where we're currently operating in the, in the West Mine. Stay tuned for, for that, and that will occur over the course of the coming year.

You know, with respect to the employees, I, I, you know, the, the, the fact that we are such a large employer, the issue is not going to be, you know, having enough employees, it's the fact that we're having to reduce that number. That will occur over the course of the coming year. You know, I think ultimately, we end up with, what? Roughly half the, you know, the... You have it, Lauren, go ahead.

Lauren Roberts (COO)

Yeah. In terms of company employees, we, we started the year at, at about 650 company employees, and, over, you know, we're now down to about 522, just to put things in perspective. over the course of the year, there aren't many more changes, honestly, normal attrition. The next change will come with the closure of the, of the West Mine.

Lucas Pipes (Managing Director)

Got it. Thank you very much for the detailed responses. For my second question, I do wanna stay on the labor topic. So in the past, you had mentioned labor constraints, especially on the skilled side, and I wondered if you could give us an update from Greens Creek, Lucky Friday, Keno, how things are going on the labor front, and I'll leave it there for now. Thank you very much.

Phil Baker (President and CEO)

Sure, Lucas. You know, we can talk about, I guess, in general, and then maybe, Lauren, you can add if there's anything specifically. But in general, we've done a very good job of attracting, the, the, the people that we need, at the, at the mines. You know, I think, I think there's been a, the turnover rate at the Lucky Friday, for example, has fallen to the sort of levels that we've seen in the, in the distant past, you know, 10% or less sort of, sort of turnover rate. Frankly, the biggest issue we have is with, the technical people, engineers, geologists. That's more of a challenge at the moment.

You're always gonna have difficulties with mechanics, you know, very skilled miners, but we've done a pretty good job there, where we have some vacancies is really in the technical areas. Lauren?

Lauren Roberts (COO)

Yeah, broadly, I would say that what we're seeing it be less difficult to fill those roles over the past year than it was, say, the prior to. Not to say that there isn't still competition, but we're pretty much at staffing levels everywhere, and we're able to, to find folks, and we supplement in terms of the skilled trades on contract when we need to, but it, it hasn't been a, a material impact to the business at this point.

Phil Baker (President and CEO)

We need schools to put out more engineers and geologists, right?

Lauren Roberts (COO)

That's exactly right. Yep. That, that's where the, the skill gap really is on the technical side. There's, there's a bunch of gray hairs in the head count, so we're, we're doing all right with that.

Phil Baker (President and CEO)

Yeah.

Lucas Pipes (Managing Director)

I appreciate the color, and I think I'd mentioned before, I know what, what degree I will recommend to my children. Thanks again, and, and, and best of luck.

Phil Baker (President and CEO)

I hope they like it, Lucas.

Operator (participant)

Your next question will come from the line of Joseph Reager with Roth MKM. Please go ahead.

Joseph Reager (Managing Director and Senior Research Analyst)

Hey, guys. Thanks for taking the questions. Kind of following on a little bit of that, the labor question, you know, with the shutdown of the East Mine, will there be any changes in the labor force at Casa in Q3? Also on that, on the East Mine, will there be any charges taken for the closure of that?

Phil Baker (President and CEO)

The answer is no to both questions. We, we don't anticipate any additional steps labor-wise, nor is there a impairment charge.

Joseph Reager (Managing Director and Senior Research Analyst)

Okay. Compared to the February, I think, 2022 technical report you guys put out on Casa, how different will the mining rates be as you switch to, you know, fully open pit in 2024, compared to what was in that document?

Phil Baker (President and CEO)

Fundamentally, there's really just two changes to that document. One is, the underground production that's shown in there, will not occur past 2024. That was, I think, originally going to about 2030. There's additional capital that, that will be re-reflected. Otherwise, it's, it's the plan that we, we have always had. Lauren, anything to add? Russell, anything?

Lauren Roberts (COO)

I would say in terms of the immediate changes, with, with the shortening of the underground, we are accelerating the, the one sixty pit, which is why we, why we purchased the equipment. For context, the acceleration is not massive. We go from, you know, circa 12 million tons moved this year to a little under 20 next year. So that's not a, that's not a, a huge change. Then the following, the following couple of years, the, the rate drops off, and, and we'll be fully in sourced at that point in time.

Joseph Reager (Managing Director and Senior Research Analyst)

Okay. All right, thanks for help there. Then, on Keno, obviously, great to see it started up early. I think you guys were originally targeting Q3, you know, how, how confident are you guys in, in the full year guidance since you started early, is there any chance for upside to it? You know, are things going smoothly to start this quarter to, to achieve it?

