Hecla Mining Co (HL) 2012 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the first quarter 2012 Hecla Mining Company earnings conference call. My name is Chris and I'll be your conference moderator for today. Presently, all participants are in a listen-only mode. Later, we will facilitate a question and answer session. (Operator Instructions) At this time, I would like to turn the conference over to your presenter for today, Mr. Jim Sabala, Senior Vice President and Chief Financial Officer. Sir, you may proceed.

Thank you very much, operator. Welcome everybody, and thank you for joining us for Hecla's first-quarter 2012 financial and operation results conference call. Our news release that was issued this morning before market opened and today's presentation are available on Hecla's website. In addition, Hecla issued another release today, declaring its third consecutive silver price linked dividend on common stock and a stock repurchase program. On today's call, today we have Phil Baker, Hecla's President and Chief Executive Officer; myself; Larry Radford, Hecla's new VP Operations; and Dean McDonald, Vice President of Exploration.

On slide 2, I set forth the cautionary statement slide. Any forward-looking statements made today by the Management Team come under the Private Securities Litigation Reform Act, as shown on slide 2. Such statements include projections and goals, which are likely to involve risks detailed in our various SEC filings, and in the forward-looking disclaimer included in the earnings release and at the beginning of the presentation. These risks 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 the 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 would like to pass the call to Phil Baker, Hecla's President and Chief Executive Officer. Phil?

Thanks, Jim. Hello, everyone. I'm glad you could join us today. I'm going to provide a brief overview of the first quarter highlights. Jim will speak about our financial results. Larry's going to provide an operations overview. Then Dean will give an update on a couple of our exploration pre-development programs, and then we'll take questions.

This most recent quarter, which if you look on slide 3, we made excellent progress in the rehabilitation of our Lucky Friday mine. Progressing with the cleandown work down to the 1500-foot level so far, that's about 25% of the total. At Greens Creek, while production was impacted due to support work that took place, we expect to meet our full-year targets as production and throughput increased through the remainder of the year. Meanwhile, our record 2012 capital investment in our Greens Creek mine continues. During this quarter, our margins remained very strong. Cash operating costs were $2.24 per ounce. Silver, still among the lowest in the industry.

Operating cash flow was a healthy $41 million. We also advanced all three major exploration pre-development projects, targeting additional reserves and development into future production. And these are all at 100%-owned Hecla properties, in addition to Greens Creek, at the Star complex in North Idaho's Silver Valley at the San Juan Silver project in Colorado. Remember, we have the majority of that, or at least half of that land packaged as 100% owned, and that's what we're focused on. And then at San Sebastian in Mexico. The amount we spent in the recent quarter on these projects is three times that of a year ago. In fact, it was just a year ago that we announced the efforts we were making on these pre-development projects. These represent a large part of the future growth of the Company, and all are in North America, which we think provides investors with lower political risk.

Now, Hecla's financial position, with $279 million in cash and effectively no debt, along with our very strong diversified and long-lived asset base, are the healthiest in the Company's 120-year history. We continue to be the lowest cost primary silver producer in North America, and with ongoing positive silver market fundamentals, we expect to continue to generate strong cash flow. We've strengthened our Management Team in the quarter, with the appointments of Ed Sutich as Vice President and General Manager of the Lucky Friday. We've moved John Jordan into the Corporate Office as Vice President of Technical Services, and we've added Michael Wegleitner as Director of Health and Safety. These guys are seasoned mining professionals that have 88 years of experience. And as you know, this is a challenging time in the mining industry to get good talent, so we're very pleased that we've added these individuals to Hecla, and we're confident in their ability to deliver on our continued and relentless focus to have the highest levels of safety, planned mine development, and expected silver production increases.

If you'll go to slide 4, we've had another good financial quarter at Hecla. Constantly, we are pleased that the Board of Directors has declared the third consecutive quarterly dividend. This quarter's dividend is $0.0225 per share, which consists of $0.02 that is related to our silver linked dividend, and that's based upon an average realized price in the first quarter of $36.59, and then a $0.0025 that's associated with the $0.01 annual dividend per common share that we pay quarterly. And this will result in a payment of about $6.4 million. Jim will spend a little bit of time talking about how our average realized price ended up being $36.59. Now, this policy represents a 2.3% yield based on our closing price of yesterday. The Board's action to declare the third consecutive silver linked dividend, along with the continuation of our quarterly dividend reiterates Hecla's excellent operating margin and strong financial position. This allows our shareholders to continue to benefit from our strong cash returns, as well as higher silver prices in this positive metals market.

