Hecla Mining Company - Earnings Call - Q3 2019

Transcript

Speaker 0

Good morning, ladies and gentlemen, and welcome to the Hequa Mining Company Third Quarter Financial Results Conference Call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Mike Westerlund, Vice President of Investor Relations.

Speaker 1

Thank you, operator. Good morning, everybody. Thank you for joining us for HECLAS Third Quarter twenty nineteen Financial and Operations Results Conference Call. Our financial results news release that was issued this morning before market opened, along with today's presentation and the Casa Berardi East mine exploration press release from Tuesday, are available on our website. On today's call, we have Phil Baker, President and CEO Lindsay Hall, Senior Vice President and Chief Financial Officer Lauren Roberts, Senior Vice President and Chief Operating Officer Kurt Allen, Director of Exploration Keith Blair, Chief Geologist and Larry Radford, Chief Technical Officer.

Any forward looking statements made today by the 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 ks, Form 10 Q and in the forward looking disclaimer included in the earnings and 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 at www.heclamining.com.

Finally, in our filings with the SEC, we are 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 will pass the call to Phil Baker.

Speaker 2

Thanks, Mike, and good morning, everyone. As you can see on Slide four, the third eventful quarter for Hecla. We reversed the outspend, generating $29,000,000 of free cash flow. So our as a result of that, we were able to reduce our net revolver borrowing by $26,000,000 We generated about $70,000,000 of adjusted EBITDA. We reached an agreement with the union, a tentative agreement with the union at the Lucky Friday.

We expanded Casa Berardi's East Mines high grade mineralization and that mineralization could have a material effect on future production potentially as early as 2021. And we made great progress on San Sebastian's Hugh Zone and El Toro where decisions on both could be made next year. So let me take a moment and tell you where things stand with the union. We're glad there's a tentative agreement between the union's negotiating committee and the company that can be put before the membership for a vote. While neither side got all that it wanted, we think this agreement is consistent with agreement at other North American mines unionized or not and puts the Lucky Friday on a path towards long term success.

We don't know when or even if it will be brought to a vote by the membership but we hope it soon. Lucky Friday being fully operational will be good for our workforce, our shareholders and the Silver Valley community. It's just a good thing for everyone. Now this quarter came in largely as expected. We expected to generate this amount of cash flow and EBITDA due to our visibility of how these mines operate.

With the exception of Nevada, we have operated these assets for six to sixty one years. We know generally what to expect and most of the issues we must deal with. An example of an issue are shipments at Greens Creek. There's always a quarter or two every year where we have a timing issue. This quarter we had a timing issue because a customer declared force majeure which delayed our ability to nominate a ship and then weather issues delayed its coming into our port at Greens Creek.

And so the concentrate didn't depart until October. In response to that, we sold the concentrates to a seller, to a trader, we received the cash and we recognized deferred revenue. But it didn't show up as revenue, it was deferred. So it will show up in the fourth quarter and Lindsay is going to talk more about this. So what do we expect for the rest of the year?

Well, our production and cost estimates haven't changed and we still expect no revolver debt at the end of the year. We also expect sometime between now and the middle of next year to refinance the senior notes, which have been trading just below par since our last earnings call, significantly better than where they traded after our Q1 earnings. The improvement in the bond market for us and the bond market in general, combined with our stabilized financial performance and progress on alternatives to the bond market gives us confidence that we can refinance with a reasonable deal. So our refi expectations are unchanged. Now as you can see on Slide five, the share price is above where it was after the first quarter news release.

And we believe this shows along of course with higher metals prices that like the bond market, the equity market has recognized the turnaround that's underway. Our share price has risen over 80% since our June Nevada announcement was made and we hope this continues, particularly if we continue to deliver on our plans. Now before I turn the call over to Lindsay, I'd like to thank Larry Radford for his service to Hecla. He advanced Greens Creek, Casa Berardi, San Sebastian, Lucky Variety to all become mines with great futures. And Larry, you've been really helpful in the transition to Lauren.

