Hecla Mining Co (HL) 2012 Q2 法說會逐字稿

Good day ladies and gentleman, and welcome to the second quarter 2012 Hecla Mining Company earnings conference call. My name is Regina, and I will be your conference operator for today. (Operator Instructions). I would now like to turn the conference over to your host for today, Jim Sabala, Senior Vice President and Chief Financial Officer of Hecla Mining. Please go ahead, sir.

Thank you. Operator. This is Jim Sabala, Hecla's Senior Vice President and CFO. Welcome everybody and thank you for joining us for Hecla's second quarter 2012 financial and operations results conference call.

Our news release that was issued this morning before market open and today's presentation are available on Hecla's website. On today's call we have Phil Baker, Hecla's President and Chief Executive Officer, myself, Larry Radford, Hecla's Vice President of Operations and Dean McDonald, our Vice President of Exploration. I would like to refer you to slide 2 please. Any Forward-looking statements may be made -- that may be 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 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 pass the call to Phil Baker. Phil?

Thanks. Hello, everyone. Glad you could join us today. I will provide a brief overview of the second quarter highlights.

Jim will come back on and speak about our financial results. Larry Radford will provide an overview of operations, and Dean will update the exploration and predevelopment programs, and then we will have a period for questions. First of all, I would like to make note of the tremendous work that is being accomplished at the Lucky Friday by our workforce there.

They have really been doing an outstanding job in the rehabilitation work of the Silver Shaft that we expect will lead to reopening of the mine in the first quarter of 2013 as well as future production increases and reserve development. The current rehab work at the Lucky Friday has exceeded our expectation and been complete through the import 4900 foot level. This is a key milestone where development crews are now preparing the mine for operation and production.

The rehiring of miners has already begun, and we expect it to be back to the full complement of 200 miners with the completion of the shaft rehabilitation and resumption of production. Due to the 4900 level, crews have been installing metal braises along the way rehabilitating as they go. This is essentially a new state of the art shaft. This shaft will be positioned for installation of another hoist that will be dedicated to materials which we expect will increase capacity and significantly improve efficiency. Reaching the important 4900 level also advances planning for the restart of the work on the Number 4 Shaft. This is a $200 million project in which we have already invested $90 million which will access deeper higher grade ore.

We are pleased to say the least at the great progress at the Lucky Friday, and our congratulations to the work crew for their excellent and continued safe-work efforts to make this an even better mine. At our 100% owned Greens Creek mine in Alaska we saw improved tonnages during the quarter and cash costs of about $1 per ounce of silver providing an excellent $26 per ounce of margin. As expected, grades were lower during the quarter than last year.

They also used contract mining to catch up development and production that was diverted in the first quarter and part of the second, and an intensified ground control program. Our large CapEx program at Greens Creek is on track and expected to generate returns, reduced risk, and prepare the mine for many more years of low-cost silver production. An example of this is the major expansion and upgrade of our camp facilities.

While we have consumed some cash, it is been less than expected and our balance sheet remains very strong with $233 million in cash and no significant debt. Work at our highly perspective exploration and predevelopment projects continue to advance. As happened in the past, we are seeing impressive results.

Drilling at Greens Creek has seen extraordinary wits and grades in some zones, San Sebastian's Andrea continues to extend the strike link and the pre development projects are moving forward rapidly. As you might recall, these predevelopment projects started just 15 months ago, and we are making great progress to move these from pre development to development and because of that, we believe we remain on track to increase our silver production by 50% over the next five years from the deeper , higher grade Lucky Friday ores, and one or more of these pre development projects going into production.

Finally, we have also issued our fourth consecutive dividend this quarter for the amount of $.0025 per share. And with that, I would like to turn the call over to Jim to review our financial performance.

Thank you, Phil. In the second quarter sales were $67 million down from $118 million a year ago. And due to the temporary suspension of the Lucky Friday as well as lower average metals prices .

In the six-month period sales were $158 million compared to $254 million for the same period a year ago. Similarly net income applicable to common shareholders for the second quarter was $2.4 million or $0.01 per share compared to $33.2 million or $0.12 per share for the same period a year ago.

Impacting our results were a number of factors. First, the temporary suspension of mining activities at the Lucky Friday mine which were suspended in January of this year and expected to resume in the first quarter of 2013. There were $6.5 million in suspension-related costs at the Lucky Friday in the second quarter.