Going to slide 5, the Board of Directors has also approved a stock repurchase program. Under the program, Hecla is authorized to repurchase up to 20 million shares of our outstanding common stock from time to time in the open market, or privately negotiated transactions, depending on prevailing market conditions and other factors. This repurchase program may be modified, suspended or discontinued at any time. Our plan is to buy these shares over the course of the next 24 months. I want to add that we believe our cash balances and ongoing cash flow generation allows Hecla to deliver shareholder value in three ways. First, by growing production by 50% over the next 5 years. Second, paying dividends, and third, repurchasing shares. And with that, I'll turn the call over to Jim to talk about our financial performance.

Thank you, Phil. With metals prices comparable to last year's prices, the Company generated excellent cash flow during the quarter, in spite of lower silver production, which was impacted by the Lucky Friday cleandown and Q1 rehabilitation activities at Greens Creek. On slide 7, realized silver prices in the first quarter of 2012 were $36.59 per ounce, compared to an average market price of $32.62 per ounce, consistent with average realized prices in the year-ago period of $36.49. As Phil mentioned, I talked a little bit about the reason our realized price was higher. And that's due to the fact that metals prices were higher than in the previous quarter, resulting in positive adjustments to provisional settlements of $6.1 million, compared to net positive price settlements to provisional settlements of $7.2 million in the same period of 2011. The adjustment to provisional settlements is due largely to increases in prices in the time period between the shipment of concentrate and the final settlement. The provisional price adjustment of $1.6 million related to zinc and lead contained in our concentrate shipments was largely offset by net losses on forward contracts of $1 million for those metals, since we do hedge the provisional on our non-precious metals.

Total revenues, as shown on slide 8, was $91.2 million, generated through production from Greens Creek. The breakout of revenues by metal is shown on a chart on slide 7, but generally, you can see that nearly 70% of our revenues came from precious metals with the balance from lead and zinc. Margins and cash costs remain very strong at Hecla. Slide 9 shows our strong margins. First quarter silver cash cost net of byproduct credits was $2.24 per ounce, compared to $1.03 per ounce in the same period of 2011. The higher cash costs were largely due to lower silver production as a result of the rehabilitation work at Greens Creek during the first quarter.

Our cash flow remains strong. The strong metals markets and low operating costs at Greens Creek, operating cash flow in the quarter was $41.4 million, shown here on slide 10. Net income applicable to common holders for the first quarter, as shown on slide 11, was $12.4 million, or $0.4 per share, compared to $43.2 million, or $0.16 per share, for the same period a year ago, and was impacted by the following items. As mentioned, exploration and pre-development expense increased to $9 million in the first quarter, from $3.3 million in the same period in 2011. For exploration work at Greens Creek, the Company's extensive land package in Durango, Mexico, at the San Juan Silver project in Colorado, and in North Idaho's Coeur d'Alene mining district near the Lucky Friday mine. $6.2 million was incurred in suspension-related costs at Lucky Friday.

There was a $5.2 million loss on our base metals derivative contracts for the first quarter, compared to a $2 million loss for the same period in 2011. There was a $7.3 million tax provision, compared to $23.5 million in the same period in 2011, strictly as a result of higher pretax income in 2011. Our effective income rate, tax rate to date is approximately 37% in 2012, compared to 33% for the same period of 2011. As mentioned earlier, we had gains of $6.1 million on provisional price adjustments, compared to $7.2 million in the same period of 2011.

Our pre-development expenditures totaled $3.4 million in the first quarter of 2012. Pre-development expenditures in 2012 are expected to be approximately $11 million for infrastructure at the Star mine in the Silver Valley, at San Juan Silver joint venture property in Creede, Colorado, the San Sebastian property in Mexico. This level of pre-development expenditures may be modified during 2012, depending on the success demonstrated by these properties.

Exploration expenditures for the first quarter were $5.6 million, and for the year, we expect them to be approximately $28 million. Capital expenditures at the operations totaled $26.4 million for the first quarter ending March 31. At Lucky Friday, the expenditures were $11.7 million, and at Greens Creek, were $14.7 million. Capital expenditures for 2012 are expected to be $140 million, primarily due to increase in the scope of work at Greens Creek, as Phil has talked about earlier. We expect to be able to fund our planned future expenditures through our cash flow, our strong balance sheet, and an untapped $100 million revolving credit agreement. As shown on slide 12, at the end of the first quarter, cash and cash equivalents stood at a healthy $279 million, and we have no significant outstanding debt. With that, I would like to turn the call over to Larry for a review of Operations during the first quarter. Larry?

Thanks, Jim. Slide 14, silver production at Greens Creek in the first quarter of 2012 was 1.3 million ounces, compared to 1.7 million in the same period in 2011. The decrease in silver production year-over-year was due primarily to ground support work that diverted equipment and personnel away from production. The ground control maintenance was accelerated based on third-party advice and internal review. The immediate needs were addressed and additional resources were added. Going forward, two bolters will be dedicated to ground control maintenance. Mining teams that were diverted to ground control have returned to normal production levels.

