Hecla Mining Co (HL) 2007 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the fourth quarter and year end 2007 Hecla Mining earnings conference call. My name is Gina and I will be your coordinator for today.

At this time all participants are in a listen-only mode.

(OPERATOR INSTRUCTIONS)

As a reminder this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Vicki Veltkamp, Vice President of Investor Relations. You may proceed.

Thank you and thanks to all of you for joining us today. As Gina said it's the Hecla Mining company fourth quarter and year end 2007 conference call. I'm Vicki Veltkamp, vice president of investor and public relations for Hecla. Our call is being webcast live at www.hecla-mining.com and it will remain up on that Web site as a replay for some time to come. Also on our Web site you can find today's financial news release.

Today's presentation will be made by Phil Baker, Hecla's president and CEO and he's joined by Ron Clayton, our Senior Vice President of Operations, Lew Walde, Chief Financial Officer, Mike Callahan, our President of Venezuelan Operations and Dean McDonald our Vice President of Exploration.

Before we start I do need to let you know that any forward-looking statements made today by our management team comes under the Private Securities Litigation Reform Act. It involves a number of risks that could cause actual results to differ from projections. In addition to our filings with the SEC we are allowed to disclose mineral deposits that we can economically and legally extract or produce, so investors are cautioned about our use of some terms as measured, indicated and inferred resources. We urge you to consider those disclosures and our SEC filings. Now I'm happy to turn the call over to Hecla Mining's President and Chief Executive Officer, Phil Baker.

Thanks Vicki and let me add my welcome to Vicki's.

Over the past two weeks we've announced three deals that we've been working on for the better part of the year and I guess in the case of Greens Creek, closer to 20. However, the exciting thing to me about these deals is that they are already being added or they are being added to an already strong Hecla. We have operating and exploration expertise this year that's been combined with our strongest financial capabilities in our history. And I think this arguably has given us the strongest year in our history and I guess I can say without a doubt that certainly if you put 2006 and 2007 together they are the best two consecutive years in our history. And, of course, the deals that we have, two of them are expanding on where we are already operating, Greens Creek and Lucky Friday. So what you've seen us accomplish in 2007 we think we'll be able to multiply on that in the future.

The third deal that we've just announced yesterday, the San Juan venture, I think adds a new dimension to Hecla that's really changing quite quickly. However, the San Juan venture I think is very consistent with what were trying to do in Silver Valley and Greens Creek where we are building on past knowledge in order to make new discoveries and to build new mines in places where mining has been so prolific.

What I want to do is stop here. My colleagues have a number of comments to make. I'd like for you to be able to hear their comments and they'll talk about things that have happened in the quarter, the year and they'll talk a little bit about the transactions. So let me start with Lew and after we've gone through with everyone you'll come back to me and I might have a few closing comments and then we'll open it for questions.

Thanks, Phil.

2007 was another excellent year for Hecla as Phil has already mentioned. When you look at the financials we had record revenues and record cash flow provided by operations and our earnings were the second highest in the company's historic 117-year history, falling just short of the level we achieved in 2006.

The operations performed exceptionally well with 5.6 million ounces of silver production at a record low cash cost per ounce of a negative $2.81 per ounce.

There also were a number of other events that occurred during the year. First off the company recognized a gain of $63 million on its sale of its interest in the Hollister project early on in the year. And the other big factor on the positive side is we recognized an additional $10 million of deferred tax asset value. And more on that in a minute.

While our revenues were the highest in the history, earnings were impacted compared to last year because the company updated its environmental accrual analysis and took a charge of about $44 million during the second quarter. The company also established a charitable foundation and contributed stock worth about $5 million in the fourth quarter which provides a mechanism for funding sustainable development in the communities in which Hecla and its subsidiaries operate. After factoring in all of the above the company income applicable to common shareholders of $52 million, or $0.43 per share for the year.

Focusing on the fourth quarter just for a second, we recognized income of $7.6 million or $0.06 per share, and this was partly benefited from an increased deferred tax asset which resulted in a tax benefit of about $7 million for the quarter. We also recognized the $5 million of expense associated with the charitable contribution.

Turning a minute just for the silver operations during the fourth quarter -- it was another fantastic quarter. We generated over $17 million of gross profit from the silver operations in the fourth quarter and this is despite the fact that we had $3.5 million of negative price adjustments on provisionally priced metals and concentrates as metal prices generally trended down during the fourth quarter.

One of the key things that we saw in 2007 was really the transformation of Hecla's balance sheet. We saw great cash flows from operations, the sale of Hollister and, finally, the public sale of mandatory convertible preferred shares in December.

