Hecla Mining Co (HL) 2004 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Hecla Mining Company’s Q3 2004 earnings conference call. My name is Carlos, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's presentation. (Operator instructions) I would now like to turn the presentation over to Ms. Vicki Veltkamp. Please proceed, Ma'am.

Thank you, Carlos, and thanks to all the rest of you as well for joining us today. I am Vicki Veltkamp, the Vice President of Investor and Public Relations for Hecla Mining Company, and as the operator said, this is our third quarter 2004 conference call. This call is being webcast live today, and you can access a replay of it, if you wish, at our website at www.hecla-mining.com. At that website, you will also be able to find the financial results that are in today's quarterly news release. At the end of that news release, the quantitative reconciliation to GAAP of cash cost per ounce, which is now an SEC requirement, is attached to that.

Today's presentation will be made by Phil Baker, Hecla's President and CEO, with help from Lew Walde, our CFO; Tom Fudge, Hecla's President of Venezuelan Operations; and Ron Clayton, our Vice President of North American Operations. Also with us today is Ian Atkinson, our Vice President of Exploration and Strategy. Once we have our presentation, we will have a question-and-answer period following that.

Any forward-looking statements made today by our management come under the Private Securities Litigation Reform Act of 1995, and involve a number of risks that could cause actual results to differ from projections. And now, I'd like to turn this over to Hecla Mining Company's President and Chief Executive Officer, Phil Baker.

Thanks, Vicki. Good morning, ladies and gentlemen, and welcome to our conference call. I will try to keep my comments relatively short in order to allow my colleagues to have a little more time, and also just in reflection of the active market that we have today.

This quarter is really the start of significant investment by us, and the exploration development part of the business. We have underway, 12 separate exploration programs that have active drilling. All but two of these are on areas where we have existing infrastructure. We also have four major projects under construction and three more under study. From this investment, we think is going to come significant increases in our reserves, resources and ultimately production.

It is clear to us that never in our 113 year history have we had as much opportunity in front of us as we have today. Every one of our districts is going through transformation because of the opportunities we see, and so therefore we are investing heavily to take advantage of those opportunities, because we are an operating company. We are not a promotional one. We are not doing these things just to increase resource base, we are doing these things because we see these resources leading to future production in the next few years.

We are an operating company, and we are focused on trying to deliver earnings and growth over the long term. We are focused on establishing ourselves in mining districts that we think have long-term potential to deliver long-term value. And these are districts that, as I’ve said to many of you in the past, these are districts where what you see is not what you get, you get more. It is something that we are very aware of when we look at our districts there. There are two of them that are in their infancy. We are having to spend initial money in order to get those districts moving forward quickly, and two of the districts, Greens Creek and Lucky Friday are places where there has been exploration going on for over 30 years now, and we are still finding more resources, and we think the opportunity to see the growth in the future is significant.

So let me focus for a few moments on the specifics for the quarter. The first thing is, we lost $11m for the quarter and that really drives us nuts, because we are really focused on creating earnings, making money. We didn’t make money this quarter due really to two factors. One is the exploration expenditures which we think are very justified, with about $6m spent on that. The other, environmental charges, and these charges have been incurred as we’ve gained more information. While we are disappointed that we’ve had to recognize an $8.4m environmental charge, it is good to have that recognition so we have a level of certainty as to what we are faced with. What we see is that in the environmental liabilities that we have, are going to be very manageable.

Operationally, we saw costs being higher this quarter and production lower, but we are still pleased with the operational performance of the mine because it was generally better than anticipated for the quarter. I know that costs have gone up, but margins have gone up even more, and we are still on track to hit our cost targets with gold cash costs below $185 per ounce, and silver bullion, $2 per ounce.

We have, in order to put a little more conservatism, changed our production estimates. We are now assuming that we will produce more than 200,000 ounces of gold, and about 7.7m ounces of silver. There is probably more upside on the gold estimate. Tom and Ron will talk more about production and the costs, and Tom will also talk about the political situation in Venezuela and Ron will talk about the strike at our mill in San Sebastian.