And so we wish you well in retirement. Now I'll turn the call over to Lindsay.

Speaker 3

Thanks, Phil, and good morning, everyone. We're happy with the quarterly performance of the assets and the resulting strengthening of the balance sheet. The $55,000,000 of third quarter cash flow provided by operating activities was higher than the first and second quarters and after deducting $26,000,000 of quarterly cash expenditures for the quarter resulted in us generating $29,000,000 of free cash flows before financing transactions and $24,000,000 after. This was accomplished in a number of ways. Firstly, you may recall that we projected our second half would be stronger than the first, particularly for gold production.

And in Q3, have produced 16,500 more ounces than the second quarter of this year. This combined with higher metal prices added almost $30,000,000 more revenue than this year's second quarter. The cost of sales was about $10,000,000 less than Q2. As Phil mentioned, in this quarter, we sold two parcels of lead and zinc concentrate out of the Greens Creek mine and received cash in the quarter, but we'll record the sale during the fourth quarter. The sales recognition was deferred as a ship carrying the concentrate arrived late into Greens Creek Port due to weather, resulting in its departure a couple of days after September 30.

Hence, the reason for on the balance sheet, you see a line item called deferred revenue of $20,000,000 As you can see on Slide eight, silver margins are up over last year's Q3 46% because of higher prices and lower cost per ounce due to the byproducts. Gold margins are almost up the same amount due to higher prices. But the most telling thing is the improvement in margin over the past three quarters when gold margins were essentially eliminated. This reflected in our EBITDA and cash generation. CASA we knew we would improve.

That was the plan. But for Nevada, we had to take the step of slowing down activity until we develop a new more achievable plan. This quarter's increase in the margin demonstrates progress towards our leverage goal of two times net debt to EBITDA. Clearly, we're not there yet on the last twelve months basis. But with this quarter and what we expect in Q4, we are certainly headed in the right direction.

Looking forwards, we expect a strong fourth quarter which should lead to full repayment of the revolver and some cash on the balance sheet. Subsequent to the end of the quarter, we purchased additional puts for a forecasted production of gold and silver in the 2020, establishing a solid floor of revenues into the near future. All of these initiatives are focused on ensuring that when we enter into the financial markets to refinance the existing $500,000,000 we do so from a strong financial position. As an example, the revolvers are forecasted to be paid down by year end and are projected needs for liquidity purposes of a revolver is no more than $150,000,000 essentially freeing up $100,000,000 of available capacity that we currently have with the banks, which could be reconstituted as a term loan. This again provides another potential option available to us if we choose to refinance a portion of bonds rather than refinance the entire amount through the capital markets.

As well with our debt to EBITDA ratios improving and the tentative agreement on Lucky Friday, we anticipate refinancing the bonds on a timely basis and at an appropriate cost of funds. Lastly, as you can see at the bottom of the chart of the slide that our bonds are performing much better than they were in June. So it was a strong third quarter, and we anticipate a strong fourth quarter as well, setting us up for 2020. I will now pass the call to Lauren.

Speaker 4

Thank you, Lindsay, and good morning, everyone. I've been on the job as COO for a little over three months. I spent time at all the mines and would like to offer my perspective on each. Starting with Greens Creek, the mine is performing very well. The new mine plan we detailed with the forty three-one hundred one in April reflects the continuous improvement culture at Greens Creek.

We saw the opportunity to reduce development and better utilize people and equipment with a new mine sequence that advances the high grade zones and increases cash flow. Results is an increase in the mine's value while we continue to extend the mine's life. This is important because Greens Creek represents about 40% of the revenue and is a consistent generator of free cash flow. I see that continuing. In the third quarter, the mine produced 2,500,000 ounces of silver and over 13,000 ounces of gold.