The end result of this was that our balance sheet was in the best shape that its been in the company's history. We ended the year with $400 million in cash and short term investments and current ratio stood at 8.8 to 1. So why is this important? Well it's important because that balance sheet played a significant role in our ability to complete the transactions that we just announced and primarily the transaction to acquire the remaining 70% of Greens Creek. We'll use about $300 million of our existing cash to complete that transaction.

The strength of our financial position has also allowed to us continue our aggressive exploration program and we continue to have success in this area as silver resource increased by about 10% during 2007. With this balance sheet, the great cash flows being generated from our operations that will continue to allow us to invest in the exploration programs and the capital programs that are expected to deliver long-term value for our shareholders. We'll hear more on the capital and exploration programs from Ron and Dean in a few moments.

I mentioned the deferred tax assets a moment ago. And today on the BS this asset now stands at about $22 million. It's very important to point out that Hecla has approximately $190 million of net operating losses in the U.S. that are available to offset future taxable income, but only a very small portion of this value has been recognized to date. When we look at today's price environment the value of these NOLs is quite real and we can expect to continue to utilize and recognize the value of these NOL.s for several years if the current price environment persists.

Focusing just a moment on the cash flow, again, just reiterate this was a record year for Hecla generating more than $65 million of cash flow from our operations. When we look forward to 2008 before the consideration of the additional expenditures that will be associated with Greens Creek once that transaction closes, we would expect that our Capex to be in the range of $50 million to $60 million, primarily at Lucky Friday for the underground wins, tailwinds expansion and equipment upgrades and at Greens Creek will also have tailings upgrades and our normal sustaining capital at that operation.

We've also budgeted about $25 million for exploration at this point but on the production side we expect that without Greens Creek 85,000 to 100,000 ounces of gold at a cost of $490 to $530 per ounce and silver in the range of 5.7 million ounces at a cost of less than $1 per ounce which of course is highly dependent upon by product metal prices. Again we'll update these further once we roll in the impact of Greens Creek owning 100%.

So to summarize 2007 was another fantastic year for Hecla and has positioned the company do take advantage and do opportunities by Greens Creek and the existing exploration of capital programs that are currently underway. Now for some more focus on operations and the capital program, I'll turn it over to Ron.

Thanks, Lew.

2007 was a very busy year for all of our operations. We achieved major milestones at each that will allow to us continue to maximize our ability to take advantage of the high metals prices. We expect both high metal prices and our strong operational, low cost performance to continue well into the future.

One of the most significant and important accomplishments and the one that I am the most proud of is that every one of our operations achieved a higher level of safety performance and results in 2007. In Venezuela in spite of the challenges we faced during the year and the fact that we closed one mine and brought another into full production our safety record improved. Greens Creek and Lucky Friday book took major steps in adding new training programs and dedicated trainers.

The results were quite positive. The programs at each operation focused on helping employs both knew and experienced to understand and integrate safe practices into their daily jobs. Greens Creek and Lucky Friday have both been recognized in our industry on many occasions in the last between years for their dedication to safety and excellence at providing a safe workplace. Our people at both operations are simply not satisfied with anything less than perfection. We've had, we have a tremendous opportunity to see continued improvement and I'm very excited about the possibilities that our professionals from Lucky Friday and Greens Creek may achieve in light of the opportunity for them to work together even more closely in the future.

As you may know, Hecla has been a joint venture partner at Greens Creek for more than two decades. I've had the pleasure of being Hecla's representative on the Joint Venture Committee for the better part of the last ten years and have consistently participated in reviewing and approving plans and budgets for the operation. We have enjoyed a joint venture relationship during that time that has allowed us to be active participants in the direction of the operation and this has positioned us well for a very smooth transition in the coming months.

I had the opportunity last week to meet with most of the Greens Creek employees in groups and many of the management team in person after we announced the deal. In addition I had the opportunity to talk with some of the community leaders in Juneau and some of the agency representatives that work with our team at Greens Creek. We received a very warm response. The people at Greens Creek have established very high standards for safety, environmental compliance, community relations and operational excellence. We've been supportive of this for over 20 years and intend for Greens Creek and Hecla to continue to improve on this performance for many years into the future.

Over the last several years as metal prices have risen we've been rebuilding and upgrading the infrastructure at both Lucky Friday and Greens Creek. Both operations achieved financial performance in 2007 that were at or near historic highs. At the same time both completed major capital construction projects. These projects have positioned each operation for continued performance at the high levels attained in 2007 and may provide the platform for some incremental improvements. Both operations have projects and processes underway that are targeted at improving planning, mill performance, mine performance, lowering costs and ultimately increasing profitability.

While we have always enjoyed the ability to exchange ideas through our joint venture arrangement, the chance to take even greater advantage of the skills and experience and knowledge of the people at these two operations is a tremendous new opportunity that we plan to take advantage of. Although Lucky Friday and Greens Creek are different in terms of ore body character and geometry, there are many commonalities, and I'm looking forward to working with these two groups for the benefit of both operations and Hecla. This is going to be fun.

