Hecla Mining Company - Earnings Call - Q4 2019

Transcript

Speaker 0

Good morning, ladies and gentlemen, and welcome to the Hecla Mining Company Fourth Quarter and Year End twenty nineteen Financial Results Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. I would now like to turn the conference over to your host, Mr. Mike Sir, the floor is yours.

Speaker 1

Thank you, operator. This is Mike Westerlund, Vice President of Investor Relations. Good morning, everyone, and thank you for joining us for Hecla's fourth quarter and year end twenty nineteen financial and operations results conference call. Our financial results news release that was issued this morning before the market opened, along with today's presentation and the reserves and resources press release from Wednesday, will be made available on our website. Unfortunately, the website is currently down, and we're working on getting that fixed as soon as possible, and we certainly apologize for any inconvenience.

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 and Keith Blair, Chief Geologist. 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. 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 the 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 their nearest GAAP measurements in the accompanying presentation, which will be made 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. And let me also add my apology for not being able to reach our website. That's something that surprised us this morning. I will make reference to slides. I'm doing that because there will be a replay.

And so when people are listening to the replay, it will help them. So again, I apologize. So I'm gonna start on slide four, which shows a list of accomplishments 2019. And the first one I want to call out is reserves. Mining all starts with reserves.

While our industry struggles to maintain reserves, let alone grow them, HEPLA has not. I'll talk more about it at the end of our presentation, but let me just say the 11% increase in silver reserves as well as the increases in lead and zinc and only a slight decline in gold is a major accomplishment for Hecla. Now 2019 was the tale of a year of two halves. We're very happy in the turnaround we've seen in the second half of the year. And the key to that turnaround was to quickly recognize the plan that we had for Nevada was not working, and the best action was to stop that plan, take the time to reevaluate, and then restart when we had derisked the plan.

We're in the early stages of the reevaluation, but our belief that these mines and exploration targets that we bought when the gold price was $1,200 an ounce will have great value in the future, And that view has not diminished. Greens Creek, of course, was the key to the great turnaround last year. And it didn't just happen last year. Two years ago, we developed a new mine plan at Greens Creek that improved the grade and reduced development. And it's important to remember that the performance at Greens Creek is independent of the issues that we had in the company in 2019.

We had already baked in that good performance two years earlier. This new plan allowed us to generate $107,000,000 of free cash flow, 22,000,000 more than what we generated in 2018. So we knew in June that we would generate enough free cash flow and it turned out to be $62,000,000 over the second half of the year, which would enable us to fully repay the revolver. Some market participants were skeptical, but we were adamant and we were proven right. We also took action to strengthen our balance sheet and get our debt metrics to levels that we believe are appropriate for HECLA.

We did a debt equity swap and a small ATM financing in the fourth quarter, which represented 6% dilution but allowed us to end the year with $62,000,000 in cash and reduce our net debt $136,000,000 in the second half of the year. Our debt to EBITDA ratio is below three now, and we believe it's on the way to being less than 2.5 times. Now the next major achievement is that after almost three years, the strike of the Lucky Friday was resolved. Just this week, the first group to be called back started work. Everyone on both sides is glad to have this behind us and is focused on safely getting the Lucky Friday back to full production by the end of the year.

Now remember that in the first quarter we'll be focused on capital projects that requires the mine to be largely shut down for most of the quarter. So the ramp up and recall will start in earnest in Q2. With the new work rules, we believe we can improve both safety and productivity while giving the workforce an opportunity for advancement. I think the future for employees, the mine, and the community looks really bright. Finally, the last accomplishment I will mention is our safety performance in which we had a 20% reduction in our all in frequency rate to 1.61, the lowest in our company's history.

The Lucky Friday also received the Sentinels of Safety Award from the National Mining Association, which is the first time we'd received this award in our one hundred and twenty nine year history. Now on the next slide I will get into the estimates for 2020, but let me just mention a few of our broader goals for this year. First, we expect to refinance the senior notes. Interest rates and metal prices are attractive, so we are encouraged this can be done on good terms. This quarter we should complete our study on the San Sebastian sulfides.