Also lower than expected grades at Greens Creek as well as lower average silver and base metals prices compared to the year ago period. At Greens Creek we are seeing positive trends in the third quarter and expect both production and grades to improve in the second half of this year. We did have a higher exploration and predevelopment expense in our accelerated program which Phil referred to which nearly doubled to $10.6 million in the second quarter.

For work we are conducting at Greens Creek, the Company's extensive land position at San Sebastian and Durango, Mexico, and the San Juan silver project Colorado, and the Star Mine complex in North Idaho's Silver Valley near the Lucky Friday mine. Predevelopment projects and engineering studies also advanced in Mexico, Colorado and the Silver Valley. In the second quarter we had a $6..2 million gain on base-metal derivative contracts based on forecast production for the second quarter compared to a $600,000 gain for the same period in 2011.

We also recorded a $700,000 -- excuse me, a $700,000 tax provision compared to $19.6 million in the same period of 2011 as a result of higher pretax income in the previous year. Our effective income tax rate is approximately 35% this year compared to 33% in the same period in 2011.

Finally, we did have losses of $1.5 million on provisional price adjustments compared to losses of $7.6 million in the same period of 2011.

This includes gains on base metals hedging of $900,000 in the second quarter and $500,000 during the same period a year ago . And of course we do not hedge our precious metals.

On slide five you can see the averaged realized silver prices in the second quarter of 2012were down 24% to an average of $27.05 per ounce compared to the year earlier period while average goal prices were up just 2%.

Base metals prices were also down from the earlier period with zinc prices down 15% and lead prices down 24% in the second quarter a year ago. And while prices were down, we must still look back and realize that we have very, very healthy prices for our business. Total revenues of $67 million in the second quarter are broken down on slide 6 with silver accounting for 39% of the total and gold 21% for a combined precious metals total of 60%.

All of our production this quarter was at Greens Creek. Margins and cash costs remain very strong as shown on slide 7. The second quarter silver cash cost net of by-product growth was $1.03 compared to $0.52 per ounce a year ago, but still among the lowest in the industry, if not the absolute lowest.

The higher cash cost in this year's quarter were largely impacted by lower grades at Greens Creek and lower metals prices for our base metals by products. Our cash flow includes the impact of normal variation in the timing of shipping of metal concentrate from the Greens Creek mine. Consequently $24 million of cash flow attributed to second quarter sales was deferred into the first couple of days of the third quarter.

On slide 9 we have our cash position which remains very strong at $233 million at the end of the quarter. Just last week we reached agreement with our banks to increase the amount available under our revolving credit agreement to $150 million from $100 million. We believe this outstanding support we received from our bank root demonstrates the Company's strong financial profile and validates its business plan. We expect to be able to fund our planned future expenditures through our cash flow, our strong balance sheet, and the untapped revolving credit agreement.

In addition, the Company has no significant outstanding debt. With that, I would like to turn the call over to Larry for a review of the operations during the second quarter. Larry?

Thanks, Jim. As Phil mentioned at the Lucky Friday mine shown on slide 11, we made excellent progress in the restoration work taking place this year, and we are fully expecting the mine to resume operations and production by the first quarter of 2013. To date, work crews have completed rehabilitation work on the Silver Shaft through the 4900 foot level according to our plan approved by MSHA. The 4900 foot level is an important milestone.

From the 4900 foot level we can access the 5900 foot level and begin constructing the bypass drift around the section of the main line drift that was closed last year. To complete this development work 20 additional miners are being rehired and will return to work in August, adding to the 75 hourly employees already working at the mine. We plan to reach the full complement of 201 miners by the end of the year as the mine prepares for resumption of operations in the first quarter of next year.

Additional safety training has been given to all employees. Throughout the second quarter work through the 4900 foot level included removal of semititious material along the main shaft, installation of a new power cable and additional work which is expected to improve the shaft's functionality and possibly to improve its hoisting capacity. Work along the entire 6100 foot Silver Shaft is expected to be completed by December of this year.

Number 4 Shaft planning has resumed. Once the Silver Shaft is complete, our contractor Cementation will return to shaft sinking. To date, $90 million has been spent on this $200 million project which is planned to provide access to existing reserves, resources and to provide additional exploration targets.