Phil Baker (President and CEO)

We're, you know, we're confident in the, in the guidance at this point, but it is a start up, and so you, you know, will be a function of what we see as the, as the, the ability to put the tons in the mill and, and what the grade is gonna be and the, and the recoveries. We certainly are learning as we, as we go, but yeah, there isn't anything that would cause us to say, let's change something at the, at the moment. Lauren?

Lauren Roberts (COO)

No, nothing to add to a lot. That's correct.

Joseph Reager (Managing Director and Senior Research Analyst)

Okay. Thanks, guys. I'll turn it over.

Operator (participant)

Your next question will come from the line of Mike Parkin with National Bank. Please go ahead.

Mike Parkin (Mining Analyst)

Hi, guys. sorry to, to beat a dead horse, but I got a couple of questions on Casa as well. you've kind of indicated where you started the year, unemployment, where you are now. Can you give us a sense as of, say, 2025-ish, how many employees you'd expect to have? Is it still around just over 500, or would it be even lower?

Phil Baker (President and CEO)

It's, it's sort of in that range that we would, we'd have. Remember, we're insourcing the mining. Work that's done by contractors will be done by Hecla employees.

Mike Parkin (Mining Analyst)

Okay. Okay, and then with respect to your reserves and resources now, is there gonna be any reclassification of any of the ounces that fit in the underground categories into potentially open pit?

Phil Baker (President and CEO)

We'll not be, we'll not go into open pit, but there will be a reclassification of reserves to resources that from the underground.

Mike Parkin (Mining Analyst)

Right.

Phil Baker (President and CEO)

It's relatively small. My recollection is it's 10% or 15% of the total. It's, it's small.

Lauren Roberts (COO)

1.7 million tons. It's not a big number.

Mike Parkin (Mining Analyst)

Okay. In terms of what you're planning to mine with the future open pit, is that what we're seeing in the inferred resources right now?

Phil Baker (President and CEO)

Yeah, it's in the reserve. Yeah, it's in the reserve, and it's, you know, what, 3-gram material to, so, so the current 160 pit is 1.7 grams, 1.8 grams, something like that. When we go into the Principal and the, and the West Mine Crown Pillar pits, significantly higher grade, and the strip ratio is, particularly on the Principal pit, is quite attractive.

Mike Parkin (Mining Analyst)

That was actually gonna be one of my questions. You know, historically, you've had quite an elevated strip ratio. Can you give us just a general sense of what the life of mine average would be?

Phil Baker (President and CEO)

You know, I don't remember that, but I-- but Principal, Principal is about seven to one, and the West Mine Crown Pillar is a multiple of that. I don't remember what it is. 22 to 1. That's in the technical report. Nothing, nothing has changed with, with respect to... You know, the timing of those pits are as described in the technical report. Really, the big change in the technical report is the underground being shortened and the 160 pit being advanced, and more, more capital for the Cell 7, the vet you're seeing at Cell 7.

Mike Parkin (Mining Analyst)

Okay. the, the decision to move ahead with this, is there, like, a minimum IRR threshold that you're using to justify it? At what silver price would that be done at?

Phil Baker (President and CEO)

Well, it's, you know, it's a gold asset, so, so.

Mike Parkin (Mining Analyst)

Very gold.

Phil Baker (President and CEO)

You know, the real decision in terms of, of the big capital outlay really doesn't happen until 2027, 2028. Now, between now and then, it is cash flow positive. You just end up having those 2 years where you've got to make a capital outlay. While we expect that this will go forward, you know, certainly a different decision, if conditions are different at that time, could be made. The reason we expect to go forward is that's very high-grade open pit material. It's very economic, you know, it's generating, you know, according to the technical report, I want to say $1 billion plus or minus free cash flow over, over the inclusive of the capital.

It's a very economic set of pits.

Lauren Roberts (COO)

Okay.

Phil Baker (President and CEO)

The decision, decision, the ultimate decision is made in, in 2027, 2028.

Lauren Roberts (COO)

Okay.

Operator (participant)

Again, for any questions, please press star 1, our next question will come from the line of Heiko Ihle with H.C. Wainwright. Please go ahead.

Heiko Ihle (Managing Director and Senior Mining Analyst)

Hello, everyone. Sorry for, in case I asked something that's been asked before, I got on a little bit later. I was on another call, so sincere apologies if that were to happen here. Can you provide some color-

Phil Baker (President and CEO)

Hi, Heiko.

Heiko Ihle (Managing Director and Senior Mining Analyst)

Yeah. First time that happened to me on, on your call. Can you provide some color on the costs of labor, parts, and, and so on for your new mining operation in the Yukon? I mean, I think by now you'll have a pretty decent sample size for what actually transpired versus what you, you had modeled with, you know, output costs. Anything else that you think would be good to pass on to the analyst community with starting up operations that you maybe didn't expect? I don't know, availability of labor, bottleneck for parts, that kind of stuff.