On a final note I cannot say enough about the performance of our team at the Lucky Friday over this last year. In the mill we achieved the highest throughput ever and at the same time we improved recoveries of silver and lead to payable concentrates by more than 1% and zinc recovery to the zinc concentrate by about 10% compared to 2006. We did this in spite of the lower feed grades that were driven by higher prices and our ability to mine lower grade profitably. By taking advantage of this opportunity we've added mine life and increased value of this asset.

In addition we completed more capital construction projects in the mill and in the mine in 2007 than in any other single year in the history of the operation. We added reserves and resources again in 2007 and are well along the path of completing the engineering for the shaft that will access ore to the 8,000 level and extend the mine life out past 2025. The capital projects completed in the mine have positioned us to repeat our 2007 production performance as well as begin developing our new reserves and resources in depth. Drilling in the gap area from both surface and underground coupled with the work we are doing on the expansion prefeasibility study will be completed later in 2008 and may provide the opportunity for an additional expansion at the Lucky Friday.

2007 was one of the best years in the history of our operations. With the addition of the rest of Greens Creek and the opportunities we have for collaboration between our new and longer term teams, I am convinced that we are set for another strong year in 2008 and very bright future.

At this point I'd like to introduce Dr. McDonald who will update you on our exploration programs. Dean?

Thank you, Ron.

In 2007 the overall silver resource for the company has increased by 10%, bringing Hecla's total reserve and resource base to more than 184 million-ounces of silver and 3.5 billion pounds of lead and zinc. We have a long project pipeline with drilling programs in the Silver Valley, Lucky Friday, Mexico, Greens Creek and Venezuela during the fourth quarter. These programs, which represent the most aggressive exploration program in our history, resulted in steadily increasing resources at our mines and opportunities for new resources within our large strategic land packages.

In Mexico the 340 square mile San Sebastian property has been the focus of intense exploration over the last past few years and we are making progress on a number of targets. Drillings at La Roca, in the northeastern part of the property, has intersected a number of silver bearing branches and veins that are localized along two regional structures that extend for many kilometers. The intense alteration at La Roca combined with old mercury mining activity indicating whole epithermal system is preserved then one can anticipate precious metal veins coal asset depth. Drilling at La Roca in the fourth quarter includes some narrow high-grade intersections but these holes will also provide critical data used to vector into the most prospective portion of this very large silver/gold system. We've gotten some very interesting results at La Roca and really are zeroing in on the prize.

Also at San Sebastian core and R.C. drilling have been completed, and the first evaluation on eight different early stage prospective areas; complete assay results are pending on most of these targets.

Moving off San Sebastian but staying in Mexico, Rio Grande which is 50 kilometers south of San Sebastian consists of a series of high-grade [threadneedle]-style epithermal veins and branches that extends for over 15 kilometers. Drilling at the Rio Grande property has provided new high grade intersections in the Soledad, Concepcion and Arcangeles veins including grades up to 25.2 ounces per ton silver.

The Rio Grande vein system is large and well developed and has been shown locally to have appreciable silver grade development. Techniques such as flute inclusion systematics and geo-physics will vector future drilling towards fluid upflow zones within the vein systems. We continue to be very excited about this project and have really just begun to drill these veins and identify the broader high-grade portions.

At the Silver Valley in Idaho, surface drilling was initiated on the important gap directional drill program to evaluate the potential for additional silver resources in the 25-foot area above where mining is currently occurring. This is the beginning of a nine hole directional drilling program and results will emerge over the next four to five months. Six drill holes tested the strike extent of the near surface western extensions of the Gold Hunter, Iolanthe and American commander veins. All holes penetrated vein mineralization that range from narrow stringers to multiple vein zones. Partial assays indicate that silver-bearing mineralization he can tends to the west of the old workings.

With the extrapolation of regional faults and stratigraphy in 3-D space we have identified three regional structures that are the focus of our current exploration activities in the Silver Valley. Detailed 3-D modeling and resource assessment is underway on the Star mine with remodeling of the Star Phoenix infrastructure from the 1990s to provide an assessment of the economic viability and exploration potential of the upper resource blocks in this historic mine.

In addition to looking on our own 25 square mile property position, Hecla recently signed exclusivity agreements with 33 companies that adds up to another 11 square miles of property. The integration and evaluation of the exploration data from these claims has begun with an emphasis on the past producing Golconda mine and surrounding area. Continued additions to our land position in the Silver Valley make Hecla Mining the largest land broker in the valley.