And then finally over the year Casa Verde's production is planned to start to come from the higher grade East mine and we expect to see improvements in the mill. So now on Slide five, looking at our estimates for 2020, we estimate that we will produce 11,100,000 to 12,100,000 ounces of silver, which is slightly less than 2019, primarily due to the lower production at the San Sebastian oxides which are mined out. Lucky Friday is expected to produce 1,000,000 ounces more in 2019 than it did in 2020, making us almost flat as far as silver production goes. Gold production is estimated to decline to two and twelve thousand to 225,000 ounces this year, primarily due to stopping production in Nevada. But that allows the gold all in sustaining cost to be about $300 lower with the less profitable Nevada production no longer being produced.

The silver all in sustaining cost after byproduct credits is projected to be $1 or $2 higher due to lower prices that we're assuming for our base metals production and weaker smelter terms as well as lower production. Capital expenditures are estimated to be about $10,000,000 lower than 2019, again due to less Nevada spending. Other estimates are about the same as in 2019. So I'll turn the call now over to Lindsay.

Speaker 3

Thanks, Phil, and good morning, everyone. Turning to Slide seven. We're pleased with the fourth quarter performance of our assets, which combined with the strong third quarter has improved our balance sheet back to where it was at the start of 2019. In Q4, we sold 4,000,000 ounces of silver and 85,000 ounces of gold, which was seventy nine percent and twenty two percent respectively more than in the third quarter of this year. Combined with higher metals prices, we recorded a record $225,000,000 of revenue in the fourth quarter, which after netting cash expenses resulted in $57,000,000 of cash provided by operating activities, which was the highest for the year.

And after deducting the $24,000,000 of quarterly capital expenditures resulted in $33,000,000 of free cash flow before financing transactions. From Slide seven, you can see the financial results for the year that can be summed up as a tale of two halves. First six months of investing in Nevada and the last six months pausing Nevada and using the cash flow generation from our other assets to restore our financial position. As you can see, we generated $62,000,000 of free cash flow over the last six months, 75,000,000 if you exclude what we call discretionary expenditures. This demonstrates that our assets are resilient and can deliver financial results.

It also shows a level of discipline by the company that we can make the needed decisions to improve our financial position when required. While we focus on cash flows, I'd like to mention that our GAAP loss for the year was heavily impacted by CAD65 million of additional depreciation year over year, of which CAD56 million was due to the Nevada operations. Having just recently purchased Nevada and then paused on further investing, the depreciation expense distorts our earnings as we didn't have the anticipated gold production revenues to offset the depreciation expenses. As we now expect Nevada's production to cease around midyear twenty twenty, the depreciation will have a much less negative effect on EPS in 2020. Turning to Slide eight.

As you can see on Slide eight, silver margins continue to be strong. Gold margins for the last two quarters are substantially higher than they were they have been nearly early in 2019 when the gold margins were essentially eliminated primarily due to the investment at our Nevada operations. This was reflected on our EBITDA and cash flow generation results. Turning to Slide nine. Phil mentioned the $136,000,000 reduction in the net debt from the second quarter, and I wanted to provide some background for it.

The strong cash flow generation enabled the complete repayment of the revolver by year end and deposited some cash on the balance sheet. It was supplemented by $49,000,000 by drawing on the ATM, the at the market facility we have in the fourth quarter, leaving us with $62,000,000 of cash on the balance sheet at year end, an increase of $34,000,000 from year end 2018. Additionally, we swapped $31,000,000 of debt from Resources Quebec into equity. And all told, we reduced our net debt EBITDA to below three times from approximately six times in the second quarter. We took these actions to position ourselves to refinance our outstanding senior notes.