Phil Baker (President and CEO)

Well, I guess the first thing I'll say, Heiko, is that we've been fortunate in that we've not had a huge turnover at Keno. There was a cadre of people there, and they wanted to be there, and it's a pretty cool place, and, you know, they recognize the sort of grades. We've been fortunate in that the turnover rate has not been that high, and we have been able to attract, you know, technical people to the site. Certainly, the, the issue is it's a, it's a rotational schedule, so you've got to have basically twice as many people as you would need for a, you know, an, an operation that does not have that rotation.

It is, you know, it's certainly in the, in the Yukon, but, you know, c-comp-wise, I think we're, we're competitive. I don't, off the top of my head, can't tell you where, where it, it stands. Any, do you have any color, Lauren?

Lauren Roberts (COO)

No, not, not from, from that perspective. I, I would say that we've really not had trouble staffing, either, miners or technical people.

Phil Baker (President and CEO)

The, the other thing is there's been some other operations that have closed down, and that actually has, you know, given us a supplement of quite a few folks, so the Minto operation.

Heiko Ihle (Managing Director and Senior Mining Analyst)

That's quite helpful. Thank you. Moving on from that, I, I know everyone else was, was focused on Casa, at least on the questions that I heard. Can you walk us through your exploration plans for the Bear Zone versus the Townsite Zone for the remainder of the year? just when it comes to, you know, maybe meters and, and, and holes and, and even money spent?

Phil Baker (President and CEO)

I'm sorry, which? I, I, it was muffled. Which, which zones?

Heiko Ihle (Managing Director and Senior Mining Analyst)

The Bear Zone versus the Townsite Zone.

Phil Baker (President and CEO)

Oh, okay. Well, you know, look, we have so many targets that it's, it's, it's a challenge. And so there actually will be a drill is now moved from those two zones to the Chance vein, which is off the, is a little bit further, further afield. We're getting great results. One of the things we're going to try to figure out is how we might drill in the winter. You know, should we be drilling in the winter? I guess stay tuned for that. You know, our total spend in exploration for Keno Hill is-

Heiko Ihle (Managing Director and Senior Mining Analyst)

3.7.

Phil Baker (President and CEO)

$3.7 million. We don't have a huge budget, budget there, but it will, it will expand if we start drilling in the winter, and plus, we'll start to have access underground. We've got platforms that we're waiting to get access to, but we'll, we'll be getting access to those fairly quickly. You'll see a little bit of drilling in the fourth quarter from the underground that more drilling as a result of those, those underground platforms.

Heiko Ihle (Managing Director and Senior Mining Analyst)

I wasn't going to ask this until you just brought it up, but what is the, the, the cost differential between winter drilling and, and summer drilling, approximately?

Phil Baker (President and CEO)

I couldn't tell you other than it's, it's, it's more, and the big issue that they have...

Heiko Ihle (Managing Director and Senior Mining Analyst)

Sure

Phil Baker (President and CEO)

... is just managing the water because it gets so cold. Remember, it's minus 40, 50 degrees on occasion there. Having said that, we experienced that at Casa, and we've been, and we actually do, all of the surface not all of it, but almost all-

Lauren Roberts (COO)

Preferentially in the winter.

Phil Baker (President and CEO)

Yeah, in the winter, because of the swampy nature of that, that area. We, we, we have the skills and the experience to, to do it. We just have not done it there. I say we, Alexco did not do it there. We, we're I think it's likely that you'll see us start to do some.

Heiko Ihle (Managing Director and Senior Mining Analyst)

That's, that's very helpful. Thank you. I will get back to you.

Phil Baker (President and CEO)

Thanks, Heiko.

Operator (participant)

With that, I'll hand the call back over to Phil Baker for any closing remarks.

Phil Baker (President and CEO)

Okay. Well, thanks very much, Regina. I appreciate the questions. You know, I, I, I hope that you'll think about the five years that we've you know, last experienced and the accomplishments that we have had. Because I think we're in a position to, you know, see that same sort of experience where we see the growth, the dramatic growth in our, in our silver production. The fact that we have this silver production in the US and in Canada is more meaningful today than it was five years ago. You know, we really have a group of people that is, you know, very capable.

They like working for Hecla and working for a company that has the history and the expertise that we have, where we're able to do things like the UCB method of mining at the Lucky Friday. Stay tuned. We're, we're certainly available for, for questions. We have, we have some time set up for analysts, shareholders, anyone who's interested to be able to talk to Lauren, Russell, or I. Please, please make a request to be on one of those calls. With that, have a good rest of your day. Thank you very much.

Operator (participant)

That will conclude today's conference call. Thank you all for joining. You may now disconnect.