The silver resource at the Lucky Friday has increased by over 13 million ounces and now totals about 130 million ounces. In-fill and definition drilling was completed in the 5900 East area below and east of the current identified silver resource and is the main contributor to this increase. Drilling from the 5900 level in the fourth quarter has defined the western extension beyond the resource to the 5900 elevation and will extend the 30 vein resource model deeper and to the west in the future. This drilling has also returned significant assays on the intermediate vein called the [Noni] vein.

In the coming year we anticipate both an increase in overall resources at the time Lucky Friday and in places an upgrade in the confidence of the resource quality. Drilling is shown the 30 vein to extend down to 8,000 feet and it likely goes even deeper than that.

Fourth quarter drilling from the newly developed western spur drift in the Gallagher area of Greens Creek intersect at 12 feet of sulfides that may correlate with the previous surface holes, defining a possible new resource. Another hole targeted the upper plate north northwest or zone had one significant intercept of 3.6 feet of massive sulfides. These results are further vindication that reserves and resources continue to be identified in close proximity to the Greens Creek mine infrastructure.

Results from surface and underground drilling during the year at Greens Creek have identified mineralized mine contact rocks both close to the mine infrastructure and amount the full extent of this large and perspective property. Of great significance is an intersection from a surface drill hole northeast of the current mine workings that identified multiple mine horizon intervals. This intersection could open up an entire new area to explore from mine extensions in close proximity to the current mine infrastructure. Follow up drilling of this target for the summer is being designed.

Drilling at the Isadora mine in Venezuela has identified high-grade gold shears beyond the current mine infrastructure and drilling along strike to the west has identified a new foot wall shear with impressive gold values. Assay intersections of the new foot wall shear are over 1 ounce and vary in thickness from 0.5 to 2 meters. Significant potential exists to depth and on strike to the east.

The new evident exploration acquisition is the San Juan silver mining joint venture that represents the consolidations of the Creek mining districts in Colorado into a 25 square mile land package. Included in the package is Homestake's Bulldog mine that produced 25 million ounces until closure in 1985. A detailed review of Homestake Creek properties in 1988 identified a measured resource of 48 million ounces of silver at the Bulldog and North Amethyst mine. Drilling around the mines outlined an additional 50 million ounces of silver in resource or inferred resource category. We believe that this land package with its over 30 miles of projected vein structures will provide many opportunities to expand the resource well beyond these numbers.

Although Hecla continues to expand on its property holdings in Mexico and the Silver Valley we are currently developing the mineral deposit database for southeastern Alaska and northwestern British Columbia in order to take advantage of exploration and acquisition opportunities from our basic Greens Creek. We also continue to evaluate exploration and corporate development opportunities to enhance our broadening activities.

With that I'll pass to Mike Callahan.

Thanks, Dean. I'll keep my comments on the Venezuelan operations quite brief today.

We saw some very positive results in the fourth quarter as we ramped back up to full production. We saw some very high grades out of the Mina Isadora which averaged over 30 grams per ton in the quarter. On the flip side, production was hampered by a labor dispute in December and lower equipment availability.

One significant issue I guess regarding the equipment availability was not related to the operations but a result of the agency that oversees the currency controls for the importations of goods not functioning during December and the transactions could not be performed. The issue was resolved and the agency was functioning again in January.

Even with these events and the block indicated earlier in the year the cash flow from operations out of Venezuela was $16 million in 2007. On the political front, the focus in the country during the fourth quarter was really on the 59 new constitutional reforms that president Chavez had proposed. The proposed referendum was voted down by a narrow margin and this was arguably the most significant election event in the last nine years. It demonstrates that democracy still exists in Venezuela, that people don't want one leader for a lifetime and it brought life back into the opposition party. And the reason that this is important is because in December of 2008 elections are going to be held for governor and mayor positions throughout the country and it separated some of the political parties that have previously supported president Chavez. The strategies for Chavez and the opposition party have yet to be unveiled and the significance of these if any will unfold in the coming months.

With that I guess I'll turn it over to Phil for closing comments.

Just a couple of things, thanks, Mike.

A couple of things, the charitable foundation that we've formed, the idea behind this is to have the ability to consistently have charitable activities in the communities that we operate in good economic times for the mining industry and bad. Certainly one of the things that we've seen is the need to have that consistency and we think that by forming a foundation like this we'll be able to do that. The other thing that will happen is as we close Greens Creek we will at that point update our production estimates, our exploration expenditure estimates, our capital expenditure. And I guess with that, Vicki.

Gina, we would ask you to give instructions for the question and answer period, please.

Thank you.

(OPERATOR INSTRUCTIONS)

First question, Anthony Sorrentino, Sorrentino Metals.

Good morning everyone.

Hi, Anthony.

Hi. With regard to the prefeasibility study at Lucky Friday, are you still using Hatch and do you intend to double-check their work?

