Hecla Mining Co (HL) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the third-quarter 2011 Hecla Mining Company earnings conference call. My name is Stacy, and I'll be your conference moderator for today. At this time, all participants are in a listen-only mode. We will conduct a question and answer session towards the end of the conference. (Operator Instructions).

I would now like to turn the presentation over to your host for today, to Ms. Melanie Hennessey, Vice President, Investor Relations. Please proceed.

Thank you, Stacy. Welcome, everyone, and thank you for joining us for Hecla's third quarter financial and operations results. Our news release, which was issued this morning before market open, and presentation are available on Hecla's website. In addition, Hecla issued a release yesterday providing an update on our pre-development and exploration initiatives. And another release today declaring the first silver price-linked dividend on common stock.

On today's call, we have Phil Baker, Hecla's President and CEO, joined by Jim Sabala, Senior Vice President and CFO, also Larry Radford, Hecla's new Vice President Operations, and Dean McDonald, the Vice President of Exploration.

Before we get started, I need to remind you that any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act. They involve a number of risks that could cause results to differ from projections. In addition, in our filings with the SEC, we are only allowed to disclose mineral deposits that we can economically and legally extract or produce. Investors are cautioned about our use of such terms as measured, indicated, and inferred resources, and we urge you to consider the disclosures that we make in our SEC filings.

With that, I will pass the baton to Phil Baker, Hecla's President and CEO. Phil?

Thanks, Melanie. Hello, everyone. Glad you could all join us today. I will provide a brief overview. Jim will speak about our financial results, and then Dean and I will provide an update on the 4 Shaft and the pre-development exploration programs, and then we'll take some questions.

So, go to slide 4. Now for the third quarter results. In the press release, I said this was a unique quarter in Hecla's long history. First, financially it was an excellent quarter with solid financial and operating results. Sales were $121 million, and net income was a quarterly record. Silver production was as expected at 2.3 million ounces, and costs were $0.67 per ounce, which remain among the lowest in the world. And realized silver prices averaged $37 per ounce, so almost all of that was margin. Cash from operating activities was $61 million, increasing our cash position to a record $414 million.

Now, if you'll move to slide 5. And here's where you really see what was unique about the quarter. We announced an innovative dividend policy that ties to the payouts of the silver price. We believe it gives Hecla the highest payout among silver companies, something over 1%; and makes Hecla a more attractive alternative to other silver companies and also to the ETF.

This quarter, the Board also approved the completion of the Lucky Friday 4 Shaft, an investment that grows production 60%, generates returns, and extends the mine life for decades. It's very unusual in the precious metals industry to have a mine life that's measured in decades. I fully expect that this shaft, because of the longevity it gives the mine, and the access to geology, will provide benefits we cannot currently contemplate. If you think about it, the number 2 Shaft at the Lucky Friday was built in 1960, and the silver shaft in 1982, and what we're mining today was never contemplated at that point.

Also, in this quarter, we have taken steps to reopen 3 mines -- the Star, Bulldog, which includes its satellite, the Equity Ramp, and San Sebastian. We believe 1 or more of these mines will be in production by 2016 when we expect to produce 15 million ounces. And we're working to make it happen faster than that. At the Star and Equity, we are underground and much further along than expected at the start of the quarter.

We also had final court approval and closing of the Coeur d'Alene Basin environmental litigation. I cannot overemphasize the importance of this for growing Hecla. If you think about the uncertainties for the future of Hecla, this was the biggest unknown, and the most catastrophic of risks. It's now behind us. The risks that remain are normal to the mining business, and I think they are less for Hecla than most mining companies.

Finally, we added Larry Radford to lead our operations. The growth initiatives we have require his skills, and we're very happy to have him join us. He worked in a variety of operating leadership positions for Barrick, and most recently Kinross.

Jim will continue with a review of our financial performance. Jim?