Casa Berardi is another important mine for the company, as shown on Slide 12. The revised technical report earlier this year outlines the longer expected mine life and the importance of both underground and open pit production. The mine produced 36,500 ounces of gold in the third quarter and had a higher level of capital than usual, including $6,300,000 for a tailings pond expansion and about $2,500,000 in equipment purchases. We talked about the mill issues earlier this year. I think the team at Casa did an excellent job of nearly doubling the throughput of the plant over the past few years with very minimal capital investment.

With our throughput target insight, we will turn our attention to improving the mill's reliability through enhanced operations and maintenance practices. Over time, we would expect these improved practices to lead to incremental throughput, recovery and cost gains. Don't forget the drilling at Casa, which is very exciting with outstanding results at the one hundred forty eight and one hundred sixty zones, producing high grade intersections and good widths near existing infrastructure, as you can see on Slide 13. I expect we'll be talking about them more in the coming quarters. Moving on to San Sebastian, I was very impressed with this operation.

We have excellent miners there and the site looks great. There are two exciting opportunities to extend mine life. In the existing mine, there are sulfide zones underlying the oxides. We are in the process of conducting test stoping and milling of one of these areas called the Hugh Zone. You can see a photo on slide 14 of the first long hole stope panel from about a month ago.

The contractor has done a great job so far with this more efficient mining method, which is new to the property. We processed about 13,000 tons of bulk sample ore at a third party mill in the third quarter and recoveries are in line with our expectations. We need to complete our work to determine if there is a business case here. Look for more information early in the New Year. We also have an oxide discovery called El Toro about a mile and a half from the mine, which is looking very promising.

The Lucky Friday produced a limited amount of ore during the quarter as per plan, but the higher production than the prior year period helped the asset to minimize its financial impact. The workforce is composed mainly of our salaried staff, and we are extremely proud of what the team has accomplished. As Phil mentioned, we reached a tentative agreement with the union and are waiting for a ratification vote. We expect a significant increase in production over the next few years as a Lucky Friday ramps up to full production and make some capital investments that have been on hold. I just got back from Sweden to see the RVM machine, which is in the test mine.

We are learning a lot and will take the time we need in this testing phase to make the modifications so when we bring it to the Lucky Friday in 2020, we can minimize field changes. I worked ten years in the underground mines in Nevada. I was especially keen to see those operations. The decision to curtail spending and to focus on near term cash generation was a good one because it sets us on a stronger financial path. We plan to mine out the developed oxide ores, which we expect to continue into the second or third quarter next year depending on ongoing delineation work.

I expect to take a further pause as we assess permitting needs, enhance our understanding of the ore body and secure tolling agreements for the refractory ores. I worked at Heclo and Greens Creek was put on pause. It was the best thing for that mine, and I expect it will be the best thing for Nevada operations. Midas will conclude mining the developed resource this year. We would like to get the Hatter Graben development going again once funds are available, and we will look for opportunities to move our mana machines there as Fire Creek winds down.

Speaker 5

Back to Phil.

Speaker 2

Thanks, Lauren. Let's go to Slide 17. Before we go to Q and A, I want to emphasize HEPLA's commitment to the environment and the health and safety of our employees. The two awards that the Lucky Friday won exemplifies that commitment. Our environmental program there was recognized by the State of Idaho for our efforts to prevent pollution.

We're making a real difference there in reducing our impact on the environment. And most proud of the mine winning the Sentinels of Safety which is an award that's been in existence since 1925. To win this award, you can't have a lost time accident or even a restricted work incident. And then you have to have the best injury incident rate as reported to the U. S.

Mine Safety and Health Administration. So I mean this is a very rigorous set of requirements and it is based on the data given to MSHA. So it's incredibly hard to win. And in fact, in Hecla's history, we've never won it before. And at the Lucky Friday, they had no reportables, zero.

And as a result of that, they won this award. And so my hats off to the team there for the efforts that they made and also to the culture that they've developed there. If you go to Slides 35 to 46 later, you can see more aspects of what we do in the ESG area. So with that operator, I'm happy to open the line for questions.

Speaker 0

Your first question comes from the line of Heiko Ihle with H. C. Wainwright.