I know the consensus had higher earning estimates for Hecla, but with what we are seeing we elected to spend more on exploration. And with our exploration results, we will spend about $14m on exploration for the year, and about $4m on predevelopment expense. So that is about $18m, and all on expenditures that we think are not only going to sustain our production, but allow it to grow over time. Tom and Ron will talk more about this and Ian Atkinson, who is our new VP of Exploration and Strategy, as Vicki mentioned, will be available to help answer any questions you might have on the exploration program.

Just let me say that what we think we have can allow us to be in feasibility and possibly in construction on four new projects by the end of next year. So let me turn the call over to Lew and he will more specifically review our financial results. Lew.

Well thank you, Phil. Again, during the third quarter Hecla’s focus was to increase shareholder value through the discovery of additional reserves and resources, while at the same time maintaining our position as a low-cost production mining company.

During the quarter, we increased exploration and predevelopment expenses to a total of $6.2m, which is an increase of 141 percent over the same quarter last year. These expenditures are providing excellent results, and Tom and Ron will be discussing these in a few minutes. On the production front, production was lower during the third quarter compared to a year ago, however Hecla continues to maintain low operating costs. Silver production declined 34 percent to 1.7m ounces, compared to the third quarter of last year, however on the cost side, costs remained very low at $2.32 per ounce.

This reduced silver production is primarily the result of lower ore grades at each of the silver operations. And most significantly, impacted by a 54 percent decrease in ore grade at San Sebastian, where mining on the Francine Vein is moving into its final year of life.

On the gold side, production decreased 5 percent and totaled nearly 45,000 ounces at a cash cost per ounce of $211. At La Gomorra tonnage was off slightly at down 3 percent, while costs increased due to the mining at deeper levels, combined with increased material costs.

Although these costs were higher than traditional costs at La Gomorra, the cost per pound continues to place Hecla in the lowest quartile of gold producers, and Hecla continues to make investments in the La Gomorra shaft, which will help us maintain our low-cost production in the future.

We turn for a minute to the income statement, Hecla reported income before exploration, predevelopment expenses and the environmental accruals of $3.3m for the quarter. This is down from last year’s $8.2m in 2003. Phil mentioned the environmental accrual of $8.4m, which consists of an increase in the accrual for the potential liability in the Coeur d’Alene basin of $5.6m and an increase in estimated future costs of reclamation at our Grass Creek property of $2.9m.

I’ll take a minute to talk about the basin. The accrual is really the result of estimating potential liability for past response cost component of this case. The government has asserted Hecla’s liability for the past response cost of $27m, however we’ve done a detailed review of the claims and we’ve determined an estimated range of liability of $5.6m to $13.6m and have accrued to the lower end of this estimate.

When we factor in the exploration, predevelopment and environmental accruals, Hecla did record a net loss of $11.3m for the quarter, compared to a loss of $17.5m in the third quarter of last year. The third quarter of 2003 also included environmental accruals of $23.3m.

Now if we turn to the nine-month period, year to date Hecla’s recorded income before exploration, predevelopment and environmental accruals of $19.34m, compared to $23.3m in 2003. After deducting exploration, predevelopment and environmental, Hecla reported a net loss of $2.4m compared to a loss in 2003 of $8.2m.

When you compare these results, on the exploration side we’ve increased exploration spending by $4.7m, which is again supporting our focus to increase reserves and resources. In addition, 2003 benefited from a $4m settlement on the [Zemex] litigation, which was related to our prior sale of our industrial mineral segment. Also during 2004, environmental accruals were $14m less than 2003.

On the production side, production increased 1 percent on gold to 154,000 ounces. We were able to do this at a cash cost of $165 per ounce. While silver production totaled 5.7m ounces at a low cost of $1.81 per ounce.