Yeah, we are still using Hatch engineers and, look, we have a process of peer reviewing not just the work Hatch does but our own work and the work of others. So we'll be quite careful. Ron?

You hit it dead on. We have back checks and double checks to make sure everybody is on track.

Okay. That's good to hear. You said that exploration spending right now is estimated at $25 million for 2008. Would you break that $25 million down by property?

Yes, you got it right there. Okay. Greens Creek, $1.3 million -- I'm sorry, $5.7 million, Lucky Friday, $1.3 million, the Silver Valley, so not Lucky Friday specific but other Silver Valley is $5.7 million, Mexico, $4.3 million, and Venezuela, $3.8 million. I'm not sure what that adds up to. That's about right. And whatever the balance is to get to 25 will be unallocated. We will, as we see success we will move money around.

Fine. Thank you very much and congratulations on a good 2007 and a great start to the new year.

Okay, thanks, Anthony.

You're welcome.

(OPERATOR INSTRUCTIONS)

Your next question is from the line of Bill Selesky with August research.

Thanks. Good morning guys and congratulations on a good '07 and a positive start into 2008.

I had a quick question as pertains to Venezuela with respect to your operations there.

I know the political environment there is potentially changing but I know the government had formally come out and said some rhetoric to the degree where they wanted to diversify some of their revenue resources by expanding the mining industry. I wonder if there's been any contact had you with them recently whereby they've given any indication as to changes forthcoming with reference to that and has there been any commentary with you with reference to any potential changes going forward, even in light of a potentially changing situation over the next few years?

Generally speaking, no, there hasn't been any changes from what they've expressed over the course of the last couple of years. There has been a change in the minister of mining in January. So maybe there will be some things forthcoming but at this point it's, things have have changed nor have the actions. Mike, you want to add anything?

The only other thing I would add is the fact that there has been some talk over the last 18 months of modifying the mining laws but there has been nothing concrete that's been delivered to anybody, so.

Great. Thanks.

Your next question comes from the line of Howard Flinker of Flinker and Company. You may proceed.

Hi, Howard.

Hi, guys. What are your shares outstanding fully diluted at the end of the year, the average, the convertible preferred?

Lew will look that up. Just see what that number, the exact number is.

While you're doing that I have a second question. In your total costs, in La Camorra, 750, 730, 780, I don't remember, does that include losses on 783 in the fourth quarter, does that include losses on foreign exchange where the Venezuelan government gives you about half what the market is?

That is, when we do our calculation it's being done based at the official rate so we have the disadvantage of having costs that are, of equipment or whether it's the price in Bs or it's in U.S. dollars and we are having to get the currency at the parallel rate, that's all getting reflected in that cost number.

And when you sell gold you sell it at the dollar price or do you sell it at their price in bolivars?

We sell it priced in bolivars.

As they define the bolivars.

Yes, that's right.

And they define the bolivars, they say they are probably two or three times what the market is. Is that correct?

What's the difference between it?

Well, the official rate is 2.15 and parallel rate is around five, fluctuating right around five.

Are those expenses melded into your cost or are they separate in the category of revenues? If you are getting 2.5 and it's really five to one you are really getting two fifths of the market price for gold, you have to sell the gold to the central bank, do you not?

No, the central bank refuses to by gold at this point.

Essentially the revenue is, the U.S. dollar prices of gold converted to bolivar, the local currency at the official rate.

At the official rate.

Yes.

Let me think about that. So if you get $800 at the official rate but the real market rate is two fifths of that you are ending up with a lot less than 800, aren't you?

That's correct.

Okay. And that difference is accounted in your revenues but who not in your costs, correct, I just want to understand?

That's right.

Okay.

The foreign exchange is included as a foreign exchange loss.

Okay. I'm kind of surprised that you didn't make that much money if you exclude all the unusual item in the fourth quarter. Why is that? I saw some reasons but I'm not sure I'm clear about this.

I'm not following you Howard in terms of not making much money. Specifically what are you referring to?

Well, I will read you the number. Income from operations, fourth quarter, $1.5 million, $1.4, other than the tax benefit which came from all the years of losing money. The price of silver was up. The price of gold was up. The price of lead was up. The price of zinc was down. And I'm excluding the foreign exchange losses. I'm not even charging for that.

Howard, the 1.1 million income from operations also included the $5 million charitable contribution.

I see that.

Also included the impacts of the negative $3.5 million of negative price adjustments on provisionally priced metal and concentrate during the quarter. So that sort of fluctuates from quarter to quarter as the metal prices change. The fourth quarter would drop in zinc and lead prices.