Mining and milling costs per ton were up by 37% and 18%, respectively. In the first quarter, compared to the same period in 2011, due to lower production as mill throughput decreased by 13%. The mining cost variance is also attributed to higher maintenance costs during 2012 period. Cash cost per ounce of silver increased by $2.97 for the first quarter, compared to the same period in 2011, primarily as a result of lower silver production, increased costs by $4.71 per ounce, treatment and freight costs by $2.68 per ounce, and mine license tax and other costs by $0.97 per ounce. The increase in production cost per ounce is mainly attributable to lower silver ounces produced, due to the decrease in mill throughput, and lower silver ore grades. These factors were partially offset by higher by-product credits of $5.39 per ounce, due to higher average gold prices and higher zinc and lead ore grades.

On the capital front, work is progressing on our $90-million expenditure programs, upgrading the mine, which includes the Deep 200 South development, fleet replacement and additions, tailings facility expansion, definition drilling, and extending and upgrading camp facilities. The Greens Creek currently has reserves for at least 10 more years of very low cost operations, and these expenditures are part of the mine plan to develop this great ore body.

Slide 15, at the Lucky Friday mine, we made excellent progress in the restoration work taking place this year. Through the first quarter, all surface work needed for the rehabilitation project was completed, including wenches, generators and revised shaft collar structure. The galloway was installed and we are now working from that structure. As of early May, approximately 1,500 feet of restoration work had been completed, which is slightly ahead of plan. This work involves the removal of cementitious material, along the main silver shaft, as well as installation of a metal brattice between the east and west halves of the shaft. Repairing shafts steel and installation of a new power cable, along with additional work, which is expected to improve the shaft's functionality and possibly improve the shaft's hoisting capacity. Work along the entire 6,100-foot shaft is expected to be completed in December. According to the plan submitted and approved by MSHA, once restoration work is completed through the 4,900 level, which we expect to happen in the third quarter, more crews are expected to be brought back in for development work to prepare the mine for resumption of production. Operations and silver production are expected to resume in early 2013 when the work is completed as planned. Care and maintenance costs incurred at the Lucky Friday totaled $6.2 million for the first quarter of 2012.

Slides 16 through 18 show photographs of recent work being done at Lucky Friday, including the man basket, slide 16, used by the work crews, setting the winch for the Galloway, slide 17, which is a three-deck facility shown in slide 18 in the upper left photo. The shaft wall with the electrical cable, shown in the upper right photo, and looking down the shaft at the Galloway and brattice in the bottom photo. Again, the rehabilitation work is going very well; actually a little bit of ahead of schedule at this point, and we are confident the work will be completed on time, with improved mine facilities and ready to resume production on schedule this year.

Slide 19 shows the work timetable for completion of the Silver Shaft restoration. One of the key benchmarks will be completion of rehabilitation work down to the 4,900 level, at which point development crews will begin preparing the mine for resumption of production, expected in early 2013. I'll now pass the call to Dean for an overview of our exploration and pre-development during the recent quarter.

Thanks, Larry. Exploration and pre-development in the first quarter continued to advance targets at our four highly prospective North American properties. Of particular note on slide 21, drilling on the equity vein structure at the San Juan Silver property in Colorado continues to identify strong gold/silver-bearing breccia and vein mineralization. The figure in the bottom left corner of the slide provides the 3D view of the equity infrastructure and location of the recent drilling of the equity vein from various drill stations underground. The longitudinal of the equity vein in the upper right corner shows the pierce points from drilling in 2012, and silver equivalent grade by thickness contours that defines a steeply plunging mineralized chute that averages 200 feet of strike length and at least 400 feet down plunge, but it is open and on trend of a series of significant deep intersections from recent surface drilling that are located 1,200 feet down dip along the equity structure. Those intersections, as seen in the lower left corner, include 0.3 ounces per ton gold, 21 ounces per ton silver, over 2.5 feet, and 0.2 ounces per ton gold, and 13 ounces per ton silver over 7 feet.

It's early in the program, but the steep plunging equity vein mineralization may represent a mineralized structure with more than 1,400 feet of vertical continuity. Crews continue the rehabilitation work on the Star 2,000 level, around the shaft stations, the Star number 4 hoist room, and the Star number 5 shaft, where a connection to the Morning number 5 level will provide secondary surface access. The Company expects to complete a Preliminary Economic Analysis on the project during the second quarter of this year. At the Equity, crews are continuing to rehabilitate underground workings, install utilities down the decline, and develop additional drill stations to define new mineralized trends along both the Equity and Amethyst vein trends.