Thank you, Phil. Metal prices continued to remain strong across all 4 metals that we produce. This quarter resulting in excellent financial performance. On slide 6, we present realized metals prices for the quarter, and you can see that our realized silver price is up by 73%, and realized gold price is up by 40% over the third quarter of 2010. Zinc and lead prices in the third quarter were also up by 12% and 5%, respectively, over the same period in 2010.

Consequently on slide 7, you can see that we continue to experience among the lowest cash costs per ounce in the industry, achieving excellent margins. Our per ounce cash costs were $0.67 per ounce for the third quarter of 2011. Cash costs were up marginally compared to the same period last year, due to higher production costs, treatment costs, mine license taxes, and employee profit sharing due to higher metals prices. However, the benefits of higher metals prices far outstrip the costs associated therewith, with our margin of $36.35 per ounce of silver produced up from $22.46 per ounce in the third quarter of 2010. Based on current 2011 production guidance and cost estimates, and assuming recent metals prices in the fourth quarter of 2011, total cash costs net of byproduct credits are expected to be approximately $1 per ounce of silver for the year 2011.

Moving to slide 8. Net income applicable to shareholders more than tripled to $55.8 million for the third quarter of 2011, compared to $16.4 million for the same period of 2010. Net income per common basic share was $0.20 in the third quarter of 2011, compared to $0.06 in the same period of 2010. And earnings after adjustments applicable to shareholders were $35.4 million or $0.13 per basic share.

There are a couple of important adjustments to note, which are included in this. First, during the quarter we reported a $40.4 million gain on our long-term base metal hedging program. The program is designed to help reduce the impact of fluctuating base metals prices long term, and is working as designed. At the end of the third quarter, market prices for lead and zinc were $0.94 and $0.86, respectively, compared to $1.19 and $1.05 at the end of the second quarter. Consequently, we reported the gain associated with the increased value of the hedge book at the end of the quarter.

Going forward, we have hedged 42,350 metric tons of zinc, at an average price of $1.10 per pound. And 34,225 metric tons of lead at an average price of $1.12, which is about 20% above the current spot market. To put this into perspective, our annual payable production is 51,000 metric tons of zinc and 32,000 metric tons of lead. By hedging at these prices, it helps us to control the byproduct credits we receive, and in turn, maintain the very low cash cost per ounce.

Another item which impacted earnings in the third quarter, which is a tax provision of $27.3 million for the third quarter and $70.5 million for the first 9 months in 2011. While the GAAP provision will continue at the approximate 36% rate, our effective tax rate today has been 33% in 2011 due to statutory changes to depreciation. A third item impacting earnings was $4.9 million provision for closed operation and environmental matters, primarily for final reclamation of the Grouse Creek property in Idaho. Last item impacting earnings was a negative provisional price adjustment of $3.6 million related to provisional metal settlements.

I'd like to make a comment on 1 thing that also impacted earnings that is not considered an adjustment due its routine nature. One of our normal shipments from Greens Creek occurred just after quarter end. Had it made its scheduled shipment date, sales would have been higher by $4.6 million, and income from operations higher by $1.4 million.

On slide 9, we see the benefits of having among the lowest costs in the industry, combined with strong metals prices and strong production. Hecla reported cash provided by operating activities nearly $61 million in the third quarter of 2011, representing a 45% increase over that reported for the third quarter of 2010. This has allowed us to continually accumulate funds in the Treasury, which is set forth on slide 10. After an excellent quarter of cash flow generation, Hecla was able to fund all capital requirements and increase cash available in the treasury to $414 million. Subsequent to September 30, Hecla made the initial and largest required payment of $168 million for the Coeur d'Alene Basin environmental litigation.

The Company has no significant long-term debt outstanding, and increased capacity, having just recently increased our undrawn line of credit to $100 million. Therefore, total liquidity available for investment at quarter end stood at $514 million, which we expect will be sufficient to continue the capital projects, pre-development initiatives, and exploration activities that we have on our plate. This strong cash flow generation, combined with a healthy balance sheet, has allowed the Board to reach another milestone during the quarter, which was the Board approval of a new silver price-linked dividend policy as shown on slide 11.