You can make an excuse about the negative price adjustments but the fact that you sold it at Pennsylvania lower price, you decide that was a good price. I'm not arguing with that decision. It's part of your cost. If you sold it at 10 cents less than what the price is that's the price. And still if you add back the $5.1 million for the charity you still end up with 6.5 million which is half of what you made last year. Last year's prices of commodities were much lower. So what it take for you guys to make a lot of money?

Well, as Lew has said you have the negative price adjustment, I don't remember what the price adjustment was in the fourth quarter of 2006. I suspect it was positive. You have a big swing that occurred year on year.

Where is the positive number in the income statement for '06?

We had half the production in gold as well in the fourth quarter, we had 22,000 ounces of gold.

That's essentially Venezuela. Is that right?

Yes. Higher cost.

Okay. I didn't really get an answer but I did get an answer.

To go back to your first question on the fully diluted share, I'm going to say this is a little bit rough but.

Okay.

With the about the 121 outstanding and the mandatory convertible that's about another 16 million there's probably about another $4 million, $5 million in options so you are probably looking around.

$141 million, $142 million including $4 million, $5 million in options.

Sure.

The other thing I guess I would say, Howard, is we are pretty, very committed to the exploration effort that we are putting in. We think these are mining districts that deserve that level of exploration. So on a relative basis at least to some of our peers, you would see us spending more on exploration.

Okay. Thank you.

You're welcome.

Your next question comes from the line of John Doody with Gold Stock Analysts. Please proceed.

Good morning, congratulations on a good year.

Thank you.

Three questions really following up on a number of shares outstanding, I guess that total of roughly 140 million does not include the recent deals announced and the shares that would be issued with each of them?

That's the number at the end of the year, Howard -- John.

Okay. Good. I'd like a little more color on the Colorado and the purchase of the Independence lead mine. What's that about that? You are spending roughly $70 million for that operation, is that in production? Is it, tell me why that makes sense for $70 million.

Realize what Independence Lead is. Despite its name, it's actually one of the original land holders of the Lucky Friday. So it owns 18% of the land that our Lucky Friday expansion area is mining from today. In addition to that it has land adjacent to our mine. So, we lease from them the land, we lease that 18% interest. And so we thought it was, with the, when the opportunity came to acquire that 18% interest and take just, reduce some of the complications that you have from having an owner besides ourselves on that land package, realize that when a, where there's a reimbursement account which at the end of 2006 was $30 million at roughly at the end of 2007 was about $15 million, realize that when that reimbursement account goes to zero then we would have to depend upon Independence Lead should they elect to have an operating interest to come up with the capital for the expansions of the Lucky Friday going forward. So it just complicated how you would finance and operate these new capital expenditures that we are anticipating to have there. So we thought when the opportunity came to clean up the whole land package we thought it was worthwhile to do that.

So you were paying them -- you essentially funded their share of the expansion cost and they were earning that off with an annual royalty applied against what they owed you for their share of the expansion?

Yes, they got a small royalty and then what we got were all of their share of the proceeds until the reimbursement account goes to zero.

So they would have had 18% of output effectively?

Some point in the future. We don't know when. It all becomes a function of the metals price and the amount of capital that we are spending. And we are not sure that we would ever in the short term have gotten to a point where we would be relying upon them to contribute their capital in the future. But we just didn't want to get there in the short term given the large programs that we are anticipating we'll have.

Okay. So. If I can think about it this way, since you're expecting to do about 5 million ounces a year in the fully expanded mode, they would have been entitled to roughly 1 million ounces a year of the production and you prepaid for that?

Yes, that's right, we would hope that we could go to 5 million. We are not going to make any projection at this point until we've completed all of our studies. But, yes, using that as a hypothetical that would be right.

Okay. Good. So it looks like a good deal.

We think so. We think it's a good deal for both of us.

Can they sell those shares any time they want?

No, in fact it's a C reorganization under the internal revenue code and as a result they will have to liquidate the company in very short order. So what will happen is those shares will be distributed to their shareholders. So it's going, it's not going to be a big block of stock, John, that one person has that will hit the market. It's going to be distributed among their thousands of shareholders.

So over 1,000 shareholders?

I'm not sure of the exact number.

It's not 10.

It's a public company. It's been around I think since 1932, is that my recollection? Yes, since 1932.

And the other question had to do with Colorado and it seems like a very interesting acquisition. What's the current environmental situation at this formerly mined site, and also what's the permit situation in Colorado, permitability?

I guess there's two things I would comment and I'll let my colleagues jump in here.