From a cash flow generation standpoint, our cash flow from operations remained consistent at about $17m for the first nine months of this year compared to the same period last year. Remember, when you exclude the cash required for exploration and predevelopment, cash flow improved nearly 17 percent from $26m to more than $30m in 2004. Again, this cash generation helps to support the increase in the exploration expenditures that we are incurring this year.

In addition to investing in exploration, Hecla is also investing in its growth strategy with capital. Capital spending of nearly $31m during the first nine months has been primarily for three growth projects, including the 5900 level development at the Lucky Friday mine; the new mine development at Mesa Isadora in Venezuela; and expanding the productive capacity at La Gomorra with the construction of an underground shaft.

If we turn to the balance sheet for a minute, the balance sheet remains very strong with cash and short-term investments of $93m. This cash balance and the cash being generated from our operations continues to provide the capital necessary to grow and expand the company’s production profile.

It is also interesting to note that at the end of September the company has repaid all of its outstanding debt and is now debt free.

So in summary, Hecla’s financial position remains strong, we are investing heavily in both exploration and capital to support our growth strategy and to provide long-term shareholder value. Now I will turn it over to Tom Fudge who will discuss the exciting activities at our Venezuelan operations.

Thanks, Lew. Well it was another very busy quarter down in Venezuela. In addition to our production activities, we have two major mine development projects under way, the La Gomorra shaft and the Mesa Isadora main ramp. A very aggressive exploration program, which drilled almost 8,000 meters during the third quarter, and the start up of our block B sampling plant, which is the heart of our new custom milling business.

Now outside of our operational activities, it was also a busy time in Venezuela in the political arena, with the presidential referendum in August, and regional elections just this past Sunday. With the elections out of the way, we see the government moving from campaign mode into policy execution, and we believe that our active government relations program, coupled with our progressive community development and small miner development programs, puts us in a very good position to join with the government in the development of the gold mining sector in Venezuela.

As Lew mentioned, our production costs were higher than the first and second quarters, and there were several reasons for that – two of them structural, and two of them non-recurring. Now one of the changes in our cost structure is related to the La Gomorra purchase agreement, which includes a royalty provision that once the cumulative production exceeds 600,000 ounces, we start paying a royalty to the former owners, Monarch Resources.

This is one of those good news/bad news situations, and I think it is a very good example of what Phil discussed earlier about, in the districts we mine in, you get more than you see. The reality is, this is going to increase our costs by about $8 an ounce at current prices.

The other structural change, as Lew mentioned, is the increasing depth at the La Gomorra mine. Now we are currently developing levels more than 600 meters, or about 2,000 feet below the surface, with the only access through the main mine ramp. This means there is a 10 kilometer round trip for each truck of ore.

Now our shaft development project, which will be operational in the second quarter next year, will significantly relieve the haulage bottleneck and decrease our cost structure by over $1.5m per year. The non-recurring costs related to some maintenance issues at La Gomorra and the kind of costs you would anticipate with the start up of the sampling plant and the custom milling business. And that business did contribute almost 2,000 ounces of gold during the quarter. Our fourth quarter costs will be more in line with our year to date costs.

The Isadora mine development project is in full swing. All of the construction permits and infrastructure are in place and underground development has started. Crews have advanced the access ramp over 150 meters, and we should reach the ore body mid-2005 and are currently on schedule to have the mine ready for commercial production in 2006.

Now our exploration team has been very busy on several fronts as well, and I want to take just a minute to focus on our Twin Shears discovery. This is a very interesting and potentially significant deposit in our block B lease area. Currently, there are 40 percent of the 17 drill holes completed that have ore grade intercepts, while additional holes look promising, those results are still pending.

The unique aspect of this deposit is its width, with over 10 meters of ore grade shear zone in two of the holes, and an average width of about 5.5 meters in the area of interest. This discovery zone currently extends over 1,100 meters horizontally, and 300 meters vertically. And, you guessed it, it remains open in both dimensions.