Today, we declared a dividend of $0.02 per share based on third quarter average realized silver price of $37 per ounce. Realized prices are calculated by dividing gross revenues for each metal by the payable quantities of each metal included in concentrate, and/or sold during the period, compared to the average market price during the quarter. We are thrilled to have the opportunity to pay cash dividends while continuing to strengthen our asset base and pursue future growth opportunities.

And with that, I'd like now to turn the call back over to Phil.

Thanks, Jim, and let me be clear that the dividend that Jim's just described is not because we don't have growth; we do. Look at slide 12, which shows the projects that will deliver 15 million ounces by 2016. We can pay a dividend and grow over the next 5 years by expanding the Lucky Friday and reopening mines that fell victim to the price depression we had for almost 30 years. This slide provides a picture of where we're going to grow production. Over the last 90 days, our thinking and work on the ground has progressed significantly. And the 4 Shaft has progressed according to plan. I'll cover that on the next slide.

The 4 Shaft has been defined for well over a year, while on these mine re-openings, we're learning a lot. A quarter ago, we were not sure how long the rehab would take at the Star mine and the Equity ramp. As it turned out, they are both complete, and we're in the final stages of powering them up for drilling.

At the Star, we hadn't identified the 2 separate studies that we're now doing. The first, the minability study, is focused on getting the Star back into production in the next few years from the material in the upper country, which has a potential for 25 million ounces. This study will be ready by the end of the first quarter. The other, the de-watering study, provides not only potential production from deeper resources at the Star, but also generates additional exploration on the Star, and the area between the Star and the Lucky Friday, and ventilation opportunities for the Lucky Friday. And this study will be complete within a year.

At the San Juan Equity ramps, drilling will be turning at the end of the month, which is what we generally expected. What we were unsure of was the granting of permits for the Bulldog decline. In fact, it was too sensitive or speculative for us to even mention a quarter ago. But we now have it, and we are on the ground building the portal for this new decline. It has all happened so fast that we are not ready to give you the specifics on the ultimate cost and timing of the decline. We'll do that sometime in the future.

Finally, at San Sebastian, we are seeing significant drilling success on the Andrea vein, and expect the scoping study to be completed on both the Andrea and Hugh Zone within a year. We believe at least 2 of these studies have the potential to turn into mine re-openings before 2016. It's too early to start to lay that out yet, but we will in the coming quarters.

So now back to the 4 Shaft on slide 13. We show that construction is now 41% complete. That's the line that's at the bottom of those arrows. And 80% of the major procurements have been ordered or installed.

After 2 years of essentially setting up, we are now starting to sink the shaft, a process that is mostly confined to an 18-foot diameter space. The other important thing to mention is the project has gone 2 years without a lost-time accident. Nothing is more important to us than safety, and we are pleased that our contractor, Cementation, is as committed as we are. So, I want to congratulate George Sturgis, our VP who heads our project team, Cementation, the contractor, and the workforce for a great job. We think because of this commitment to safety, the 4 Shaft remains on time and on budget.

With that, let me turn t it over to Dean.

Thank you, Phil. The longitudinal section in slide 14 shows the Noonday and Star-Morning mining and exploration complex relative to the Lucky Friday expansion area. The Noonday resource and a series of other veins shown in the upper part of the Star-Morning area are above the current water level, and are referred to as the upper country resources. As Phil mentioned, a scoping study on the minability and cost structure of the upper country is in progress, and will be completed before the end of the first quarter in 2012.

A second study is designed to evaluate the refurbishment and de-watering cost to re-establish the Star shaft, and is expected to be finished in the third quarter of 2012. This would allow access to deeper resources that were previously defined as reserves, and open up significant areas for exploration. Additional underground development from the 7500 level of the Star to the Lucky Friday expansion area would create a connection to enhance ventilation at the Lucky Friday, and create an extensive exploration platform to evaluate veins between the 2 mines.