Speaker 6

Hey, guys. Thanks for taking my questions.

Speaker 2

Sure thing, Heiko.

Speaker 6

Great. Hey, Lucky Friday. I mean, so you're saying that the ramp up takes about a year. I mean, I understand that the cost the cash costs outside are probably going to keep going down quarter by quarter. But do you just have an idea of how long it takes to really production and maybe the timing for the ramp up throughout the year as well?

Speaker 2

Well, it all will become a function of if and when the union ratifies the contract. And as we prepare the mine for people to come back to work. So that will be the jumping off point is when that occurs and then it'll take roughly a year from that time. If you go back and look at 2013, you can from the time we start, you can get a sense of how the ramp up occurs.

Speaker 6

Fair enough. Then I'll phrase the question, my next one a little differently. How much did it cost last time something like this was ramped up?

Speaker 2

Geez, I don't recall. But we'll make further investments in the mine. We want to improve the two shaft. There's an upgrade that we're going to do to the electrical system there. And then there's other investments that we'll make.

And so we want to put the mine onto a firm footing and we'll take the time necessary and spend the money necessary. But it's not a huge amount of investments. Most of these investments are investments that are less than 5,000,006 million dollars

Speaker 6

Fair enough. And then something completely different. And I got this question from a client a couple of weeks ago, and so I figured I'm going to pose it to you guys on this call. The dividend, at what metal price do you think we should see the dividend go up? And at what metal price should we expect you guys to maybe cut the dividend a little bit?

I mean I understand it's a zero is not a whole lot of money. I'm just purely curious.

Speaker 2

I don't think there's any intention of cutting the dividend. Would be significantly lower prices to see us put in a position where we would do that. As far as the dividend going up, we have a policy that automatically causes the dividend go up. Is it possible that policy will change it? I think so at some point, I think the Board will consider that.

But in the meantime, our real focus is on strengthening the balance sheet and putting ourselves in position to refinance the existing bonds.

Speaker 6

Fair enough. Thanks for taking my questions and congratulations on Lucky Friday yet again.

Speaker 2

Thanks Heiko.

Speaker 0

Your next question comes from the line of Jake Sekelsky with Roth Capital Partners.

Speaker 7

Hey, Phil and team. Thanks for taking my question.

Speaker 2

Sure, Jake.

Speaker 7

Just going back to Lucky Friday and kind of building on Heiko's question, are you guys able to give us any additional color on the agreement? I mean, I guess what I'm wondering here is where concessions were made and what kind of caused this breakthrough negotiation?

Speaker 2

Look, it was just an ongoing negotiation with the negotiating committee of the union. We both made concessions and at the end of the day we were able to reach an agreement. But the key thing is going to be ratification by the members. And we'll

Speaker 8

wait

Speaker 2

to see if and when they do that.

Speaker 7

Understood. That's helpful. Okay. And then switching over to Nevada. I mean, obviously, the year, we've kind of been shifting from production and development more towards exploration a bit there.

Is this a trend we should continue to expect into 2020? I'm just trying to get a handle on how you're viewing Nevada in the context of the portfolio for next year and I guess what we should expect as far as near term production target looks over there? Thanks.

Speaker 2

Sure, Jake. In Nevada, the intention is to continue to mine the currently developed ore and that will be mined sometime out sometime in the middle of next year as we've previously disclosed. And then in the meantime, work on plans on how to go forward, including how to deal with refractory ore. So we're certainly in conversations with places that we could mill that refractory ore. And so at this point, we don't have firm plans.

We're still working through things and just stay tuned because we'll be putting that together. Question?

Speaker 7

Okay. Is that something you think we should see by the end of the year or more into Q1

Speaker 2

It be in Q1 when we announce all of our plans for 2020.

Speaker 7

Okay, perfect. And then just lastly, on the metals hedging program, prices have ticked up a bit since you guys put the initial contracts on. Do you guys have any other plans to layer more on these modestly higher prices for the 2020? Or are you comfortable with what you have in place now?