In the upper right of slide 22, is a longitudinal of the Andrea vein near the San Sebastian in Mexico, with contours reflecting the gold equivalent grades by horizontal width. Exploration and infill drilling in 2011 defined a 1.7-kilometer strike length of the vein with multiple high grade zones. Drilling in the first quarter continues to extend the mineralized vein to the southeast by an additional 500 meters and may have identified a new high grade gold/silver-rich zone. Recent shallower drilling has shown in the lower left figure, we may have discovered the up-dip extension of the vein, north of a large fault, which opens a large near-surface area for possible resource expansion. At the San Sebastian project, options for accessing the existing resources at the Hugh Zone and a new mine plan has been completed. A Preliminary Economic Analysis is expected to be completed during the third quarter of this year. Hydrology and metallurgical studies are advancing on the Andrea vein, as drilling continues.

This is a quick summary of the exploration and pre-development activities this quarter. And with that, I will pass you back to Phil for further remark.

Okay. Slide 23, I want to talk for just a moment about the silver market. So if go to slide 24, we recently released Annual World Silver survey in New York reiterated the strong market fundamentals underlying the silver market and the positive expectations for the coming year. One of the things that they said in their report and that you can see that's happened over the last few years, is that at the silver supply has gone up. About a quarter of the silver supply is scrap supply. What this means is that new mine supply is actually in balance with fabrication demand, if you remove the investment demand from fabrication, so those two things are in balance. So it's scrap and other above-ground stocks that have to meet investment demand.

GFMS has said the increase in scrap supply is largely being supplied by people who are in such dire straits they have to sell. So the strong money is on the buy-side of the trade. And I think, because of the uncertainty in Europe and the rest of the world, the continued technological demand for silver, and the substitution of silver for gold, as we are seeing in the US and around the world, and that's evidenced by the increased imports in Indian silver jewelry, that the outlook for silver, both in the short and the long-term, is the best it's ever been. And I recognize there's going to be great volatility, but the trend is for more demand across the board. So we're very optimistic about the silver market.

Slide 25, in summary, we think Hecla is poised to benefit from these strong market fundamentals. We remain the largest US primary silver producer with expected production of approximately 7 million ounces. With the reopening of the Lucky Friday, along with our development projects in the pipeline, we fully anticipate production growth between 2013 and 2017. Hecla is North American-focused in its operations, exploration and development and offers a low-risk low risk profile. Having said that, we certainly look beyond North America for things that we might acquire. We are also among the lowest cost silver producers and the assets that we bring on will continue to be lower cost. Our current dividend is the third consecutive dividend that we've paid, and we have a strong cash position and effectively no debt. And with that, we have the ability to do the stock buyback and yet still grow the business. We think we have some of the best silver assets in the market and we expect that market to be strong. And so with that, Chris, I would like to open the line for questions.

(Operator Instructions) Our first question comes from the line of Chris Lichtenheldt with UBS. You may proceed.

Good afternoon, everyone.

Hi, Chris.

Hey, I just wanted to ask first, over the past few quarters, we've seen some pressure on treatment refining charges. I'm wondering if you can maybe just give a little bit of insight as to what the terms look like for your concentrates at Greens Creek, in terms of direction or, actually what you're seeing in terms of refining trends. Is there any color you can provide there?

Yes. Jim, do you want to--

Yes, there's two things. The zinc terms are coming in now. The zinc terms are actually a little bit better this year than we've seen in prior years. That's a trend that's been going over about, oh, 2 or 3 years now, since 2008. On the other side of the equation, though, it has not been finalized. But we're going to see lead terms go up a little bit in favor of the smelter.

Okay. And some of the producers have publicly said they are seeing the refining charges linked to silver prices and as much as 10%, 12% of silver price. Do you have any linkage like that going on? Or is there anything to say about that?

We do have linkage, Chris, and it's not just silver prices. It's been in our contract for -- contracts for a number of years. It's actually based on the value per ton of concentrate. And it moves both up and down within various ranges. But it applies to all cons that we sell.

Okay. Maybe last thing I'll ask on that, if we look year-over-year, the number of dollars you're spending per ounce of silver produced, are we up 20%, or is there any sort of broad brush there you can sort of update the model a bit?

You're -- the question you're asking is what? Say that again.

The portion of your cash cost attributed to treatment and refining charges, all together, per ounce of silver, just make it sort of simple, year-over-year, that's up on the order of--

Look, we can -- what we can do is look at the reconciliation, and in that reconciliation, we can do the math. Do you have--

Actually, I guess, you sort of provide that, don't you?

Yes.

