Hecla Mining Co (HL) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the CORESafety 2012 Hecla Mining Company earnings conference call. My name is Caroline and I will be your operator for today. At this time, all participants are in listen-only mode. We'll conduct a question-and-answer session towards the end of the conference. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

And now I'd like to turn the call over to Jim Sabala, Senior Vice President and CFO. Please go ahead, sir.

Thank you, operator. This is Jim Sabala, Hecla's Senior Vice President and Chief Financial Officer. Welcome, everyone, and thank you for joining us for Hecla's fourth-quarter and year-end 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, Operations; and Dean McDonald, Vice President, Exploration.

Any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act, as shown on slide two. Such statements include productions, projections, and goals which are likely to involve risks detailed in our Form 10-K, 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 those projected in the forward-looking statements. In addition, in our filings with the Securities and Exchange Commission, we are only allowed to disclose mineral deposits that we can economically and legally extract or produce. Investors are cautioned about our use of terms such as measured, indicated, and inferred resources, and we urge you to consider the disclosures that we make in our SEC filings.

And with that, I will pass the call to Mr. Baker.

Thanks, Jim, and hello, everyone. Glad you could join us on the call. I'm going to provide a brief overview. Jim will speak about the financial results; Larry, operations; and Dean, predevelopment and exploration. Then we'll have -- we'll answer questions.

Let's start with slide 3. This past week, we released news on of resuming production at the Lucky Friday, which was non-producing while rehabilitation work was done to clean, rebuild and improve 6100 foot Silver Shaft, and the bolting and repairing of 7.5 miles of workings, with more than 61,000 bolts and over 20 miles of chain link fence. Over the last two months, MSHA has modified certain orders allowing the use of the shaft to the deepest loading pocket at 5970, and access of the #10 and #11 stopes.

With these modifications, we've initiated production of ore and shipped our first concentrates to Teck's Trail smelter two weeks ago. This is on the schedule we envisioned about a year ago.

I'm going to pause here to comment on a news story that implies the process to production is different than what I just described. So let me explain in a little more detail.

MSHA, through its inspection process, issues orders and citations to shut down specific areas of a mine. A year ago, we were issued orders and citations that affected the Shaft, the 5900 mainline, and other areas. Shutting down the Shaft, the main access to the mine, and the main haulage way, effectively shut down the whole mine.

So, in January and February of this year, certain orders were modified because these areas were judged to be safe. That modification allows activity in the modified areas. So we're now using the Shaft in the main haulage way and other areas whose -- where the areas have been modified.

We still have other places that we need to do work to get the orders modified or terminated, and we think that will be an ongoing effort through June to do so. So a year ago, when we thought the shaft work would take about a year. And while we didn't know for sure, that was our estimate, and we were right. So the rehab work that will be ongoing over the next four months -- we expect to be ongoing for the next four months, and we expect to be in full production in the third quarter.

So it is an estimate that we make. We look at the work that we need to do. And, just like we did a year ago, we're doing the same thing in concluding when we'll be able to be back into full production. And so that -- we expect that to happen in the second half of the year, early in the third quarter.

So I hope that clears up any confusion on how the process works. In addition to the work required by the orders and citations, we've done other work that we believe makes the Lucky Friday a better, more reliable, longer-living mine. We established new and consistent mining procedures. We added additional safety training. We hired additional safety professionals, mine management, and engineering staff. And we acquired new types of equipment that we believe will reduce risks and improve productivity.

And as with all Hecla operations, we are continuing to implement the new National Mining Association Core Safety Program. This is a new industry-led framework to improve safety in the US mining industry. And all of the work that we've completed to this point have been done in accordance with MSHA-approved plans as well, and all ongoing work is intended to meet all MSHA requirements.

Now, the first meeting I had after announcing the Lucky Friday production was with the Silver Valley Community. They've been very supportive and are excited to see the Lucky Friday, one of the Silver Valley's largest employers, back on the road to full production. The Lucky Friday is one of the great silver mines in the world, having operated for 70 years, and has been 100% owned by Hecla for the past 54 years.

And we plan to invest approximately $70 million in the mine this year, in 2013, including the resumed work on the #4 Shaft project, which is already 45% complete. This project allows access to higher grade ores and a conveyance that we expect to be operating at the Lucky Friday for decades to come.

There's good production growth at the Lucky Friday, with production this year, in 2013, of about 2 million ounces; next year, about 3 million ounces; and in the 2016 time frame, about 5 million ounces as we reach higher grade material. We are working on an optimization study to increase the mining rate -- you know, the number of tons that we produce that we have go through the mill -- provide even more production and even better economics on top of already excellent economics.

This past year was a reset of the mine that we think will allow it to operate longer and at higher rates, and with lower risk and improved returns. Now, there's another story of the Lucky Friday that's just as impressive, and that's Greens Creek. Greens Creek's improved silver production quarter-over-quarter during the year. And the cash flow it provided was all of the cash flow for the Company with the Lucky Friday being down. In addition, we made the largest capital and exploration predevelopment investments in our history.