This project is expected to be completed in early 2016. Slight upgrade projects have continued throughout the summer including (inaudible) construction, a reagent application upgrade in the mill and architectural drawings for the new technical services building. Ground breaking for the new building is expected in the spring of 2013.

Slides 12 and 13 show photos of the quality of the work That has been accomplished. As well as the expected time line for bringing the mine back into production in early 2013.

At Greens Creek on slide 14 we continue to make good progress on the capital expenditure programs at the mine. Silver production at Greens Creek was 1.4 million ounces in the second quarter of 2012 compared to 1.5 million ounces in the same period in 2011.

In the first six months of the year, the mine produced 2.7 million ounces of silver. Second quarter silver cash costs was $1.03 per ounce, net of by products compared to $0.52 per ounce in the same period in 2011cents due in part to lower grades as well as lower average silver and base metal prices and higher mining costs.

Mining costs per ton were up by 23% , and milling costs per ton were down by 12%, in the second quarter compared to the same period in 2011. The higher mining costs was principally due to the increased use of contract miners while increased availability resulted of hydroelectric power resulted in lower milling costs. The contract miners were used to supplement the production workforce during the period in which Hecla crews were diverted to ground control maintenance.

Ground control maintenance continued through the beginning of April, and by the end of April crews had returned to normal production and the normal mining cycle had resumed. We expect production rates to increase throughout the remainder of the year. Additional bolting capacity was added to the mining fleet. Two bolters will be dedicated to ground control maintenance throughout the remainder of 2012.

Record tonnage was noted in May and principally coming from drift and fill stokes. Greens Creek is expected to product more then 6 million ounces of silver in 2012. As mentioned, we are advancing our large CapEx program at the mine which includes deep 200 south access development, fleet replacement and additions, tailings down expansion and definition drilling.

The camp expansion is functional and complete, and there is a photo of it on slide 14. These investments will help prepare the mine for future resource development and continued low-cost production. I will now pass the call to Dean for an overview of our exploration and predevelopment during the recent quarter.

Thanks, Larry. Exploration of predevelopment in the second quarter continued to advance targets at our four highly perspective North American properties. Explorations expenditures for the second quarter were $7.1 million with full year expenditures expected to be approximately $30 million.

Predevelopment expenditures for the second quarter were $3.5 million with full year predevelopment expenditures expected to total approximately $23 million. The ramp up of predevelopment expenditures in the second half of this year includes $7.3 million development of the decline into the Bulldog mine , and investing a further $3 million to improve ventilation and establish new drill platforms at the Equity mine in Creek, Colorado.

Underground drilling at Greens Creek shown on slide 16 continues to extend mineralization along trend of the Southwest bench, Gallagher, 200 South, 5250 and 9-A zones. The most impressive results occur on the Southwest bench where drilling defined wide, high grade extensions and provided continuity between previously defined resources. Slide 16 shows the location of the Southwest bench in the West Central part of the mine.

The more detailed diagram on the right side of the slide shows an extension to the current resource boundary on a North/South trending limb and also the definition of new resources on the East/West trending limb. The resource is expected to grow updip on the North/South trending zone, and we anticipate significant resource growth and continued exploration upside on the East/West trending limb. Highlights from drilling of the Southwest bench include intercepts of 0.4 ounces per ton gold, 14.8 ounces per ton silver, 10.5% lead and 22.4% zinc over 58.4 foot interval.

Another intersection 0.14 ounces per ton gold, 56 ounces per ton silver, 8.8% lead and 16.6% zinc, over 42.6 feet. And 0.11 ounces per ton gold, 3.9 ounces per ton silver, 6.5% lead and 38.1% zinc over 24.6 feet.

These are some of the longest high grade intersections at Greens Creek in many years. The focus of current drilling at Greens Creek is the 200 south zone at the south-end of the mine where drilling expanded both the upper and lower limbs of a folded or body. Drilling from two stations intersected massive-based metal and white veridic ore types that carried from 15 to 30 feet in thickness and is expected to extend the current 200 south resource at least 200 feet to the south. Surface drilling at Killer Creek is 1.5 miles west/northwest of the mine portal and has intersected new mineralization near surface that extends in intervals over 300 feet downhole.