We recently received an upgrade from Moody's and we're working with our bankers to free up $100,000,000 of the available $250,000,000 revolver to help pay for the existing bonds should we determine that we want to refinance less than the $500,000,000 of existing bonds outstanding. The additional flexibility is nice to have as an option to consider when you're deciding on our approach to the market. We ended the year financially stronger than when we started in 2019, which is our financial discipline on display, setting us up well for 2020. With that, I'll turn it over to Lauren.

Speaker 4

Thank you, Lindsey, and good morning, everyone. As we've said before, it all starts with safety. And I am happy to show the chart on slide 11, in which you see a steadily declining all injury frequency rate over the past five years. In fact, the 2019 rate of just 1.61 is the lowest in our company's history. I want to congratulate the operating teams at each of the mines for making safety their top priority.

Moving on to the mines, I'll start with Greens Creek on Slide 12, which continues to perform well. Last year, we unveiled a new mine plan, which reflects the continuous improvement culture at Greens Creek. Through the year, we saw the benefit of this plan, including higher production and strong cash flow, as well as record mill throughput. 2020 production is expected to be slightly lower with mill throughput more typical of preceding years and lower grades as per the mine plan. Cost of sales and unit cost per ounce are expected to be higher as a result of anticipated power generation due to dry conditions, increased maintenance activities, increased treatment charges and reduced byproduct credits.

My hat is off to the exploration team that significantly increased the reserves and resources at Greens Creek, which we expect to extend the mine life and free cash flow generation from our best asset. For 2020, we anticipate another strong year by historical standards of about 8,900,000 to 9,300,000 ounces of silver and 46,000 to 48,000 ounces of gold. Turning to Casa Berardi, this is another very important mine for the company as shown on Slide 13. Last quarter, we talked about turning our attention to improving the mill's reliability through enhanced operations and maintenance practices. We expect to expand these efforts into other areas in order to help us generate incremental throughput, recovery and cost gains.

Costs are expected to be lower in 2020 because of reduced waste movement in the open pits and less tailings construction. Production is expected to be higher largely due to anticipated increases in mill throughput and recovery as a result of our improvement initiatives, partially offset by planned lower grades. Turning to slide 14. For the past several quarters, we've been talking about strong intersections we are seeing in the East Mine one hundred forty eight and one hundred sixty zones. Historically, the East Mine has been higher grade than the Mes Mine.

And this is reflected in the 1 148 Zone, which has about 50% higher grade than the average underground grade. We expect to start producing previously developed 148 Zone ore in the first quarter and to access newly developed ore by the end of the year. Moving on to San Sebastian on Slide 15, we are completing our study of the Hughes Zone sulfide ore and expect a decision on development in the first quarter, which could allow production to begin by the end of the year. The test mining performed well with the test stopes yielding 90% of the anticipated tonnage at 114% of the anticipated NSR. Toll processing of the sulfide ore at a mill set up to produce two concentrate streams, zinc and bulk, yielded recoveries in line with expectations and marketable concentrates.

We are undertaking work this quarter to investigate another option that would allow us to produce three concentrates, zinc, lead and copper, instead of two, which would enhance economics if it proves to be feasible. 2020 is a transition year for San Sebastian as the remaining oxide material is depleted and we work toward a production decision for the Hugh Zone. If the Hugh Zone project goes ahead, we anticipate limited production and cash flow from it in 2020 due to the development required to set it up for mining. Starting in 2021, it should be a solid cash flow contributor to the portfolio for about another six years. Turning to the Lucky Friday on Slide 16.

As Phil mentioned, the workforce is returning. We started by recalling electricians, mechanics and hoist operators and expect most of the workers to receive callback notices by the end of the first quarter. During the first quarter, we have contractors working on two capital projects, the number two shaft hoist and the 5,370 loading pocket upgrades. These two projects are expected to total about 5,000,000 in capital, and it is more efficient to complete them before the bulk of the workers return. The ramp up in production is planned to begin in Q2 and to extend through the fourth quarter when we anticipate reaching full production.