But first of all realize that a large, not a large portion but a reasonable portion of the veins that have been identified sit on patented ground that Homestake had. And so with respect to permitting, doing things on patented ground will certainly be much easier; with respect to permitting on the unpatented ground, there's a real interest in seeing mining activity in that region. We think the process will be as good as you can have it in Nevada or any other sort of mining-friendly place. So we feel good about that. In terms of existing environmental issues or even other permitting comments, Ron, I guess I'll let you --

You actually hit the permitting comments perfectly. We've done the research, the homework. We've worked with people and talked with people there and we expect it to be very similar to what you would see in Nevada and other places and there's a community there that is very supportive of this starting. In terms of current environmental liabilities, I wouldn't characterize it as pretty typical for a mining camp. There's nothing particularly of stark interest there.

So it's an old tailing stand?

There is actually some old historic workings and some mine dumps and things like that. The historic tailing stand from the Homestake days has been reclaimed.

One other thing, John, about this is this was a very nice mine for Homestake. In fact, Ron actually worked there so it's a property we know something about -- firsthand knowledge. And the unique thing that's happened much like what's occurred in the Silver Valley is that what was broken into a number of different companies' properties has now all been consolidated into one. And we think that makes for a huge difference for us to come in and put together $100 million plus resource that we could some day turn into a mine.

Good, well it's exciting to see all these transactions you guys are taking.

Thanks, John.

(OPERATOR INSTRUCTIONS)

And your next question is Borden Putnam with Eastbourne Capital. You may proceed.

Good questions, good discussion so far, lots to follow up on. I'm curious about the reserve additions at Lucky Friday, Ron, if I could talk to you about that.

You changed your price deck reflecting your improved prices but you haven't gone all the way up to the current prices. I'm just wondering, how much of the reserve increase at Lucky Friday relates to price versus drilling intersection or if I can say so, a mechanical conversion of resources to reserves?

Borden, I am not going to be able to answer your question directly but there's certainly a portion of it. I think you are aware that we calculate the previous three years' prices for average as you're generally guided by the SEC and use that for our prices for reserving calculations. And we do the bulk of that calculation actually comes at mid year before budget time and then we deal with production in second half of the year. So it's back that reflective.

I don't want you to hold me to the numbers but I would guess that something on the order of roughly 40% or 50% of that may be price related but I can get back to you. It's not over that I don't believe. We added to that because of the drilling we did both deep and I think long strike.

Borden, this is Dean. And certainly and I don't have the number either but there was significant new additions to the resource at depth. And so.

Okay.

So my number may be a little bit high that I gave you.

That's okay. I was wondering that exactly whether you were extending it to depth based on conversion of resources. What about, say, the thickness of the body? Did it change with reflecting these price improvements? In other words, any certain level, does it embrace more tonnage?

If it did that change is pretty miniscule on the grand scheme of things here.

You still have the opportunity to make a decision to take extra not in reserve tons while you're mining when you intersect some of these intermediate --

And frankly at Lucky Friday and Greens Creek both every single year there is tons that come into that production that are outside of the plan because of the delta between prices and --

Not only outside the plan, but outside of the resource.

Outside of the resource right because of the delta between the actual prices and the reserve prices, resource price that we use to calculate the resource. And that's an opportunity that we take every time we get a chance. Our people are real good at this.

Exactly. Dean, you talked about an additional horizon at Greens Creek. I want to do make sure that you said this thing does outcrop and you intersected it you think in some deeper drilling. Is this not a horizon that has not been historically mined or help me understand the relationship?

As you know, Borden, the mine horizon really reflects that submarine accumulation of sulfides. The question that always occurs not only at Greens Creek but with most of the MS deposits, are we looking at more than one of those horizons? And there isn't an answer to that. What we do know is that what we intersected in the drilling that I described is a rock package and alteration package that are a replication what have we see in the mine.

It is physically apart from the mine? I mean, this isn't, I say physically part, it's close enough to reach from the mine but this is not an area that we've previously known of.

Why we are excited about it, Borden, is where we drilled into in the past it had been presumed that it was all footwall argelite. What this drilling shows is that in fact the repetition of that mine stratigraphy is in the footwall. That mean it may be related to folding. It may be related to faulting. At this point, we don't know. But what it's done is said, no, it's not simply a big argelite package, in fact, there may be quite a bit of mine horizon in that area.

How far distant or depth ask this from the existing area of workings?

Depending on what level it's certainly within three quarters of a mile.

Okay. Ron, on the staff up at Greens Creek how many, what does it look like as far as your ability to retain versus attrition losses? It's a tough time for the industry to find talent and you've got a lot of experienced guys up there. Are they wanting to go stay with the project? What's the general?

Borden, I think the general answer is that we have the intention of trying to retain every employee that's at Greens Creek and we've gotten a very positive reception to Hecla being the company that is acquiring Greens Creek. They know us. They -- it's not a situation where they think they are going into the unknown. And we do not have an intension of making dramatic changes there. So the intension is to keep as many people as we can. There are a few people that, just a handful, I mean less than a handful that Rio might like to see stay with them. But we will see if we can retain even those people.