Assays for this hole are pending as two drills actively evaluate the potential of the area. In slide 17, the left hand diagram shows a 3D view of the Equity, underground infrastructure at the San Juan silver property in Colorado and the drill pattern from the ram. The right-hand diagram is a longitudinal of the Equity vein structure showing drill pierce points and contours of silver equivalent by horizontal width. The higher value contours define steeply plunging gold silver bearing and vein mineralization that narrows from 450 to 200 feet of strike length from near surface to over 600 feet of continuous down plunge mineralization.

This high grade zone includes intersections of 18.6 ounces per ton silver and 0 .15 ounces per ton gold over 11.4 feet and 26.4 ounces per ton silver and 0 .25 ounces per ton gold over 8.8 feet.

But a more thorough list of assays can be found on the press release and the Hecla website. As you can see on the longitudinal, mineralization weakens in the lower underground drill holes, the deeper drill holes from surface suggests that birchen veins broaden again at depths where the vein structure crosses more confident host rocks. Deep holes from surface intersect this trend and define two distinct high grade veins and structures.

Crews are continuing to rehabilitate under groundworkings at the Equity, install utilities down the decline and develop additional drill stations. The deeper drill stations are prepared as the drills will now focus on defining resources along the Amethyst vein structure. At the nearby Bulldog project the design of the decline is finalized. The contractor has been chosen.

Equipment is being mobilized to begin the decline development by September. Commencing development of the underground workings was an important milestone for the Bulldog project. The Company now expects to invest a total of $10.6 million at the Bulldog in 2012.

This development will provide access to the existing Bulldog underground infrastructure to allow underground exploration and set up to reestablish production. Plans to obtain authorizations for future underground exploration activities at the Bulldog are being developed. On slide 18, the diagram in the left corner is a planned view of the Star 2,000 level that shows the west-end of the Star Complex in the Silver Valley where there are two drills targeting high grade northerly and down-dip extensions to the Moffat and Northstar veins. The right side diagram shows the drilling has extended the Moffat vein over 400 feet downdip and up to 600 feet to the north along strike from the current resource model.

This drilling also suggests mineralization is open at depth and to the east at depth. Drilling from surface on the Noonday continues to expand that resource to the east and west along strike and confirm an increase in silver lead values to the east. Rehabilitation of the Number 5 Shaft at the Star mine continues where the connection to the grout 700 level will provide entry to the upper country level above the 2000 level to access drill stations to test eastern Noonday extension and provide a secondary surface access.

A 750-foot long drift is being excavated on the Star 2000 level in order to provide a drilling platform to test the eastern extensions of the Noonday, and Noonday split veins. Slide 19 displays a series of longitudinal sections from 2010 to July 2012 with contours reflecting the gold-equivalent grades by horizontal width of the Andrea vein at the San Sebastian project in Mexico. Step-out holes to the southeast continue to intersect a dominant vein that could extend the Andrea resource to almost two kilometers in strike length and over 500 meters east of the current resource.

Recent intersections include 3.4 grams per ton gold and 391 grams per ton silver or for 1.34 meters and 4.8 grams per ton gold and 156 grams per ton silver over 2.5 meters.

A complete list is provided in the press release. An initial mine plan based the on existing mineral resources at the Q zone has been completed and a preliminary economic analysis is expected to be completed during the third quarter of this year. A drill program to define the hydrology of the Andrea area has been completed and preliminary mine designs are being reviewed. Condemnation and geotechnical drilling at the proposed site of a tailings pond near San Sebastian has begun. That is a quick summary of the exploration and predevelopment activities this quarter, and with that I will pass you back to Phil for further remarks.

Thanks, Dean. Just a couple of quick comments. We clearly have strong momentum going into the remainder of the year.

With the work going as planned and the continued rehiring of workers at the Lucky Friday, we expect MSHA approval for the operations and productions to resume in the first quarter of next year. We made an offer to acquire U.S. Silver, and it is our understanding this morning that the shareholders of U.S. Silver have approved their plan of arrangement, their merger.

As you know Hecla presented what we believe is a superior offer, however it was conditional upon the merger not being approved . Consequently, we will be formally withdrawing our offer at this time. But this offer is an example of our belief in the ability Hecla has to operate to discover new deposits , and our belief in the fundamental value of silver, and we will continue to aggressively pursue such opportunities as U.S. Silver.

For the year, we expect our production to be more than 6 million ounces . We anticipate further advancement of our exploration and predevelopment projects, and those are key for our target of increasing silver production by 50% over the next five years. Our balance sheet remains strong with a very strong cash position,no significant debt and an untapped and increased revolving credit facility.