From a cash flow perspective, this is a building year. We'll be better off than last year, but do not anticipate the mine to become cash flow positive during the restart. At full production, as we mine deeper, we will access higher grades and expect the average grades to increase about half an ounce per year for about five years. Moving on to the RBM machine, it is back in the test mine in Sweden. We will continue with acceptance testing until we are satisfied that it is sufficiently robust and reliable to be sent underground at the Lucky Friday.

Current planning has the RBM arriving at the Lucky Friday around the end of the year, but that is subject to completing the testing phase satisfactorily. Turning to slide 11. In Nevada or 17, excuse me. In Nevada, we continue to mine out the developed oxide ore at Fire Creek and expect to complete this task around the end of the second quarter. A scoping study is underway to help define the conditions necessary for a potential restart.

We also need a means of processing refractory ore, which would require third party processing agreements, and we would expect a restart to require a permitting cycle. These actions will take time, but it is important for us to

Speaker 5

get them right. Back to Phil.

Speaker 2

Thanks Lauren. Before we take questions, I'd like to come back to where we started with reserves. So look at slide 18. So often reserves are just assumed to be given, but they are the lifeblood of a mining company and are very hard to come by. This year was remarkable in that with just $15,000,000 of exploration spending, we replaced what we mined and added 22,000,000 silver ounces.

This is what this suite of assets can do. In 2013, we had almost 150,000,000 ounces of silver reserves. We mined half of that and then exploration added 150,000,000 more ounces while calculating those reserves at what I expect to be the lowest price assumption in the industry. For gold, we have mined what we acquired in 2013 and added three times what we had at that time. While I don't think we'll do this year in and year out, I do think we'll do it every few years, which means we can weather the obstacles that come our way and have the staying power to realize long term value for shareholders.

And with that, operator, I'd like to open the line for questions.

Speaker 0

Thank you, sir. Your first question comes from the line of Jake Sekelsky. Line is now open.

Speaker 6

Hey, Phil and team. Thanks for taking my questions. Just starting at San Sebastian, you mentioned the undertaking of the study at the Hugh Zone. Is this something we should expect to see results on shortly? Or is this more of an internal scoping

Speaker 2

Well, it is internal, but you will see something in the first quarter where it's been sort of a three step process. The first one was can we long haul? The second was can the mill deliver products that are marketable? And the third is can we add a third circuit to the mill in order to make those products more economic? And so we're at that third stage and we should be completing that over the course of the coming month, month and a half.

With that will come the study and the final determination. Lauren, anything to add?

Speaker 4

No, Phil, you captured it perfectly. We will start that test in the next few weeks.

Speaker 6

Got it. So we should see something by the end of the first quarter just to kind of wrap our heads around what it might look like in 2021 and

Speaker 2

going Yeah, that's right. Realize that what we're anticipating is moving to the sulfides will not require significant capital investment. We would think that San Sebastian would largely the oxide production would largely pay for the capital required. It might not pay for all of it, but it would certainly pay for the lion's share. So there's no big capital outlay that we're anticipating.

Speaker 6

Got it. That's helpful. And then just briefly, at Lucky Friday, are you able to break out the restart costs and maybe touch on a few milestones over the next few quarters that we should be keeping an eye out before you guys bring the project back to full scale production?

Speaker 2

Well the first milestone of course is the completion of these two projects and the recall of the workforce. And we'll have those two projects and the recall for the most part completed by the time we release first quarter earnings. So we should be able to give you great visibility. And then at that point we would anticipate the restart to look similar to what you saw in 2013 after we did the clean down of the silver shaft. And order of magnitude, it's 150,000, 175,000 tonnes of production over the course of the year.

Lauren, what would you add to that?

Speaker 4

We're anticipating hitting our full production pace in the November to December timeframe. And of course, we'll do everything we can to accelerate that. But I think it is a pretty reasonable ramp up curve based on our previous experience.