Yes, the treatment charge was up $2.68 per ounce.

Yes, this, this first period. But, you know, that is, of course, reflecting the lower production that we had for the period.

In terms of our gross treatment charges, Chris, they were $17.7 million this quarter, and they were $19.1 million last year, and if you look at the volume of silver, while that's not the determinant because it's priced on tons, it looks like it's not quite pro rata, but pretty close.

Okay. Yes, that is helpful. That's perfect actually. Thanks. And then the last thing I wanted to ask, with Lucky Friday, how is the optimization study going? Is that on pause right now, given the rehabilitation? Or are you still working on that in the background?

I'm, I'm sorry. I didn't hear the question.

Sorry. The Lucky Friday optimization study that was under way before--

Yes, no, we're still working on that. With Ed coming on board, we're, taking the work that's been done and we're letting him have a hand in where it goes forward. Anything you want to add to that?

Yes, there's a couple elements that we're looking into to add, but the work's still ongoing. For instance, one of the benefits of upgrading the Silver Shaft is the ability to add a third conveyance, the Chippy Hoist, which would be used to transport men and materials and would improve our efficiency. So there's a couple of new wrinkles that we're looking at.

You know, the other thing that's happening is, as we speak at surface, there's new surface facilities being constructed. You'll remember those old offices that we had that were trailers, those have been destroyed and new facilities are going in.

Okay. So would we have any conclusions from the optimization study before you begin production again?

I don't know. We'll have to see what the results of the study are to be able to tell you if it's a one-step process or if we're going to go it two or three times to sort of grind down and what we're going to do.

Okay. All right. That's it for me. Thanks a lot.

Thanks, Chris.

Our next question comes from the line of John Bridges of JPMorgan. You may proceed.

Good morning, Phil, everybody. Just wondered, you actually sold more silver than you produced this period. I just wondered, where the Delta was, and wondered if you'd drain the swamp and left the pipeline lean for this quarter? You know, how should we look at the size of the pipeline for this quarter?

Well, I think you can look at our inventory levels and you can see that. And you're absolutely right, that we had larger inventory levels at year-end than where we ended up into the first quarter. So Jim, do you want to add anything?

Yes, I would just add that at Greens Creek, we ship stuff in barges, so it doesn't take much to swing that inventory positive or negative, depending on the cutoff. During the first quarter, we shipped a lot of lead concentrate, which contains a lot of the silver. And so it's just normal inventory flow that we'll see quarter-after-quarter.

You know, with the Lucky Friday being down, we don't have that steady shipment that goes out every day. So it does make us -- you'll see more volatility, I guess, if you will, quarter-to-quarter.

I know there's a problem a year or so ago when freight rates got very high, that you were trying to optimize for shipping costs. But with freight rates much lower now than presumably, even with Greens Creek, then the frequency of ships is probably higher?

No, because we have a long-term shipping contract. I mean, I think we're in year 3 or 2 of 5-year shipping contracts. So, no, it's pretty normalized. It really gets driven by when we can get the ships, what sort of room we have in the surface facility. I think those are two of the major--

Yes, and production. Yes.

And you may have mentioned this earlier; I got on a bit late, but the -- you were a bit light in the first quarter, but I believe you're going to be able to catch up at Greens Creek later in the year. Do you still think that you can make the target number?

Yes, look, we think we can make approximately 7 million ounces. That's where we started the year. We think we can do that. We've got a lot of hard work to do and we'll see where we end up. And certainly, at the end of the second quarter, we'll have a much better sense if there's, if there will be some shortfall. But at this point, approximately 7 million ounces is where we are.

Okay, great. Congratulations.

Okay. Thanks, John.

Our next question comes from the line of Trevor Turnbull with Scotia Capital. You may proceed.

Yes, maybe just following up a little bit on John's question at Greens Creek, I know you were looking to take the capacity up a bit more over the next couple of years. And, correct me if I'm wrong, but I was thinking the target for throughput was something on the order of like 26 -- I guess I'm in metric, but I was thinking 2,300 tonnes a day. What's kind of your timetable to get that capacity throughput up at Greens Creek?

We're still working to get there. And that's ultimately where we would like to be. And, you know, I'll let Larry answer the question, but it will take us certainly the better part of this year to reach that level on a consistent day in, day out basis.

Yes, that's well said. We're currently running about 2,100 to 2,200 tons per day. We're not far away, as Phil mentioned, getting the consistency is really the key for us.

Okay, and also, kind of with respect to the day-to-day and the rest of the year, you've had some higher grades than you averaged I think last year. Q1 looks a bit higher than the 2011 numbers. Should we consider Q1 grades to be fairly typical of what you'll expect this year, or is there an upward or downward trend expected for the remainder of the year?