A system like this will probably achieve grades of only one-half to one-third of the high grade reserves we see at La Gomorra and at Isadora, but given its width and its extent, we would anticipate a much more efficient, lower cost production and a multi-million ton resource. We will be moving into our next phase of drilling on the Twin Shears in the fourth quarter of this year and the first quarter of next year, and we hope to be in a position to move that onto feasibility sometime early next year.

So with that, I want to turn it over to Ron to talk about North American operations.

Thanks, Tom, and good morning. [River] production at the Lucky Friday mine in Idaho during the third quarter was on target. Cash costs dropped to $4.53 per ounce, in spite of higher diesel and steel costs, and increased transportation distances below our current haulage level.

Increased production, albeit at a lower grade and higher by-product credits, are the primary reasons for the improvement in cash costs. Development to the vein on the 5900 level is approximately 65 percent complete, and on schedule and budget. We expect to begin limited production from the 5900 level as a by-product of development during the first quarter of 2005. Full production of approximately 4m ounces annually will be reached by the end of the first quarter 2006. As we mentioned in the press release, we’ve obtained some excellent results from our drilling. We expect to convert additional resources to reserves as well as add resources and to continue to extend the mine life.

The strike length of the vein has increased by approximately 250 feet from the current mining level, to a depth at the 5900 level. That is about 600 feet down depth. A number of important developments have occurred at the Lucky Friday during the year. The additional strike length has caused us to modify the mine plan, adding one additional production stoke below the 5900 level.

Coupled with the success we’ve had mining the parallel veins adjacent to the main vein, the potential for additional production capacity beyond our current, planned, full production rate, has been identified.

In addition, recent metallurgical testing in the plant has returned results that indicate that we can improve our recovery of silver, lead and zinc and at the same time improve the quality of our concentrates. The capital required is relatively low, and preliminary indications are that these improvements we are contemplating may also allow additional through put above the full capacity estimate. We expect to make a decision on this capital investment by the end of the year.

In order to take advantage of the capacity opportunities that I’ve just talked about in the mine the mill, we plan to initiate a scoping study to identify any bottlenecks and constraints in the infrastructure. The scoping study will concentrate on ventilation, shaft capacity and tailing storage. This work will continue well into 2005.

We also plan to continue exploring the Long Strike and below the 5900 level next year. We have a lot of work ahead of us, but I am extremely excited about the opportunity to increase our resources and improve our production and cost profiles at the Lucky Friday.

The San Sebastian unit in Durango, Mexico, continued to produce silver for a very low cash cost of $1.20 per ounce for the quarter. Our year to date cash costs are 22 cents per ounce. However, our mining costs have increased as a result of mining the remaining pillars, and the deeper part of the current resource at the San Sebastian mine.

In addition, we are seeing an increase in the base metal content near the bottom of the remaining ore shoot, resulting in increased processing costs. We expect our costs to continue at the current level during the first half of next year.

Ground conditions at Don Sergio have improved, and we expect the development costs to drop slightly as a result. Don Sergio will provide the lion share of our production next year. Since Don Sergio is a gold/silver deposit, gold grades will continue to increase while the silver grades will continue to decrease through the middle of next year. As expected, our current minable resources in both the Don Sergio and San Sebastian mine will be exhausted during the third quarter of 2005.

The national union representing the employees at our Valor Dania processing plant called a strike on October 19th. This plant process our ore from the San Sebastian and Don Sergio mines. The union presented a list of unfounded violations of our collective bargaining agreement as the foundation for the strike. Our collective bargaining agreement provides a process for disagreements of this nature, which the union has not followed. We have formally denied the grievances and provided support for our position with the Ministry of Labor in Mexico City. This is a normal part of the process in Mexico, and a declaration from the Ministry regarding this matter is forthcoming.

We are working with the Ministry of Labor, the Government of the State of Durango as well as our employees to resolve the issue. The mine has been unaffected and we continue to produce ore. We expect the impact to our operations to be very low over the remaining mine life.