Speaker 2

Mean one of the positives we have this time compared to then is then we went in and we re bolted just basically the whole mine. And we don't have that this time around because instead of the mine being shut down for a year, we have continued to operate with our salaried staff and they've done a great job of keeping the mine in good condition, which wasn't possible back in 2012 because we weren't in the mine at all.

Speaker 6

Got it. That's all on my end. Thanks

Speaker 4

again. Thank you.

Speaker 0

Thank you. Your next question comes from the line of Matthew Fields. Your line is open.

Speaker 7

Hey guys. Matt. Appreciate you took you know, what in my view is, were the prudent steps to do the debt for equity swap and the equity raise to pay off revolver while managing to bring free cash flow neutral for the year. So congratulations on that. Now that you're kind of in a better position to look for a refi, what kind of transaction structure are we looking at?

Is this just a straight refi of all 500 bonds splitting something up? What does the transaction look like and kind of what can we expect for timing on that?

Speaker 2

Well, I guess all I can say is that as far as timing is that we'll do it as soon as it's appropriate. The bonds are not due until May 2021, but we don't want to wait until the last minute to do those. And we really don't want to wait for those to go current. So we would want to do it before that happens. As far as the structure goes, I mean that will be a decision made at the time that we go into the market and it will be determined by the conditions.

We clearly have the capability of doing less. Remember what's outstanding is $5.00 $7,000,000 We have the ability to do less than that because we have cash on the balance sheet and we expect to have an arrangement with the revolving banks where we could use some of that revolving capacity. Should the market conditions be such that it's not appropriate to do all $500,000,000 we have these options. Lindsay, what would you like to add to those?

Speaker 3

No, think you captured it, Phil. All the options are open to us and the high yield market itself, as you know, Matt, has come back and it's much stronger today than it was maybe midway during 2019. So we're feeling good about our options to refinance the bonds.

Speaker 7

Okay, great. That's it for me. Thanks very much.

Speaker 0

Thank you. Your next question comes from the line of Adam

Speaker 5

on all the success there. Two quick questions. On your comments on Lucky Friday as far as the grades, can you give us some more color there? Because the average reserve grades at 14.4 ounces per ton silver suggest that, you know, stepping up a half an ounce per year for multiple years is not sustainable. So if you can give us some more color there on the lucky grade expectations.

And then on the CASA mill and open pit versus underground profile, maybe you can give us some more color there on where the bottlenecks are and how the open pit versus underground is going to shape up in 2020.

Speaker 2

Okay. So starting with the Lucky Friday, I think what happens with the Lucky Friday is that as we go deeper we don't have as many holes in. And as a result we eventually see the reserve decline because the strike of this higher grade is reduced. And we're talking sort of ten years out. This is not something that happens immediately.

But over the course of the next fifteen, twenty years we have five years where we ramp up with higher grade, stays at that for a period of four or five years, and then it starts to decline in the out years. But I think there's a reasonable expectation that with infill drilling that might not be the case that we might actually see higher grade and we might see higher grade for the resource that we're planning to mine beyond that. So I think you can feel pretty comfortable with respect to the next sort of ten years that we'll see the grades being higher than the reserve grade. Anything to add to that? Is that

Speaker 4

a fair characterization? Okay, great. And then as far as the mill, I'm going to throw that to Lauren from the get go. So your question was the transition from predominantly underground production to open pit production. And I think the way to look at this is the higher grades come from underground.

So we will always deliver the maximum amount of underground tonnage to the mill that we can because it's higher grade material. Then we layer in open pit production to fill the balance of the mill's capacity. And in 2020, that production comes from East Mine Crown Pillar Pit. And we're doing a bit of stripping on the extension to that pit. But over time, we start layering in additional pits.

And we're in the process right now of looking at what that optimal sequence of pit mining is, such that we maximize cash flow in the near years. That's still a work in progress. But as we have success with our underground exploration and we continue to add underground mine life, it takes pressure off of the pits and gives us opportunity to do a good job of optimizing our planning. Maybe talk a little bit about just the mill itself for twenty twenty. What you're contemplating there?