Slide 15 is a longitudinal view of the Noonday vein system with the current resources defined in orange. Drill pierce points to the east and west of this resource from surface drilling are also shown in this figure. Drill intersections at the Noonday, as reported yesterday in the exploration and pre-development release, indicate that, particularly to the east, mineralization has good continuity, is progressively more silver- and lead-rich, and is open to the east. Access along the Star 2000 drift to the Noonday resources has been completely rehabilitated, and crews are currently preparing the underground drill stations. Later this month, definition and exploration of the Noonday vein system will commence, and provide the detailed information to convert this significant resource into indicated category, and in combination with the scoping work, possibly into a reserve.

Slide 16 shows a planned map of our 21-square mile property at the San Juan silver joint venture in Creede, Colorado, and outlines the recent activities of the Bulldog pre-development project. Earlier this year, we completed a positive conceptual study of this vein system that currently has a 37 million ounce silver resource, with extensive exploration potential along trend. We recently received approval from the Forest Service to commence a new portal and decline into the Bulldog workings. The infrastructure to support this development is mostly in place, as crews are being mobilized to start work on the portal and complete related surface infrastructure. As mentioned during the last quarterly call, we were successful in reopening the Equity ramp, and found the underground infrastructure to be in excellent condition. After some rehabilitation of the portal area, and re-establishment of the services, we anticipate underground drilling to commence before year end.

The diagram of the Equity in slide 17 shows the ramp development down 800 vertical feet, and the proposed drilling of the Equity vein trend down to a high grade gold/silver intersection in WE1031. The same drill program will also evaluate the Amethyst vein down to 1,000 vertical feet.

Slide 18 shows the location of the Mexican silver belt and our large land holdings at San Sebastian. Due to high commodity prices and very encouraging exploration results from the nearby Andrea vein, Hecla is re-evaluating the 2005 scoping study on the Hugh Zone, which is a deeper, down-dip silver and base metals resource extension to the Andrea vein -- .

Francine vein.

-- Francine vein, which was previously mined by Hecla. In parallel, we are advancing metallurgical test work and minability studies of the Andrea vein.

Slide 19 is a series of longitudinals of the Andrea vein that shows contours reflecting the gold equivalent grades by horizontal width. You can see the evolution of the Andrea vein when it was a small, near-surface resource in 2010. Exploration resumed in late 2010 when a high grade extension of the vein was discovered to the southeast. Exploration and in-fill drilling in the last quarter have defined 2 distinct high-grade zones along the 1.7-kilometer strike length of the vein that will be incorporated into the year-end resource. Drilling will continue to expand the high-grade zones, and determine if there is continuity and extensions of the mineralized vein. If the drilling is successful, there is the potential for the Andrea to more than double the Hugh Zone resource.

Slide 20 identifies the underground and surface targets at Greens Creek. Recent underground drilling has refined and expanded the high-grade mineralization at the Gallagher and 200 South resources. A mine horizon, defined below the current mine infrastructure, is referred to as the Northeast Contact. Drilling below the mine infrastructure recently intersected an ore grade interval in the vicinity of other mineralized Northeast Contact rocks. The same mineralized mine horizon was intersected to the north of the mine, at Cub Creek and West Bruin, as shown on the surface map. Much work is still required, but we are starting to see well-developed mineralization along this contact.

Finally, a longitudinal of the 30 vein at the Lucky Friday is shown in slide 21, where definition drilling in the third quarter has upgraded resources in the 2 blue circled areas. Exploration drilling has defined high-grade veins. The equivalent of the 30 vein and some intermediate veins in faulted blocks between splays of the silver fault. These veins have been intersected by drilling from the 6100 to 6800 levels, and again from the 7700 to 8100 levels.

And with that, I will pass you back to Phil for further remarks.

So, look at slide 22, it shows our guidance for silver production. We believe it will still be between 9 million and 10 million ounces. Cash cost guidance for 2011 will be approximately $1 per ounce at current metals prices, as previously stated. We expect our capital investments to be approximately $110 million, versus the previous guidance of $115 million, due to the timing of certain projects and [at items] primarily at Greens Creek. Exploration is expected to be $27 million versus previous guidance of $32 million, due to slower drilling rates and earlier arrival than anticipated winter conditions at Greens Creek, Creede, and Silver Valley.