Successful exploration at San Sebastian has resulted in the advancement of the [Hugh Zone] project to a scoping study. The Hugh Zone is located on the Francine vein, approximately 100 meters below the known ore zone at the San Sebastian mine. We have completed drilling 40 holes into the zone. Drill spacing is generally wide, ranging from as little as 25 meters in limited cases, to as much as 100 meters. Scoping level, metallurgical testing is in progress and nearing completion. Results to date are encouraging.

An engineering scoping study designed to identify criteria and work required to complete a full feasibility study has been completed. The full feasibility study in this case would include a drifting program to access underground drill platforms and a drilling program designed to tighten up the drill spacing as well as expand the resource. The resource is open at depth and along strike. A scoping level resource estimate is currently underway. We expect to complete the scoping study during the fourth quarter, and a decision regarding commencement of a full feasibility could come as early as the first quarter of next year.

We continue to advance several other targets on the Saladio property in Durango, Mexico, including the deeper potential below the Don Sergio mine, the Cerro Blanco and the geochemical anomalies along strike to the west of the Francine. We plan to continue to systematically explore the large number of exciting prospects within our 200 square mile land holding adjacent to our operating mines.

Elsewhere in Mexico, in the northern state of Senora, the feasibility study on the Nocha Buena gold mine project is in full swing and on target for completion in the second quarter of next year. Nocha Buena is an open pit heap leach project. In field core drilling is complete, and results to date are encouraging. Resource, hydrology and engineering work are progressing as planned, and have identified some opportunities for improvement over earlier work. Samples have been taken and column tests are scheduled to begin soon. These metallurgical tests are designed to confirm the earlier tests completed several years ago by Hecla. A production decision is expected by mid-year next year.

In Nevada, the Hollister project is an underground gold exploration project located along the Carleon Trend between the Rothy Mine and the Midas Mine north of Battle Mountain, Nevada. Surface construction and underground development began in late September. Initial progress has been as planned, and the underground portal has been collared. We expect to complete surface construction during the first quarter of 2005, and will have enough of the drifting completed by June to begin the underground drilling. Completion of the feasibility study is scheduled for the second quarter of 2006.

Also in Nevada, the Stonewall project is an early stage gold exploration project located approximately 20 miles south of Gold Field, Nevada. Hecla can earn 100 percent interest in the property, subject to a production royalty, by spending $750,000 on exploration over the next three year period, and paying Pacific Inter Mountain Gold Company $250,000 in advance royalty payments. Mapping and geophysical work was completed in the third quarter. We began drilling this early stage thermal vein prospect near the end of October. We expect to drill a total of 18 reverse circulation holes on a wide spaced grid before year end.

At the Greens Creek mine in Alaska, the team up there turned in another good quarter with cash costs at a respectable $1.55 per ounce. This is especially remarkable in light of the significant increases in diesel fuel costs, which were approximately 90 cents a gallon a year ago, and reached $1.75 a gallon in the third quarter. Greens Creek generates all of its power requirements with diesel generators. Sea freight costs have also increased significantly over the last year. The team at Greens Creek is doing a great job of offsetting some of these increases with reductions in other areas.

The exploration commitment that the joint venture partners made during 2004 was one of the largest annual commitments in the history of the property. Approximately $4m will be spent by the end of the year. A number of targets covering a large part of the land holdings were drilled this year. The most significant discovery was ore grade mineralization to the west, across the Gallagher fault from the current ore bodies. Drifting to establish drill stations closer and at a more favorable angle to this discovery is nearly complete. Follow up drilling will continue into next year. Several significant ore bodies have been discovered at Greens Creek over its life, and we expect this pattern to continue.

We are investing significant resources in our exploration, feasibility and exploration projects in North America. And as you can see, we are making good progress toward our growth goals, and I expect this to continue from the North American operations.