Absolutely. So, we had what I would characterize as relatively disappointing performance in the mill in 2019 in two areas. One of them was throughput. We missed our throughput target slightly. And the other is recovery, which has been off.

And of course, those things are a matter of great interest to us. So we've put together a focused work group on those topics. And in terms of throughput, the main issue that I see is reliability of the plant. And we've begun work to improve the reliability of that plant and have increased availability in the plant in the fourth quarter by over five percentage points. That is quite a shift in one quarter.

And we'll continue to drive that effort through 2020 into 2021 in order to bring that plant into what I would consider to be first tier availability. And of course, that drives throughput. Recovery, we had some mechanical challenges that impacted recovery in the grinding circuit. This was related to cyclone and screen maintenance in the gravity circuit. And in the leach train, where we needed to replace some drive units in the leach train.

And mechanical availability is also important in terms of recovery. Because when the mill is not in steady state, it's difficult to optimize recovery. So improving mechanical reliability in the plant is an important factor in achieving higher recoveries. We also think there's an opportunity to improve the gravity gold recovery in the plant. And we've got Nelson in there, in fact, this month, doing an audit of the system.

And we'll look to implement their recommendations. Because getting the gold out of the circuit as early as possible is advantageous from a recovery perspective. I guess lastly, I'd say we have certain stopes and certain areas in the mine that generate higher sulfide and or higher arsenic and or higher carbon than other stopes. So, we're looking to do a better job of providing the mill a forward look at the feed that we're sending them, in order for us to do a better job of blending. And we're undertaking a range of metallurgical test work right now, looking at things we can do to improve performance of the plant when we're in those materials.

And in fact, Karim is, I think, on-site this week, if not this week, next week, helping us with some real time equipment to look at how we adjust the circuit to react to those kind of changes. CRM's a consortium of Abitibi operators who cooperate and collaborate on mill performance. So we're bringing a lot of pressure to bear and I'm expecting to see considerable improvement in 2020. And in saying that, just

Speaker 2

to be clear, Casa Berardi generated $20,000,000 of free cash flow. It has been a free cash flow generating mine for us every year that we have owned it with the exception of one and I think that was negative $16,000,000 So it

Speaker 4

is

Speaker 2

a mine that we think can do better. It's not a mine that's a problem but it's a mine that has lots of opportunity. It has lots of opportunity because of the reserves and the resources that it has. It has lots of opportunity because this infrastructure that was built thirty years ago, you know, that there's the opportunity to improve those practices and the way to operate it.

Speaker 4

Yeah, nothing but upside. It's not broke. Just can be more.

Speaker 5

Yeah. The the correct me if I'm wrong here. My my recollection was that the capacity of the mill is supposed to be roughly 4,500 tons a day. And what do you guys think you can get it to in 2020? Kind of where are your near term goals there?

Speaker 2

It's about 4,000 tons a day and that's about where we think we can get to, 39.

Speaker 4

Yeah. Those are long tons. So yes. I think what we expect to get long term out of the plant is about 1,400,000 annually. And we'll make a big we'll close that gap substantially in 2020.

Speaker 5

And how do you see the throughput splitting from open pit to underground going forward? I know you're transitioning to open pit but more to open pit. But how much do you think you're going to be able to bring from underground in 2020?

Speaker 2

It has been and will continue to be roughly half and half. Remember we've been operating the open pit for two years now? Yep. So it's been this half and half. What we've just found is that you have a mill that has operated with lots of excess capacity and as a result operating practices have not been as good as they need to be when you're running the mill full out.

So that's part of what we're talking about here.

Speaker 4

Absolutely. We're chasing bottlenecks now. That's a good place to be.

Speaker 5

Yeah, yeah. Excellent. Thank you.