And this will be the first time we report pre-development expenditures -- or third quarter was the first time, and we're providing guidance now for the rest of the year of $6.3 million, of which $2.7 million is related to the Bulldog, $1.8 million for both the Star -- each for the Star and the Equity. Now, pre-development expenditures are costs incurred in the exploration stage that may ultimately benefit production, such as an underground ramp development, and are expensed due to the lack of proven and probable reserves. Basically, it's infrastructure that we expect to use once we're in production.

With that, operator, Stacy, if you can open the line for questions.

Thank you. (Operator Instructions). John Bridges, JPMorgan.

Just wondered, your sales were a bit lower than we were looking for. You did say that you picked up -- you had a bit of an accumulation of concentrate at Greens Creek. Roughly how much metal do you think could come out in the fourth quarter?

I don't have the metal qualities with me -- quantities with me right now, John, but the value of the shipment was about $5.4 million.

Okay. Fine, fine. And then you're saying the grades at Greens Creek were a bit lower than the track. What sort of profile do you expect running through into next year from Greens Creek?

Generally speaking, John, the grades will improve. This is tenths of an ounce type of thing, and that's always been the case. 2011 has always been the low point in our grades. Of course, as we see higher metals prices, we see the opportunity to lower cut-off grades and so we'll take advantage of that where we can. But generally speaking, similar but slightly higher grade than what we have in 2011.

I was interested in that comment in the quarterly where you spoke about '11 being the low point. So you expect incremental growth from here rather than a flat and then a hockey stick in 5 years?

Yes. Look, I guess 2 things I would say about that. In terms of our current operations, we've always have seen 2011 as, in the mine plans, as being the point where we had the lowest ounce production. And so that will, on the margin, increase over the course of the next 5 years. We -- in 5 years time, in 2016, is when we see the full benefit of the 4 Shaft and the incremental production that comes from mining the deeper, higher grade material at the Lucky Friday. So we have that growth that doesn't happen until 2016.

In the interim, additional growth that we might have will come from the Star, San Sebastian, San Juan, and I would suggest it will probably -- those things will go into production probably in that order, although you could argue about which -- whether it's going to be San Sebastian or the Star that will be first. How long that will take? Will it take the full 5 years to see 1 or more of those in production? We don't know at this point. We're at the very early stages. But I think there's a good chance that we'll see at least 1 or more of those go into production before 2016. So it won't -- so I'm anticipating that we probably will see not quite the hockey stick. At this point we're not able to give you the details of it, so we're asking you to focus on that 2016 step-up in growth.

Okay. But you are picking up better grades at -- in parts of Lucky Friday as well. That stuff in the fault zone, is that very chewed up? Is that going to be a problem for the miners?

Well, I'm sure it's going to be more difficult and it's -- but they are wider blocks within that fault zone. Dean, do you want to comment on that?

Yes. John, the -- we're really determining what are the widths of those blocks within these splays. Frankly, what excites me more is the fact that we're seeing the continuation of those veins, the grades are staying very strong, and really for me the upside is going to be to look across that fault where -- certainly my expectation is that we're going to see the 30 vein and some of the major intermediate veins carry on through west of the silver fault. But to ask your fundamental question, certainly early indications are that there are areas between those blocks that can be mined, but again, it's still very preliminary.

Okay. Now, that sounds like a much better outcome to be the other side of the fault. Excellent. I'll get out of the way. Many thanks and congratulations on the results, guys.

Chris Lichtenheldt, UBS Securities, Canada.

Just on Greens Creek quickly again, if my math is right, it looks like silver recoveries in the third quarter dipped a bit, a few percentage points relative to the second quarter. Is that accurate? And if so, I'm just wondering what's going on there, if that's expected to increase then.