Larry, I don't recall. What, what--

Yes, I have it here. The silver grades are on a slight upward trend throughout the rest of this year. And last year, there was some -- the ore bodies are amorphous ore bodies. It is not a tabular ore body, and we did have some pleasant surprises towards the end of the year. Some high grade, that the actual ore body was larger than we thought it was, and richer than we thought it was. Obviously, we can't count on that. But there is a slight upward tick looking through the balance of the year.

You know, the other thing that happens is, we invariably, because of the ore body is kind of like an amoeba, you know. It is a blob of mineralization that doesn't have very defined boundaries that we almost always mine outside the resource, resource boundary. And we don't know what the grade that will have. Sometimes it's been higher and, you -- the reserve boundary, thank you. Sometimes it's been higher, but, it could be lower. So that will certainly impact where the grades will end up being, and, you know, we won't leave that material behind if we have good, economic material. We'll take it, even if it's lower grade.

Right, and can you remind me, is there a correlation higher silver grades with higher base metal, or is it inverse, or there is no relation?

In general, Trevor, you'll see higher precious metal grades where you have lower sulfides. But, you know, it's not a consistent relationship. There clearly are ore bodies like 200 South that are low-base metals, very high precious metals, and we probably will see that become a larger part of the mine plan, but that's countered by other zones.

Okay.

So it's -- yes. There really isn't a consistent, consistency that we could say.

Okay. Actually, while I've got you, Dean, can you remind me again, at San Sebastian and in San Juan, when was the timing on the next events on the studies that you've got going on there?

Okay. With, you know, as we said earlier with the San Sebastian project, with the Hugh Zone, you know, we're looking at a third quarter for economic analysis to be released. In the meantime, you know, we're certainly doing a lot of work on the Andrea to try and catch up with the Hugh Zone, which is a more advanced project. And then with the Star, and we've referred to it in the past as the upper country, which is above the current water level, we would expect in the second quarter to--

Third quarter.

Third quarter, sorry.

Internal is second quarter. External third.

We'll have that information out. And that's really looking at the mine-ability of the Star and the Noonday.

And that's like a PEA as well?

Yes, that's right.

Okay. And you mentioned something to do with the equity. Now, is that Q2?

Well, the -- no, the equity, all we're doing is just continue drilling there.

Oh, okay, okay. And then if I can change gears one last time, one last question, would the rate that you're kind of working on the shaft, when's your timing to get down towards the 4,900? Is that something you would expect to be--

Yes, we have a slide -- Trevor, there's a slide that shows the timing of everything on the shaft. What slide number is that?

Sorry, slide 19 it looks like. By the end of August, you were saying you'd be complete to the 4,900.

That's correct.

Okay, great. That's what I needed. Thanks, Phil.

You're welcome.

Our next question comes from the line of David Bond with Metals Week. You may proceed.

Good morning, gentlemen.

Hi, David.

Hi. Couple of quick questions. Why is your stock price and PE ratio so out of whack? And secondly, have you looked into the possibility of any concentrated short interest in your shares, ala Seabridge or Silver Corp?

Thanks, David, for the questions. Look, our price earnings is out of whack because we're undervalued, and that's reflected in the -- our belief in that is reflected in the fact that we're -- I've instituted this repurchase program. So with respect to short interest, you know, the best thing to combat that is getting the share price to move up, and so we're doing things that we think add value and will cause that to happen.

All right, thank you.

Thanks, David.

Our next question comes from the line of Mike Curran of RBC. You may proceed.

Good afternoon, gentlemen. Just had a couple questions on the rehab work at Lucky Friday. Just trying to get my sort of a mental picture of what's going on there. On the -- I guess you already said you're a little ahead of schedule on the scaling. I'm just -- two questions really. First off, is it because the thickness of the stuff you're scaling is thinner than you expected, or is it coming off the wall easier, easier than you expected?

I think -- I would characterize it as our -- we were estimating the work that we needed to do and we, in the process of doing the work, have figured out ways to do things faster than what we had anticipated, number one. Number two, we've not yet really not gotten to the heavy cementatious material, and so we still have a bit of unknown in front of us. So, while we're ahead of schedule, we are not projecting that we will continue to outpace the schedule that we have. Larry, do you want to add anything?

Yes, as Phil said, we have a fair idea of what's ahead of us, as we did a detailed inspection. There's still some unknowns and risks, and we know that. On the front end of the project, the hardest part, and the most time consuming part, was getting the surface infrastructure set up. That's the wenches, the Galloway. All of this stuff either had to either be fabricated or come down from Canada. So, that was quite time consuming, as we expected, and a credit to the team. The work was done slightly ahead of schedule, and safely.