So we'll go to slide 4 with some of the quarter's highlights. Greens Creek produced 6.4 million ounces in 2012 at an average cash operating cost of $2.70, net of byproduct credits. We generated operating cash flow of $69 million, which is net of the $50 million of exploration predevelopment expenditures, and $25 million payment pursuant to our 2011 environmental settlement. We could do this because of continued strong margins that our mines -- and, in this case, just Greens Creek -- enjoys. Jim is going to highlight this in a minute.

And despite not having the Lucky Friday production, Hecla continues to be the largest US silver producer, and has industry-leading operating costs and margins. Through the year, we also maintained a strong balance sheet, ending 2012 with $191 million in cash and no significant debt, as we continue to invest in advancing our three predevelopment projects.

I'm pleased to note that our exploration and predevelopment programs ended the year with the highest silver reserves and resources levels in the Company's history. And Dean is going to provide more details on this in a minute.

Lastly, the silver markets in 2012 remained strong, and despite recent volatility, continue to be strong in 2013. Therefore, the Board declared a special $0.01 dividend for the fourth quarter. We think the dynamic for silver is unique because of its dual role as an investment vehicle, and its consumer and industrial demand. While we think investment demand for silver will continue to be strong, we know that there is extraordinary growth in consumer and industrial product demand. So we believe that silver's future is really very good.

Now, I'm going to come back with some closing comments, but let me turn the call over to Jim.

Thank you, Phil. During the recent fourth quarter and for the full-year, with Lucky Friday on standby, the performance at Greens Creek was the principal driver [picking up] behind total revenues of $81 million in the quarter and $321 million for the full-year.

As you can see on slide 6, silver production levels ramped up during the year at Greens Creek, as ground support rehabilitation work in the early part of the year was completed, and production returned to what we consider normal levels. In fact, Greens Creek provided -- produced 37% more silver ounces in the second half of the year than in the first half.

Cash costs, as seen on slide 7, were $3.45 per ounce, net of byproduct credits during the fourth quarter, and $2.70 per ounce on average for the full-year. The increase in total cash costs per ounce for the full-year was primarily due to higher production costs, due to increased use of contract miners, and lower byproduct credits. The decrease in byproduct credits was due to lower prices for base metals.

As shown on the five-year trend in the slide, with average silver prices going from $14.40 per ounce in 2008 to approximately $32 per ounce this past year, our margins have more than doubled to $29.41 per ounce of silver. As important is the fact that we have maintained a cost per ounce below $5 per ounce over the extended period, in spite of fluctuating base metals production, prices, and industrywide escalating operating costs. We believe this gives Hecla and its shareholders very strong operating leverage to robust silver prices.

Operating cash flow for the year was $69 million, as shown on slide 8. Cash flow in 2012 was impacted by the payment made in the fourth quarter of $25 million, related to the second of four payments required in connection with the Company's Coeur d'Alene Basin environmental liability settlement that was reached in 2011. The remaining two payments on this settlement will be made this year and next.

Metal sales were $81 million during the quarter and $321 million for the full-year, and our gross profit was strong at above 40% for both periods. Net income applicable to common shareholders was [$14.4 million] or $0.05 per basic share.

And as shown on slide 10, earnings were impacted by a number of factors not reflective of our underlying performance. Mainly, $25 million in suspension-related activities expensed at the Lucky Friday, including $6.3 million in DD&A, and mark-to-market non-cash valuation adjustments for our hedging portfolio. Absent these items, earnings would have been $34 million or $0.12 per basic share.

In addition, we invested nearly $50 million in exploration and predevelopment during 2012. We saw the benefit of that investment with silver reserves increasing to 150 million ounces; silver or mineralized material up 7%; and other silver resources up 37%. In addition, primarily as the result of the success we achieved in Mexico, gold mineralized material increased four-fold, and other resources increased 75%.

Slide 11 shows the average prices this past year compared to the previous year for our four metals. Going forward, on our base metals, as previously mentioned, we have continued to utilize a hedging strategy, which is locked-in prices for lead and zinc for a significant portion of production through 2015. We've been very active with this program over the last year. We count on base metals production to keep our cash costs low, and we currently have over half of our production costs over the next three years protected by our hedge program.

Slide 12 demonstrates Hecla's strong balance sheet over the past year, ending 2012 with cash and equivalents of $191 million. And the Company has no significant debt outstanding.

And with that, I'd like to turn the call over to Larry for a review of operations during the fourth quarter. Larry?

Thanks, Jim. Phil mentioned the big news for us is that the rehabilitation work on the Silver Shaft is complete, and production has resumed at the Lucky Friday, as shown on slide 14.

We made the first concentrate this month. And as we continue rehabilitation of workings and get clearance from MSHA, we expect to slowly ramp up production to normal levels by mid-year. For the full-year, we expect silver production at Lucky Friday to be approximately 2 million ounces.

As you recall, the Lucky Friday was shut down a year ago to rehabilitate and enhance the 6100 foot Silver Shaft, which is the main access and hoisting facility for the mine. This work included cleaning all this loose cementitious material that had built up; installing a metal brattice the length of the entire shaft, which provides a physical barrier between the East and West halves; preparing shaft steel; and installing new power cables -- all of which should improve the Shaft's functionality and potential hoisting capacity.