Any --

It would be within normal variations. There's nothing that's risen to a level of any concern, Chris.

Okay. That's fine, then. And just on grade again, fourth quarter, can you say again if it would be -- it should start picking up a little bit already or not until next year that the grade picks up at Greens Creek?

Look, there's probably a similar grade in the fourth quarter, and I'll tell you that our ability to predict 1 week to the next is not high enough to be able to tell you specifically if the grade's going to increase or decrease; but it's going to be roughly in the same range that we're in right now.

Okay. That's great. Just on Lucky Friday, can you tell us how the sinking is going, in terms of the pace that you've achieved at this point.

We are just in the process of the transition from the set-up of that to the sinking, and we would anticipate that there will be at least 2 months of a learning curve and I think we're estimating 2.5 feet or so a day during the learning-curve period. And that's -- so we'll be able to tell you if that 8 feet a day is achievable, probably in the first quarter, certainly -- possibly by the year-end call, certainly by the first quarter call.

Okay. Okay. That's great.

Steven Butler, Canaccord Genuity.

Your discussion of these 3 development projects seems to have taken us by maybe some positive surprise. But, of course, more information coming in the future, Phil, obviously, as you said. But the -- just a question, if you will on the Star pre-development focus and the mineable study on the upper country. You talk about 25 million ounces in the high level above the water level mark if you will. What is the full resource in the ground left at Star, if you have that from your memory, including the resources to the depth of about the 7300 foot level.

I'm going to ask Dean to answer that question. But before he does, let me emphasize that the 25 million that we're talking about is the potential that we see in the upper country. We certainly don't have a resource of that size that we're able to point to.

Okay.

It's just when we look at the variety of veins that are in that upper country, we think there's that potential. Dean, do you recall what's below the water table?

Yes. And just an additional comment, Steve, on the upper country is that the drilling that I mentioned in the Noonday, and there's the Noonday split, and a number of other veins. As we go to the east we're seeing a significant increase in the silver and lead and so those ounces will come in on a resource estimate at the end of the year. And that's actually consistent with what's been seen as you transition from the Star, which was much more zinc-rich to the Morning which was silver, lead. But back to your original question. What we currently anticipate and we're really going through and re-estimating the resources, but what was carried as a reserve in the Star, in terms of silver, was in the 25 million to 30 million ounce range. But bear in mind, that also had a great deal of zinc, lesser lead. But what we are doing right now, in fact, is re-modeling and re-estimating those resources.

Okay. And then San Juan, was the official resource, is it correct, 37 million ounces? Is that what I heard you say?

Yes, that's not the exact number.

Is there also associated gold with those silver ounces, guys?

At the Bulldog, very limited gold ounces. Where we're seeing the gold is more in the north Amethyst and then in the Equity area. And the reasoning there is that we're higher in the epithermal system. But with the Bulldog, fairly limited gold, at least so far.

Okay.

We would anticipate as we discover -- as we explore to the north on the Bulldog, that there's the potential for gold as we go north. In terms of the number of ounces, it's 25.9 million for our 70% share. So 100% is roughly 37 million ounces.

Okay. Thanks. So -- and then lastly, guys, on San Sebastian and the Hugh Zone/Andrea Zone, again, are there official resources on the books for the Hugh Zone and/or the Andrea Zone, maybe not so much in Andrea, but maybe just confirm --

Andrea there are no resources that are on our table. The Hugh Zone we've got a million tons at 8 ounces, and so 9 million ounces of silver, plus a substantial amount of zinc, about 50,000 tons, and lead, 30,000 tons. And there's also copper which we don't have on this table.

Okay. Thanks for the clarity.

Anthony Sorrentino, Sorrentino Metals.

To follow up on San Sebastian and the Andrea deposit, that deposit I believe contains not only silver but gold. So in your long-range thinking, when you bring San Sebastian back into production, would that produce both silver and gold?