This strength has enabled us to continue our dividend policy to shareholders, and we are also continuing our share repurchase program which reflects the belief in our underling cash flow and long-term value of the Company. And we fully expect the silver markets to remain strong as the world continues its growth and silver remains a critical and essential part that growth and storer of value in our modern and changing world. With that, operator, I would be happy to open the line for questions.

(Operator Instructions). Your first question is from the line of John Bridges with JPMorgan.

Hi, John.

Hi, Phil. Good morning. Sorry to hear about the vote. Just wondered will there be a specific expense item in Q3 related to this?

Yes, there will be. We have not accumulated all of the costs associated with it. It is a process that has been going on for only less that a month. So we still have really not seen where the costs will be, but yes we will have an item.

A couple million or something like that?

I will defer to Jim if he has some sense of what the number is going to be.

I do not have one yet for you, John. It will be over the course of the next month.

You mentioned you got lucky with the water in up- -

Up at Greens Creek?

Greens Creek with hydropower during the quarter. Is that something that is going to continue? Is that forecastable ? Or does it come and go?

It does come and go, but we have had a nice, rainy year so far this year and so the dams are full. Our expectation is that we are in pretty good shape for the remainder of the year. But it will be a function of what the weather looks like. If it is anything like the past, then we are in good shape.

Larry, anything to add?

No, we are expecting hydro for the rest of the year.

Okay, that is helpful in the models. You mentioned the higher contracting cost of contractors , is this something that will continue through the rest of the year, or could you give us a little more color on that?

Sure, Larry will respond to that, but realize that one of the things we did was decide to go in with a very comprehensive ground control program and decided to put additional resources to that, and we did that over the course of the first four or five months of the year. And then rediverted those resources to production for this quarter, this past quarter and Larry talk about the coming quarters. What we are expecting.

The contractor Tyson has by and large returned to the deep 200 south project which is capital expense . We will be using them from time to time throughout the balance of the year for production , but not to the extent that we did in the second quarter.

Is this a serious labor shortage up there, or was this just a one off?

It was a one off. We had to catch up some ground control manage meant -- maintenance, I am sorry, and we had to divert some of our crews to do that, and we supplemented those crews with the contractor.

Finally, given the delay, is that 200 something forecast cost for the Number 4 Shaft at Lucky Friday still a good number?

At this point, John it is the best number we have. We will certainly go in and evaluate whether there was any adjustments that we will make both to the shaft as well as to our estimates. Certainly when you mobe and demobe there are costs associated with that. We will have to take that into consideration. We will come out with something new. I do not think there is an expectation of some material change in the number. At this point.

Thanks, Jim. Thanks, Phil, thanks, Jim. Good luck.

Thank you, John.

Your next question is from the line of Jorge Beristain with Deutsche Bank.

Good morning.

Good morning, Jorge.

My question is just following up on the Greens Creek hired contractors. Can you quantify how much that increased your costs in cents per ounce in the second quarter?

Larry and Jim, do you guys have a sense of what that is? I do not think it was substantial. I do not have a specific number for you, Jorge.

If you look back in our press release at the gross spend of the property, the gross spend was actually well under control. The cost per ounce was driven more by volume considerations. And so while it was a factor , it wasn't a huge factor. So I see us recovering from that very quickly.

And then what is it that lead to -- it seems to have been sort of an impromptu diversion of these contract miners to do the mining so the Hecla miner can do the ground control. Was there any kind of seismic activity up there and could you also talk about how this may impact the 2013 volume outlook for Greens Creek?

Sure. There was no seismic activity. This was an abundance of caution. We just wanted to make sure that we had and know nothing out there that could cause this a problem.

So we thought it was prudent to divert the resources to do that. We are certainly working through our 2013 plans, but we do not foresee anything that will impact our plans for 2013. Larry, why don't you add to that?

As you say, Phil, the Greens Creek mine is a shallow mine. We never had anything seismic there. We have conducted internal reviews of our ground control.

We had external review done as well and decided that we wanted to catch up some areas move them up on the priority list as it was. What we are doing going forward as I mentioned is we have added two bolters to our capacity, and those bolters will continue through the balance of 2012 and probably into 2013. As Phil mentioned, we have not finalized our plans for 2013 yet. Going forward, we will have dedicated resources to ground control maintenance.