Speaker 2

We'll continue to look at the cost of putting on new contracts. And to the extent we find it attractive, you can see us do that. We haven't done anything to limit our upside in what we've done with our puts. And we think we're in a very good position with the protection on the downside to be able to deliver the cash flows that we're anticipating. Lindsay, anything to add?

Speaker 3

No. I've still said it all.

Speaker 6

Got it. Okay. That was all for

Speaker 7

me and congrats on the positive cash flow this

Speaker 0

Your next question comes from the line of Matthew Fields with Bank of America.

Speaker 9

Just wanted to get some clarity on timing on Lucky Friday. Appreciate that it has to go back to the union for ratification. Then there's probably some other procedural steps, staff going back into the mine, maybe have to be rehired some or existing or the old guys coming back and then a one year ramp up. Can you just walk us through the different mileposts of how that everything gets sort of timed out from here going forward?

Speaker 2

Well, it's not been finalized by any means. But the essence of it is there's a roster of of people that were were employees at the time of the strike and that roster is about 200 people out of at the time there were two fifty. So you've had people that have retired or they've quit and so they've dropped off the roster. So we'd be anticipating those 200 people coming back to work over the course of time during 2020 as we ramp up. And we'll work out what those plans are as we get as the union ratifies the agreement and as we do the capital projects that we have and as we plan out the training.

Lauren, anything to add to that?

Speaker 4

I think it will be our goal to bring back people as rapidly as we can and ramp up production as quickly as we can. I

Speaker 9

mean is it just rough estimate at this point? Know that there's not a lot of clarity, but like is it first production in June 2020? Or is it like first production back in December 2020? Can you just give us a rough idea of when everything was Well,

Speaker 2

Matt, remember that it's in production now, right? We've never stopped producing

Speaker 9

at the old levels.

Speaker 2

Yes. It will take a full year to get to full production. And so it will be a relatively slow ramp up in the beginning that will accelerate over the second half of that year, whenever that year starts.

Speaker 9

Okay, great. Thanks. And then my second question is just some of your high yield precious metal peers have taken advantage of the pop in precious metals prices and their corresponding stock prices to opportunistically raise some equity to help with balance sheet risk. And it seems like it's been sort of received positively by both equity and debt holders. Your stocks reacted positively to the gold and silver price.

Is that something you're willing to do opportunistically to kind of help refinancing basically take refinancing risk off the table?

Speaker 2

Sure. We're willing to consider all options to successfully refinance the bonds.

Speaker 9

Okay. That's it for me. Thanks.

Speaker 2

Thanks, Matt.

Speaker 0

Your next question comes from the line of Cosmos Chiu from CBIC.

Speaker 10

Hi. Thanks, Phil, Lindsay and Lauren. Maybe first off on Lucky Friday here. Know timing is still very uncertain at this point in time as you mentioned. But I seem to remember there was a vote that happened earlier on in 2018 for something completely different for a third party arbitration that didn't go through.

But what was the timing then in terms of that vote? And, you know, can can we draw comparisons to what's happening now in terms of timing?

Speaker 2

Yeah. My recollection is that it took the better part of a month, six weeks. Does that sound right, Larry?

Speaker 9

Sounds right. Yep.

Speaker 2

Yes. So was about a month, six weeks to to to implement. Because remember they have all of these members that are working in other places that they they you know, I think the ballots get mailed to them. They then get returned and then they get counted.

Speaker 10

For sure. And then when you talk about majority in your press release in terms of the ratification, that's just a simple majority, right? All you need is 50% plus one.

Speaker 2

That's my understanding.

Speaker 10

Okay. And then in terms of again, maybe too early to ask at this point in time. But Phil, as you mentioned, some of the CapEx that's needed in terms of the restart shouldn't be too significant. And so when it does happen, when you do restart the operations, should we expect Lucky Friday to be free cash flow positive fairly quickly? Like what are we talking about?