Just a couple more questions, just kind of have the visualize what goes on that process. Is this a low tech thing, or is it two guys with chisels banging away on the walls, or--

It's pretty low tech.

And does the stuff fall onto the Galloway or fall all the way down?

No, no, they capture the material.

Okay. Got you.

So I mean, it's -- Larry, do you want to--

Well, it isn't -- I guess it can be characterized as low tech, although the wenches are all PLC-controlled and there's an element of high tech in the work. And I would say probably what has changed much, a great deal through the years in this sort of work, is the safety controls that are in place are quite sophisticated.

That's great. Thanks for the color.

Okay, sure. Sure, Mike.

Our next question comes from the line of George Beristain with Deutsche Bank. You may proceed.

Hi, good morning, Phil.

Hi Jorge.

My question was more of sort of a big picture and strategic, you have three potential growth projects ahead of you. You said earlier in your comments that one of the biggest advantages Hecla has is being in safe jurisdictions in North America. Have you given any kind of thought to the preference and the staggering of those projects, if you move toward development in terms of by region where your preference would be? Is it more to develop something in your hometown in Idaho, or is it -- are you pushing more to go abroad into Mexico to diversify the company, for example?

You know, actually it becomes a question of what can be brought into production fastest and generate the most return and have the largest impact on our evaluation. And so, we're open to any one of the three leading the way, or to have maybe even more than one at a time. You know, certainly the Star is one that has the least amount of impediments, but it's also the smallest of the three. So, you know, but again, it's going to be driven by-- to the extent they are all ready to go, it will be driven by returns.

But the reason I'm asking is that there have been some peers of yours in the past that have perhaps bitten off more than they can chew by trying to develop two or three mines simultaneously, or perhaps changing their core geographic focus and going to another country, and that's gotten them into trouble. So, I'm just wondering if, besides just the straight financial returns, if you're also looking at qualitative factors to try to rank order the projects.

There certainly are qualitative factors, but think about where we are with the Star. It's in our backyard, so that makes that easy to do. The other two locations, San Sebastian in Mexico, we have operated there for -- I mean, we've actually physically been in that location for 12 years and operated there for about 5 of those 12. So we feel very comfortable with making an investment there.

And then the San Juan is in Creede, Colorado, which is a mining district, and we feel comfortable there. Now, having said all of that, I think the biggest driver is going to be when we can get the permits, when we can get the work done in order to advance these projects. I think those are a bigger driver for us than where they are located.

Okay, and my other question was, given that you have net cash right now, and you obviously have this silver-linked dividend policy, but unfortunately we've seen in the gold sector that other peers have linked their dividend to gold, and as gold has flat-lined, that's kind of taken a little bit of the wind out of their sails. So my question is, are you willing to take more of a leading role in perhaps instituting a dividend policy that is not as dependent on the vagaries of a metal price.

And also, given that you said you're undervalued, it doesn't seem that the market's paying up a lot for growth in the mining sector, and perhaps taking a differentiated approach of being the highest dividend payer in the sector might jump-start your equity. So, I was just wondering if you had any thoughts to how aggressive your payback could get on the dividend, and if you would be willing to reconstitute that to be more of a fixed payment? Or at least fixed as long as metal prices are high, that is, and get it away from this kind of linking to the silver pricing.

You know, Jorge, I guess first of all, I think we already are the highest paying silver stock in the space. If not, we're close to it. Certainly, we have the best political jurisdiction and dividend combination. With respect to changing the policy, look, you've only been at this now for three quarters. So, let's give it some time and see how it works and the Board is very open minded. We have now had not just the silver link dividend, but we now have had this regular type of dividend. This will be the second time we've had that. So it's, you know, we are evolving how we deliver value to shareholders and with the stock buyback, it's the third way that we're doing that.

Okay. Thank you.

Thanks, Jorge.

Our next question comes from the line of Steve Butler with Canaccord. You may proceed.

Well, good morning, guys, or afternoon, I should say, Phil.

Hi, Steve.

Hey, your mining costs and milling costs-per-ton, a little higher in the quarter than we would have expected, but that's partly throughput, but you also referred to higher maintenance costs. Could you probably give us a sense of costs-per-ton that was extra in the quarter for maintenance, or maybe say what you expect for normalized run rate on mining and milling costs at Greens Creek going forward?

Sure. We have actually then put an analysis on that. Larry, do you want to talk to that?

Yes, the mining costs themselves, or the maintenance costs, I should say, were principally attributed to a bit of a change in philosophy that, rather than repair every small part on a machine, we would swing entire components in and out in an effort to improve our uptime in the machines and we're starting to see the benefit of that now.

So is that -- I mean, was that an extra several dollars per ton?