Thanks, Ron. I hope you are seeing with all of this why we are so excited and have been about the future of Hecla. At every property, we are seeing opportunities for growth. I mean, even at the Lucky Friday that has been operating for such a long period of time, we are seeing the opportunity to not only take it from the 2m ounces that we are currently producing, but maybe even going beyond the 4m ounces that we are projecting to produce at.

We see, at every property, an opportunity for low cost, low risk growth, that is going to generate investment returns and generate earnings over the long term. So with that, Vicki, I think we can take questions.

That concludes the presentation portion of the call. Operator, we will do the question and answer period now.

Thank you. (Operator instructions) Our first question is from the line of Anthony Sarrantino with Sarrantino Metals.

Good morning, everyone.

Hi, Anthony.

Hi. Can you go into greater detail with regard to some of the exploration results that you have gotten at the Lucky Friday mine?

Sure. I will ask Ron and Ian to respond to that.

Good morning, Anthony. I guess in broad terms what I would say is that we’ve been systematically drilling the area below our current mining level down to the 5900 level, and particularly the east half of that deposit. Outside of our current reserve, basically upgrading resources and then also extending the strike length. We are also outside of the resource boundary.

And generally, on the east half of the deposit we’ve added strike length, we have seen grades that are a little better than what we expected, and basically seen an increase in those resources and the ability to mine more there. We are doing the same thing right now on the west side of the deposit. We have increased the strike length a little bit on the west side, but we don’t have as much data yet there, and so we expect similar things to happen on the west side.

And when you said you’ve increase grade, what sort of average? About an ounce?

Yes, I wouldn’t expect much better than that, and we haven’t done the resource estimate yet. It’s in progress right now, so we are looking at a slight increase. But that’s significant at the Lucky Friday.

Right. And is it these results that are giving you the encouragement to go ahead and look into perhaps increasing the peak capacity of the facility?

As I mentioned in my talk there, clearly the strike length increase has caused us to put in an extra stove, just because if we don’t the stoves get too long. So there is mining capacity above what we had planned and what our mill capacity originally was. Now with the opportunities that we are seeing in the mill, for increasing not only our performance in the mill, but maybe the throughput, all of a sudden two of the five constraints that we’ve normally seen to capacity at the Lucky Friday and two of the major constraints are not constraints any more, or don’t appear to be constraints any more. So with that, it is going to cause us to take a look at how can we increase the shaft capacity, tailing storage issues and ventilation capacity. But you got it exactly right, that is what has encouraged us to look at that.

Let me just put a caveat. We are in the early stage of this, Anthony. This is something that has been developing over the course of this quarter. We are far from being able to say that we will be able to increase the production, but the outlook looks good. There is truly an opportunity to do that.

Okay, sounds good. Well thank you very much.

Thank you.

And our next question comes from the line of Terrance Orsland; CSO & Associates.

Hi, Terry.

How are you doing. Just a wrap up on the – it is amazing how much work is still being done on improving results from Hecla. On the mill, the recovery you are referring to, and also what you have to do in terms of investment to get those. What numbers are you talking about in terms of recovery timeframe?

We could be looking at numbers that are in the 1-2 percent range on silver and the bigger impact is actually reducing the amount of deleterious material that is going out in our concentrate, iron in particular, and reducing the freight costs.

And all of this has a pretty dramatic impact on the cost structure.

Right. And the other thing that is a possibility here is the increase in zinc recovery, and that number I can’t give you a number right now, because we are still doing that work, but it looks to be bigger than what I’ve mentioned here. But the lead and silver, we could be looking at 1-2 percent improvements on the recovery.

But the con grades will also change?

The con grades will go up.

And that double up, as you implied, is going to be able to put more throughput through the mill.

That is the part that we are still investigating, but it appears that we are going to be able to get some more throughput out of it as well.

Because long term return is going to be enormous. What is the cap on this, just in terms of what you have to do?

We are still putting that number together, but it is not a real big number.