Yes, it is a silver/gold-rich vein system. In fact, it was interesting when I look at it, it reminds me of what we mined on the Francine vein for 5 years, which was extraordinarily high-grade silver with almost an equivalent amount of gold and generated very low cash costs, 0 or sub-0 cost back when the price of gold was 280, 290. So this reminds me of that. I don't think it's going to be quite as high-grade as that was or have the same continuity but it looks very interesting.

Okay. On another matter, did you increase the revolving credit facility in case you find an acquisition opportunity?

Look, we increased it because we thought it made good sense to have the additional liquidity for whatever purpose we might have. Certainly, when we look at our cash position, we feel very comfortable with it but when we look at the opportunities that we have just with the projects we have in hand, we think these things could move quickly and we would want to have that capital available. Or if there's an acquisition opportunity. So we're not limiting ourselves.

Okay. And of acquisition possibilities that you may have considered or may be considering, what conditions have they failed to meet, because obviously, you've not made an acquisition.

I guess I'm not going to comment on things that we've considered. What I will say is it takes 2 to tango and so we have to find a transaction where we want to buy it and they want to sell. So that hadn't happened at this point.

Okay. Very good. And I'm not in any rush. You have great internal opportunities and I would rather you not rashly make an acquisition that would potentially lower the rate of return of the Company.

Okay. Thanks, Anthony, for that.

Okay.

(Operator Instructions). Mike Curran, RBC.

Just wondered, can you remind us when you ran San Sebastian in the past it was basically gold/silver. I can't remember if you guys had a plant there and if you did, is the plant still there? Has it been broken down and sold off over the years or what do you have to start with there?

Sure. First thing is the upper portion of the Francine vein was this rich silver/gold. The Hugh Zone, which is, what, 300 meters --

Yes.

-- below it, is a silver-base metals-rich deposit. So yes, we did have a plant that we did sell. That plant was designed for that upper portion and it was 100 kilometers away. So when we had the tough times in 2008, we did go ahead and sell it, back then. So we'll start new, but we think that's going to work out well because we'll be able to size something and develop something right there on site that fits these ore bodies.

Great, thanks. Yes, I just couldn't remember if you had a ball mill or 2 sitting around. But, yes, I forgot that it was quite a distance away.

Hey, Mike, as a 100 year old Company, we do have various bits of things that are sitting around. So we'll have some stuff to start with.

Great.

[Greg Pulver, Aspen Alpha.]

Hey, guys. Great quarter.

Thanks.

Just a quick question on the base-metal hedges. Are there any market conditions in which you could close out those hedges or are they really just hedging against possible economic demand declines? What are the plans for additional hedgings in the future?

Yes, Greg, that's a good question and certainly when we see the price of the base metals fall, we will consider whether monetizing that benefit makes sense.

Great.

And then look for the opportunity to put those hedges back on. We don't have the criteria set up for when we might exactly do that, but we certainly would evaluate whether that makes sense or not. Jim, you want to add anything to that?

No. Second part of his question is would be do anything additional. It's worked out well for us. We've got a very disciplined approach. We have a price grid which has prices at which we're willing to hedge and quantities that we're willing to do at given prices, and obviously that's proprietary but as we reach those trigger points, you can expect to see us be active. Our policy right now is that we can do up to 50% of our production out to 3 years out. We're under that right now. And so if we got a bump in prices, you could expect to see us active.

How much under that are you, if you can tell me?

Quite a ways. We're -- overall we've got the data in our press release but I -- the total was 42,000 metric tons of zinc, I think in my opening comments. And we produced about 51,000, so if you took half of that, 25,000 a year, just because I can do the math, that would be 75,000 that you could hedge versus 33,000 -- 43,000 --

42,000

Yes, that we currently have tied up. And the same relationship in our lead production.

That's great. Thanks for shedding some light on that. No more questions.

And at this time I would like to turn the call over to Mr. Baker for closing remarks.

Well, thanks very much for attending the call. If you have any further questions, feel free to give Melanie a ring. Thanks a lot.

We thank you for your participation in today's conference. This does conclude your presentation. You may now disconnect, and have a great day.