And then just maybe this question for Phil if we could talk big picture strategy. You did show your hand last month in going after U.S. Silver. And part of it was they had a growing concern capacity .

Is this something you foresee as needed in Hecla's outlook? You did mention that you still expect to increase your output 50% through one of your three development projects, but is that just as a fall back in case one of those projects doesn't work out you would like to bolt on a going concern company? Can you talk about what drove that decision?

Sure. Look, Jorge, the Galena mine is a mine that we know well. We view it as a property that we could over time improve.

We view it as a property that the operations could carry the exploration. That is where we really saw there was some potential was to do some exploration in the property over a sustained period of time. We think that land package deserves that. We also believe in the long-term in silver and the demand for silver and the price for silver.

So it was all of those factors. It was not so much -- in fact, we really did not consider the impact on our growth by 50% . That would have been on top of that with that production that would come from the Galena. Now with respect to looking at other things- - for all of the reasons that we were interested in the Galena, we have interest in other things for similar reasons where we can see exploration potential where we can see consistent production giving us exposure to silver we are actively investigating those opportunities.

Okay. Thank you.

Sure.

Your next question is from the line of Jeff Roy with Global Hunter Securities.

Thanks for taking the question Phil and Jim.

Hi, Jeff.

A quick question on Lucky Friday . It looks like you recognized about $6.4 million in expense this quarter on the suspension. Do you think that number is fairly consistent on a quarter basis, third quarter and fourth quarter? Are there any larger expenses or costs associated with rehabilitation at the tail end of it?

I mean it certainly picks up during the course of the year as we add more people and split between capital and operating . I don't have it off the top of my head. Maybe Jim or Larry knows the answer to that.

No, what I would add is of the $6.5 million, about $1.6 million is depreciation for assets that are in place and we are using during this period. So the actual cash portion is less than that.

I would expect that to continue through the fourth quarterat about those levels. And then in the first quarter ramping up towards production and defining between what goes against normal operations and what goes against stand by. And will require a bit more work. Certainly through the fourth quarter I see it at these levels.

And then secondly can you guys comment on the returning workforce in the Silver Valley? Do you see significant labor inflation and getting guys to come back or is there a long list of guys that are ready to return to work?

The largest portion is by far the majority and more of the workforce want to come back to the Lucky Friday. They recognize it as a long-lived mine that is going to operate for a longtime to come. So we are anticipating and maybe not every employee, but almost all are going to come back to the Friday.

And internationally, did you have to do any shuffling? If memory serves me there were some employees that went up to Greens Creek. Correct?

We had a couple of guys go up there. We had a couple guys go to the Star. We have had a number that have gone to work for us working for Cementation. We even had others go to competetors , and we helped place them there .

We wanted to see as many employees working as we could. We will by the end of August be about half of our normal workforce. Not quite half. Getting these people back will not be a major issue for us.

And last question , you mentioned that the U.S. Silver acquisition was partially predicated on exploration opportunity. Now that is not a possibility, do you think you might want to accelerate exploration on the organic projects either in the Silver Valley or in Colorado in 2013, or is that a little --

We are probably doing exploration about as fast as you can do it. We need to develop platforms to be able to get in and explore . We need to be able to access where we have drilled and what it means before we put the next hole in.

I would not anticipate significantly more exploration on our existing properties . We are, however, acquiring new things. We acquired some things, and we are in the process of working on others. And so there is potential for us to have other platforms that we will put more exploration and money into.

Thanks a lot. Talk to you soon.

Sure, thank you.

Your next question is from Steven Butler with Canaccord Genuity.

Phil, good morning, guys. On the Lucky Friday restart assumption , do you expect the silver shaft work to be done by about December, Phil? Does it need an inspection after all of the entire shaft maintenance or cleaning if you will is done? In other words, is it a planned December inspection by MSHA or could it potentially be any earlier?

There is an inspection that will occur down to the 4900 level to allow us to access that 4900 level off that shaft. So we would expect that to happen in fairly short order. That is what opens the 4900 level up to us allowing to us do the work down deeper as Larry mentioned down to the 5900 level and starting on the bypass work. So what I am saying , Steve, is that a portion of it will have already been inspected before we get to December, and that is happening as we speak.

So then if it has happened by that time I guess, conceivably production could restart very shortly thereafter, is that what you are saying?