We are talking about something that we would have the capacity to do with our balance sheet and cash flow.

You are not talking multi-millions here, are we?

No.

We’re not talking tens of millions. Less than that. Maybe $5m or so.

And [inaudible] is what, roughly? Just curious, because I have been to the property many times, and it amazes me. So what are the amounts in terms of equipment?

I missed the question, I am sorry.

Does it involve equipment or involves consumables?

It is some of both.

Consumables.

No, it is some of both. Some of it is reagents that we are using to do this, and some of it will be increasing float cell capacity, and we have float cells.

Okay, anyways. That is great. Great news, guys. Thanks.

Thank you, Terry.

Sir, we have a question from the line of Jeff Stanley with BMO Nesbitt Burns.

Hi, good morning.

Hi, Jeff.

A couple of questions for you. I was just wondering if you can elaborate a little bit on the timeline for Isadora there. Just exactly when in ’06 do you expect commercial production, and elaborate a little bit on the timeline in general? And, a second question regarding Don Sergio and just the strike situation and potential to propagate production beyond the end of the reserve life there. And I would like to get a handle on exactly the extent to which you think the strike is related to the impending closure of that deposit and the potential for extending production?

Let me ask – well go ahead and start with the Isadora question first.

Yes, that is pretty straightforward. We are anticipating first, second quarter of 2006 to meet commercial production. We will start to get in and see some development production late next year.

Okay.

You might also talk about the production that we will get from the incline shaft.

That’s a good point, Phil. Adjacent to the Mesa Isadora zone is a historical shaft, [Podriaga], and we acquired it about this time last year and we have been investing in upgrading that shaft and its capacity, making it safe. And sometime in the next few weeks we will actually intersect the Chile vein, which is the main portion of the Isadora deposits, out of that shaft and next year we are anticipating as much as 20,000 ounces of production from that sector.

Okay.

So the point, Jeff, is that we have the opportunity to see production coming out of Mesa Isadora, we will see production coming out of Isadora next year.

It will be preproduction or it will be capitalized against the costs there?

No, I think it will end up being, because it is coming out of a different portion of the mine, it is coming out of – there is no real additional capital that will be going into that portion of it, it will probably show up as production and go into our cost per ounce, et cetera.

But you know, it is just an example of the ability we have to move this stuff forward very, very quickly.

Okay.

And then on Don Sergio, why don’t you talk about the strike length and the exploration that we are doing?

Okay. I guess I didn’t understand the strike length part of the Don Sergio question, but basically I think your question was, what is the possibility of extending the production beyond the third quarter of next year, and I think in the long term the answer to that question is it is good based on what we are seeing in the Hugh Zone and other exploration areas. But as Phil mentioned a quarter ago, we are likely to have a hiatus there between the end of the production from Francine and Don Sergio, and new production elsewhere.

Right

We are looking for things to extend that and every month that we can extend the mine life there is important to us. So there are some little things that we are looking at that could mean in terms of another month or two. But Phil’s comment last quarter was appropriate.

Yes, okay. Understood. And as my reference to strike is doubly confusing, because as much as anything I was referring to the strike at the processing facility and wondering how closely related that is to the impending closure of mining there and trying to get a handle on what its actual impact will likely be from a financial standpoint and from an operating perspective.

Sure, I guess I would answer your question this way. I would say I think there is no relation between the impending end of the mine life and the strike. I think it is related directly to the issues that they brought up. The second comment I would make is that depending how long the strike goes, it could have some affect on our fourth quarter, but at this point the mill can outrun the mine production, so the likelihood that it is going to have a significant impact over the remaining mine life, which is less than a year’s time, is pretty low.

Okay. Very good. Thank you very much.

Thanks, Jeff.

(Operator instructions) Sir we have no further questions at this time.

All right. Thank you very much. That is the end of today’s third quarter 2004 Hecla Mining Company Conference Call. Thank you all for joining us and have a good day.