Maybe one or two quarters of neutral or negative free cash flow followed by positive free cash flow. Is there any kind of color you can give us at this point in time?

Speaker 2

No. Look, think certainly the first year will be a negative free cash flow. I would expect the net investment in the mine and then the following year to be either neutral or slightly positive. And after that you're off to the races.

Speaker 10

For sure. Then maybe switching gears a

Speaker 8

little bit here in terms

Speaker 10

of the financial options available to you. You talked about the equity raise in the last question. But I guess my question is, do you still have the ATM available? Is that still active? Did you use it in Q3?

I don't think you did, looking at your financial statements. And how do you see that ATM potentially fitting into your overall financial strategy?

Speaker 2

Yes. The ATM is active. It's relatively small. I think there's 40,000,000 or $50,000,000 available under it. So it's certainly possible something that we could utilize.

Speaker 10

For sure. And then maybe one last question here in terms of Casa Berardi. I think you sort of touched on it for the company as a whole. But if I look at what you've done so far, about 100,000 ounces year to date in terms of production guidance is 146,000 ounces. You need a better Q4.

Could you maybe give us some more color in terms of is that a combination of grade and throughput or just grade or just throughput?

Speaker 2

Primarily grade. And that's always been the plan that there would be a better fourth quarter. The whole second half of the year for CASA is better. And remember we also had a shortfall in tons in the first part of the year.

Speaker 10

So

Speaker 2

that's part of the reason second so much better.

Speaker 10

For sure. Thanks Phil and team and congrats again on getting the tentative labor agreement in place. Okay. Thank you.

Speaker 0

Your next question comes from the line of Adam Graf with B. Riley.

Speaker 5

Hey guys. Just a couple of quick questions here on Nevada and then Greens Creek. On Nevada, I don't know if you have the numbers in front of you, but could you tell us how many tons were mined in the third quarter from each of the mines and the mining cost per ton again at each of the mines?

Speaker 2

Yes. We'll come back to you on that because I just have it aggregated in the room with me at the moment.

Speaker 5

And then at Greens Creek with the delay there, maybe if you can give us any more on the cause there? And who was the company that you were mentioning?

Speaker 2

Force majeure? Well, it's well known, it's tech, right? They had the incident at the trail smelter. And so they declared force majeure on '20 I think it was 25% of their contracts. So as a result of that, we didn't know exactly what the shipping would be.

And so we weren't able to nominate a ship until late in the quarter and then weather held up the ship. And so as a result, we ended up doing a deal with trader where we sold the metal. We got the revenue, but unfortunately we're not able to account for it as revenue. So it's accounted for as deferred revenue and then that will show up in Q4.

Speaker 5

And given the current zinc TC environment, were you did you have to spot TCs? And are they significantly higher than your contract that you had with tech?

Speaker 2

It was given the where prices were and the fact that we whenever we sell the product, we sell forward for that short period of time, we actually have made out better than we would have otherwise.

Speaker 5

Great. And then just finally, just my own curiosity on the Sentinel of Safety award. I've never heard some of the details. I was curious, are there years where that award is never given out?

Speaker 2

Yeah, there's different categories and the answer is yes. People do not meet that, then it's not awarded.

Speaker 5

Wow, that's interesting. Just for my own curiosity, I appreciate that. Congratulations.

Speaker 2

Interesting. You. Yeah, I'm pretty proud of that.

Speaker 5

Yeah, big deal. Thanks guys.

Speaker 0

Your next question comes from the line of John Tumazos with John Tumazos Very Independent Research.

Speaker 11

Thank you for taking my question. I want to congratulate Larry Radford on his retirement. Wish him all the best. And I want to thank all the Hecla team for your service to the company. Not easy for Thank anything of

Speaker 3

you.

Speaker 11

Forgive me. I listened to Ken Ross at 08:30 and eight and then West Rock container board, Arcelor middle steel. I might have missed some details, but I'm surprised that your stock is off today when you're announcing the good news of the Lucky Friday potential restart. You got nine drills at Casa Berardi and the loss got smaller and you repaid some of the revolver. Do you think the market is disappointed that it might take a year or two to get Lucky Friday coining cash?