Well, it was about $1 million.

Okay.

That we spent extra this year than what we had last year.

Okay, in the quarter, okay.

Yes.

And milling costs, have they been running at around, probably not too far from this range of 30s. Is that a comfortable range?

Yes, the milling costs were basically proportional to tonnage.

Right. Okay. That's it. Thanks, guys. Oh, the other one, sorry on Andrea vein, Dean, will you have a resource calculation here or at the time for the PEA for the Hugh, or will you defer that til the end of the year? Thanks.

Well, yes, Steve, we released a resource on the Andrea earlier this year. The likelihood is that, you know, at the end of next year, we'll have a resource, an updated resource.

End of this year.

End of this year, on the Andrea.

Okay. So, you remind us, Dean, of that, what's the size of the Andrea resource?

The Andrea is at -- just checking it here.

We can look it up, too.

It's -- see, sorry. It's 6.8 million ounces of silver, 130,000 ounces of gold.

Okay.

And 2.1 million tons.

Okay. Thanks very much.

Thanks, Steve.

Our next question comes from the line of Bill Fernandez. You may proceed.

Hi, I'm Bill Fernandez. I'm a private investor. Don't have too many shares. I notice that there's not mention of a potential for the class action lawsuit, or I don't see anything in the statements regarding setting up of liabilities or anything like that. Could you update us a little bit on the status to that and what Hecla might feel about it?

Yes, thanks, Bill. I'll do that. No, there is no update on the class action lawsuit. You know, they have made their filings and there's now the plaintiffs are determining who is going to be the lead plaintiff. I don't think that has been resolved. And so once that's resolved, then presumably there will be the next step taken. We have filed an answer and -- but it's, at this point, it's all very procedural. There's no -- nothing substantive, and we do not see a need to accrue anything associated with it.

Okay. Could I ask a favor, because it keeps me from wanting to buy more Hecla. I wanted to buy more Hecla. Hecla, I'm sorry. And could there be updates periodically, which from Hecla's point of view regarding the status of it?

You know, we--

As much as you might be able to say?

We will when it's appropriate. We'll, you know, either file an 8-K, or file in our Qs or Ks, you know. If you don't hear anything, there isn't anything we've got to say.

Oh, okay. I appreciate that, sir.

Sure.

(Operator Instructions) And our last question comes from the line of Joseph Gregory with Global Hunter Securities. You may proceed.

Hi, guys. I just had two housekeeping-type questions. The first one is with the way that you guys report your cash costs, you report one that's like a by-product credit version, and then you have the second that's like the total all-in cash cost-per-ounce produced. I'm having a little trouble getting from one to the other, just by, you know, including by-product credits, taking them out. Is there anything else included in your guys total cash costs?

Well, I, you know, I'll let Jim answer, but what we do is we follow the Silver Institute Standard for reporting costs, our cash costs, and total costs, and we only give really two categories of cost-per-ounce, cash and total, and the difference is only going to be the, some non-cash items in the calculation. And we do provide a reconciliation of that calculation with every Q and K and it's attached to this press release.

Yes, no, the only thing I would have is some mining companies do have variety of ways that they calculate cash costs and you'll see a number of statistics in their document. Phil is very correct. We only provide one, which is the methodology that's been approved by the industry for a couple of decades now, and so we have two statistics. That one and then the full cost with depreciation. And I would refer you to the Reg G reconciliation, which goes through that with great particularity that's attached to the press release.

It's on page 12 of the press release, Joe.

Okay. That will be helpful with that. And my other question was just, when I was reading through your annual -- in regards to litigation things, I know there's a class action lawsuit, and it specified about how there's potential for lawsuits regarding, like, the shutdown of Lucky Friday and it doesn't go into detail. Is that just a standard disclaimer type item, or is there actually some pending litigation you guys have not deemed to be material to disclose fully yet?

No, we've disclosed whatever is material litigation. I mean, there's certainly administrative matters with the Union, where the Union makes a claim for additional compensation. So, I don't know if that's what you're referring to.

No, the -- probably was just a standard disclaimer, then, if there's nothing specific that you guys can think of.

Yes, there's the class action lawsuit and there's the derivative lawsuit. Is that the description of it? So, there's these two different types of lawsuits. And I think there's been nine cases and, I don't remember how many are in each, and those will get consolidated -- the two types of cases will get consolidated. And that will happen over the course of the coming months I guess.

Okay. That's fine, then. Thank you.

Sure thing, Joe. All right. Well, I think that's all the questions we have. Thanks for joining us on the call. If you have any further ones, please give us a call. Thanks.

Ladies and gentlemen, that concludes today's conference. Thank you so much for your participation. You may now disconnect. Have a great day.