Back on Venezuela for a second, I don't want to get too bogged down on this again. When you are receiving two fifths of the current gold price and your costs are not reflecting favorably that way and you've got difficult foreign exchange, is it really where you want to spend a significant portion of your exploration budget? I'm a little confused of the allocation of capital to that region.

Well, look, certainly -- I guess the way I'd put it, Borden, given the geologic prospectivity, you would typically spend a hell of a lot more than what we are spending.

Right.

We, so this amount that we are spending we view as sort of the minimum amount in order to try to continue to extend mine life in order to continue to operate there. It's not as much as the geology would suggest you should spend. Is that a reasonable way of characterizing it, Dean?

Yes, the amount that we are spending on exploration in Venezuela really is very much focused around the Isadora and on parallel shear zones. So we are not doing grassroots exploration or anything like that. It's very focused. It's very much on the drilling end of the exploration spectrum. So that the figure that Phil mentioned really covers probably 15,000 meters of drilling and a bit of additional work. And so to my mind that's probably a bare bones exploration project if you want to stay in Venezuela and have a viable operation in the future.

Okay. Thanks.

Thank you, Borden.

Next question comes from the line of [Terry Waite], Verata Asset Management.

Hi, Terry Waite, Verata Asset Management. I wanted to ask just the number of shares outstanding post all these transactions, what would that be?

It would be the 140 million plus, I guess 148, 159, call it 150 at this point.

Okay. 150 million.

And do you have an estimated cash flow number for 2008 if you could just look in something? I think you've thrown out some numbers post the Greens Creek acquisition announcement. Do you have a number for the company as a whole?

Of course it's all in terms of function of price assumptions that you make but order of magnitude cash flow from the properties before our sort of corporate and exploration spend would be order of magnitude, $200 million to $230 million I would guess. Does that sound about right?

Yes.

And my understanding was that your average price that you were using in the initial estimate from just the Greens Creek acquisition was a number lower than current market for gold, silver and I don't know what the numbers were from lead and zinc but do you have a range for those that are imbedded in your assumptions for '08 or your guesses for '08?

Our guess is as far as the prices for our metals frankly I think silver is going to be well over $20. I think you'll see lead continue and zinc continue to be strong and possibly see gold over $1,000. So the sort of price assumptions we've used have been very conservative relative to where I think the prices could go for the year. And that's just been sort of the pattern that we've operated on for the last six, seven, eight years. It's trying to use the lower prices than we think we'll see in order to really control the cost side of this picture. And I think we've done a good job of that in maintaining our cost structures.

And the last thing was, what would be your plans for your cash flow? Let's say you're ending 2008 and these cash flow projections are largely realized. What would be your uses for the cash?

Well, certainly we will be paying down debt. But in addition to that, we will be in the midst of these capital programs, particularly for the Lucky Friday. We would anticipate post to Greens Creek closing that you'll see the exploration spend be somewhat higher than the $25 million that we are at today. So it would be those sorts of things and then of course we are looking for another, other assets that we might be able to bring our mining expertise to.

Great. Thanks a lot.

Thank you, Terry.

Your next question is a follow up from Bill Selesky with Argus Research. Please proceed.

Hi, just a quick question for Phil as it pertains to Greens Creek. I know you guys have had a long relationship with Rio. With reference to and it seems basically a no-brainer for the action significant. Could you add any color as to the whole negotiation process? I can see it from the Rio point of view obviously what they are going through. Can you talk about any trust issues? I wouldn't expect any but maybe could you comment on that?

Look, we've had a twenty-year relationship at Greens Creek and I can say that it's been a particularly close relationship with them going back to certainly since I've been with Hecla going back to 2001. In fact I would characterize Rio as having been quite helpful to us when we were in very difficult times in 2001 and 2002. So the trust that we have with one another I think is as high as two companies can have. And so we feel quite good about both of us following through on the transition that needs to take place with our acquisition. In fact, this was, it was the discussions of the transition came quite early on in the negotiations with them. So I think it's as good as you can get.

And do you foresee any anti-trust issues? I wouldn't expect any at all? But can you just talk about that for a second?

Do I foresee any trust issues -- anti-trust, I'm sorry, I misunderstood. No, no, we are not anticipating any. We have done the filing and we don't see any, see any issues.

Great, thanks.

That was the final question. This concludes the Q&A session. I'd like to turn the call back to Vicki Veltkamp for final remarks.

I would just like to thank everyone for joining us today. This has been the Hecla Mining company fourth quarter and year end 2007 conference call. If you have any further questions you can call me, Vicki Veltkamp, at (208)769-4144, and I'd like you all to have a great day. Good bye.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.