Speaker 0

Thank you. Your next question comes from the line of Trevor Turnbull. Your line is now open. Yes. I just wondered if

Speaker 8

you could give us a bit of the CapEx breakdown for the different assets. We saw the guidance for the full year and just wondered where the bulk of that is going, which between say Greens, Lucky and Casa.

Speaker 2

Yeah. We let's I I don't have that handy. Does

Speaker 4

I've I've got it. Okay. Lauren Lauren has it. Very shortly here at any rate. Okay, roughly.

Let's see here. The majority of capital, as you would expect, is going to the two large producers. And I would say it's sort of $46,000,000 $47,000,000 to CASA, about $38,000,000 to Greens Creek, dollars 22 ish million to Lucky Friday. And that's the bulk of it.

Speaker 0

Okay.

Speaker 3

Trevor, And in those numbers you've got some tailings facility work that they're doing at Cass and you've got the remote vein miner at Lucky Friday. Some work being done.

Speaker 4

Those are entirety of capital.

Speaker 8

And just with respect to Lucky, yes, was kind of curious, is that a fairly even spread? Or is it a bit front end loaded as you get prepared to ramp that thing back up? So are we expecting kind of more of that coming early in the year?

Speaker 2

No. At the Lucky Friday the first quarter is with respect to those two projects is about $6,000,000.7000000 dollars And then it's pretty steady build up because you got to have the people and you got to have places for them to work spend the money for the underground capital. So after the first $6.7000000 dollars for the first quarter then you can take the rest and spread it out pretty evenly I believe.

Speaker 8

Okay. And I can't remember kind of how it's been treated while you've been running it on more with management as opposed to the full complement of workers. But should we consider everything that you do this year kind of full commercial production? Or is it going to be treated any differently while you're getting up to speed in terms of running it through the income statement or just netting it against the capital and so forth?

Speaker 3

Yes.

Speaker 2

We're not really if you look at our earnings release, you'll see on the cost outlook there's a footnote, expected cost of sales during full production, Lucky Friday, cash cost and all in are calculated using only Q4 production and costs.

Speaker 8

Okay. Sorry, that's for the 2020 guidance?

Speaker 2

Correct.

Speaker 8

Okay, got it. Perfect. And then just one last thing, switching gears back to Nevada for a second. Did I miss it? Do you know what the timing of your study is in terms of Fire Creek?

And then with respect to that, you talked about permitting is also something you need to pursue. Can you just remind us kind of what what you're looking to permit at this point for the new study?

Speaker 2

Sure. Just roughly speaking, the studies themselves will take one to two years. And it sort of depends on what we find as we do the studies as to how long it will end up being. But it's in that order of magnitude. We'll start with a scoping study and then from that scoping study we'll do a feasibility study to make sure we get this right.

We're not going to rush back into something where we're spending money without having a clear ability to get a return on that investment. The permitting itself is primarily around water, right? And so that depends on whether it's an EA or an EIS and that will depend upon what we determine from the study. So that could be a year if it was an EA. It could be two years if it's an EIS.

And then of course you've got to understand whatever the environment we're in more broadly in The U. S. As to how long those things might take because that does make a difference.

Speaker 8

And can you kind of get that permitting ball rolling once you have the scoping study or do you need to have everything tied down with the feasibility before you can really move that ahead quickly?

Speaker 2

It depends on what we see from the scoping states. But my expectation, my experience would suggest that we need the feasibility before we're going be ready. Maybe it's not completely done but it's going to have to be pretty close to being finished.

Speaker 6

Is that

Speaker 2

fair, Lauren? Okay. Yep, I think so.

Speaker 8

Okay, great. I appreciate it. Thanks guys.

Speaker 2

Okay,

Speaker 0

Thank you. I am showing no further questions at this time. I would now like to turn the conference back to Mr. Phil Baker.

Speaker 2

Okay. Well thanks very much for attending this call. Again, we apologize for the website being down. Hopefully it will be up soon and people can get access to the slides. Should you have any questions, please call Mike Westerlin or myself.

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.