Or do you think people are disappointed that your CapEx and exploration fell or that you're not doing financing refinancing this quicker? Aren't we seeing I think this is a good release, but just tell me what's going on?

Speaker 2

Yes, John, we would agree this is actually a very good release. To be honest with you, think it becomes program trading that's based off the fact that our revenue line was not what the market expected. And as a result, the net income was not what they expected. And that's only caused by the fact that the ship was delayed at Greens Creek. I think if you hadn't had that occur then I think the market would have you wouldn't have had this program trading.

Is that fair, Mike Westerlund?

Speaker 1

Yes, that is a combination of weaker price leads to computer selling. You see a huge volume rate off at the open and I think a lot of it is computer trading.

Speaker 2

Yes. So look, we're pretty confident that as we talk to people and walk them through the quarter that you'll see the tone about the stock improve. We are definitely on track with what we expected to be on. We definitely can see that by the end of the year, we will not have any revolver debt drawn. We can definitely see that we're in a good position to do the refinancing of the bonds at a very reasonable interest rate.

Speaker 11

Could you walk us through the lower CapEx and the lower exploration expense, maybe some people are thinking you're cutting too much meat from the bones. It looks like the exploration results are better as you spend less money. I've never thought there was a correlation between dollars and results. I think in essence, was smarts and good luck.

Speaker 2

Well, I will I've got sitting in here Kurt and Keith, and they're shaking their head. Look, we have not actually cut back on our capital. In fact, the guidance that we've given for both capital and exploration is unchanged. We made that change with the earlier in the year. And so we think we're at the right levels and it's a level that allows us to generate free cash flow.

I mean, you think about it, we generated $29,000,000 of free cash flow for the quarter. I over the last two days have been looking at other people's releases and frankly relative to our peers, I'm not able to find one that's produced much more than we have. Clearly not everybody's reported so I'm not able to make that assessment. But there's companies with market caps that are a third or more higher than ours that had less free cash flow for the quarter. So I think as time goes and we have to talk to people and we are planning over the course of the next number of weeks, we'll see the tone improve.

Speaker 6

Thank you.

Speaker 0

Your next question comes from the line of Dalton Baretta with Canaccord.

Speaker 8

Thank you. Good morning, guys. Apologize if I missed this earlier in the call. But, Bill, can you comment on the nature of the agreement with the union at Lucky Friday? Just specifically, I'm wondering, do you now have the ability to nominate people where you want them to go?

Speaker 2

We do. We do. And look, this contract is consistent with other mines, the way other mines in North America operate. Will have the same capabilities that other mines throughout The U. S, Canada, how they operate.

Speaker 8

Well that's great. That's a big win for you guys. Can you talk about maybe what you gave up to get that?

Speaker 2

Look, I think this is a win for everybody. It's the first thing I'll say. It's the quid pro quo that we put to them was generally a better compensation package for them. We have, particularly for the skilled trades, we had a lot of difficulty attracting skilled tradesmen. This helps alleviate that.

And that would be the primary thing. But we ended up giving concessions on holidays and medical benefits. There's just a variety of things. Having said that, we see this contract as positioning the Lucky Friday to be able to operate. It's now operated seventy five years.

We think it will operate certainly decades more. And this contract sets us up to be able to do that. We weren't sure we would have been able to do that under the old contract.

Speaker 8

Congrats guys. That's a good agreement.

Speaker 2

Okay. Thanks Dalton.

Speaker 0

I would now like to turn the conference back to Mr. Phil Baker.

Speaker 2

Thanks, operator. Well, we appreciate you participating on the call. We know this is a busy day with lots of people reporting. Obviously, if you didn't have your question answered or you'd like to talk more to us, feel free to give Mike or I a call. Thanks very much.

Have a great day.

Speaker 0

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.