Yes, exactly. So with the shaft fully cleaned down and ready to go by December , we would expect inspection of that and that is why we think we can restart production very early in 2013. We are much more confident on our ability to start in early 2013, and we were at the beginning of the year. We were not sure how long it to take us to do all of this work. We are slightly ahead of schedule. So we are quite confident that we will be able to start production up in the early part of the year.

And , Dean, question for you on slide 16 where you referred to the Southwest bench. Remind us if you will or maybe if you have or not the proximate ounces or tonnage associated with that Southwest bench where you have the resource boundary or maybe another way of asking would be the east/west branch . What is the vertical extent up or down dip and approximate thickness? We can sort of stylize that off the figure, but we have the implied of suggest strike length of east/west, but I am looking forward to your comments about its updip/downdip tested extents now.

Yes, we still have a lot more drilling to go in there, but, Dean, I guess answer as best you can.

Sure. Steve, the current resource we have at Southwest bench is half a million tons, 0 .35 ounces per ton gold, 18 ounces of silver, 25% combined lead zinc.

So it has been one of our higher grade stokes or zones . But what we are finding now with this drilling on the north/south trending mineralization or the limb is that the current drilling has extended updipthat zone at least 300 feet. And what we see happening is that in fact this Southwest bench may be connecting up with the Southwest which was one of the highest grade ore bodies in the history of the mine. With regard to that limb, we are seeing significant exploration upside in linkage potentially to the Southwest zone.

The other thing, and you know how complicated geometrically these ore bodies are, but in fact that north/south limb may in fact be folded over to the west, and we really do see a lot of exploration potential west of the Southwest bench. The east\west ore body (inaudible)I am not sure if are you hearing a clicking sound.

I am. I do not know if it is on my end or not.

And Steve, just one other point to make about all this, but we had a current mine life of around 10 years at Greens Creek. But when we look at exploration like this , and what we are doing on the 200 south, we are confident that we are going to continue to find in a more high quality resource that will allow us to further extend the mine life and that is important given the capital expenditures that we are making to really have the infrastructure for that longer mine life.

Thanks. And lastly, Dean, you said 300 feet updip. What was the current dip extent of the Southwest bench? Thanks.

Steve, of that limb it was about 700 feet as we know it. And we will follow-up once we have some development in that. There is upside to both that limb and the other limb in terms of --

Thanks, guys.

Thank you, Steve.

Your next question is from the line of Trevor Turnbull with Scotia Bank.

Hey Trevor.

Good morning, Phil. Maybe just to stick with a couple of Greens Creek questions. You were spending a fair bit of CapEx this year including additional equipment. Is any of that going to spill over into 2013 where we will see a little bit higher CapEx in 2013 as well?

We have not worked out our plans for 2013 . The answer is going to be we will continue to make these expenditures that are going to generate returns reduce risk like the work we have done on the ground control . It has been a risk reducing exercise .

Things like the new camp facilities, there is more work that we are going to do there to make the camp facilities even better. So we will have those expenditures in 2013, but we have not finalized what those will be.

But with respect to equipment that you have already ordered, you will be taking delivery of that I assume this year as opposed to --

Yes, some things we have accelerated into this year. Larry, do you want to comment on equipment specifically?

Well, there is some equipment that is in bound now for this year. We have ordered some equipment as well that will come into next year. As I mentioned, one of the key pieces that we need right now is a bolter which will come in the third quarter and that will replace the contract bolter. If we have a bottleneck right now it is in our bolting capacity . So that is the key part.

And do you have a sense on the geology? Sometimes you get into more lead or zinc rich as opposed to silver rich areas, kind of how the back half of the year plays out? Will there be one ore type that predominates over another?

Larry, go ahead.

The simple answer is the grades go up in the balance of the year. As to the geology I do not think there is a huge change.

So that is more of an across the board those grades go up, and not to the one of the detriment of the other?

No, it is not. Principally the silver grade is going up and -- I should give you a sense for the zinc grades. The zinc grades actually do fall off a little bit , but not appreciably

Okay. That is all I had, guys. Thank you.

Thanks, Trevor.

Ladies and gentlemen, this concludes the question and answer portion of today's broadcast. I would like to turn the call back over to management for some closing remarks.

Just want to thank everyone for participating in the call. If you have any further questions, feel free to give Jim or I a call. Thanks very much. Have a good day.

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