During the fourth quarter, the construction on the bypass on the 5900 foot level, which allows access to stopes, was completed. Ground support has been upgraded for over 7.5 miles of underground workings. These upgrades include, in appropriate areas, the incorporation of recently developed grounds-bolting products. Current production is coming from the #10 stope and #11 stope located on the intermediate-vein package and 30-vein, respectively.

All mine employees have now been recalled to work, and have received extensive safety training. In addition to ongoing training, the downtime at the mine allowed us to make additional operational improvements with newer equipment, including a bolter and shotcrete machine. And we believe that the Lucky Friday will be a much improved mine as we resume production, development and exploration.

In the mill, all major components were refurbished and rebuilt. We've also resumed work on Lucky Friday #4 Shaft project construction, which is about 45% complete. The Shaft sink and setup activities, primary mechanical and electrical systems, and critical lateral development, largely complete.

Construction work for the #4 Shaft project is expected to focus on shaft sinking and station development activities until project completion, which is expected in 2016. #4 Shaft is expected to allow access to new, higher-grade ore zones and significantly extend mine life. Total project capital is expected to be approximately $200 million, with approximately $92 million already spent.

Production at Greens Creek, on slide 15, started out slowly in 2012, due primarily to ground support rehabilitation work that we undertook. But through the year, output in Greens increased. And in the fourth quarter, we produced 2.1 million ounces. Second-half production was 37% higher than the first-half.

For the year, Greens Creek produced 6.4 million ounces at a cash cost of $2.70 per ounce. Fourth-quarter silver production was 2.1 million ounces at a cash cost of $3.45 per ounce. Costs were higher in the fourth quarter, due primarily to increased use of contract miners, and lower byproduct credits, due to lower base metal prices. Mining costs per ton were $69.28 per ton in the fourth quarter, compared to $50.95 per ton in the fourth quarter a year ago -- again, primarily due to the use of contract miners. Filling costs were $30.26 per ton in the fourth quarter, which were consistent with the previous year's fourth quarter.

On the safety side, the 2012 all-injury frequency rate of 2.12 is a more than 40% reduction from 2011, which was 3.74, and the lowest since 2008. Greens Creek last year had record capital expenditures since the opening of the mines, a total of $62.2 million in 2012, which was focused on underground mine development, definition drilling, mining fleet replacement, tailings dam expansion, and the construction of expanded and upgraded camp facilities, all of which set us up for improved operations with a longer life.

For the coming year, our CapEx budget is higher than 2012, with a focus on mine rehabilitation around the historic East ore zone, continued mine development, as well as the purchase of new equipment. Production at Greens Creek in 2013 is expected to again exceed 6 million ounces. Based on current metal prices, costs are expected to be approximately $3.25 per ounce, net of byproducts, which are higher than 2012, but lower than the fourth quarter of last year, and still, we believe, at the lowest end of operating costs among major silver mines in the world.

I'll turn the call over to Dean for exploration and predevelopment. Dean?

Thank you, Larry. Hecla had a very successful year on the exploration and predevelopment front -- replacing mine silver production, adding additional mineralized material and other resources, and advancing all of its exploration and predevelopment projects in Mexico, Colorado, and Idaho, as well as the purchase of the Monte Cristo exploration project in Nevada.

Year-end silver reserve levels are at their highest in Company history. For the seventh consecutive year, we increased silver reserves to 150 million ounces, and silver resources to 127 million ounces of mineralized material, and 172 million ounces of other resources at December 31, 2012.

As shown on slide 17, since 2003, our silver reserves have increased 230%, our mineralized material 274%, and our other resources 179%. In fact, since 2001, we have increased our silver resources by 800%. Due largely to work at San Sebastian this year, gold mineralized material increased four-fold to 1.7 million tons, averaging 0.07 ounces of gold per ton. And other gold resources increased 75% to 13.5 million tons, averaging 0.5 ounces of gold per ton.

Our reserve and resource levels are now at the highest levels in the Company's history. And we believe that, with the exploration potential remaining at our existing operations and exploration development properties, there remains great opportunity for this trend to continue.

The most significant addition to the resources occurred at the San Sebastian, where the middle vein, as shown in slide 18, has been defined for over 3000 feet along strike and from surface to over 1000 feet depth. New other resources consisting of 8.8 million silver ounces and 45,000 ounces gold, have been reported. And the mineralization appears to be open along strike in both directions and has depth potential.

Noteworthy is the proximity of the veins, as shown in slide 19, and that the combination of the Middle Vein, with the Andrea Vein and Hugh Zone at San Sebastian, represent a silver resource of 4.4 million ounces of mineralized material and 23.9 million ounces of other silver resources, and a gold resource of 73,900 ounces of mineralized material, and 159,700 ounces of other resources with substantial copper, lead, and zinc as well.

Metallurgical, hydrological, and geotechnical studies are continuing, and scoping studies are now in progress to determine the mine rate and sequencing to optimize the exploitation of these veins. It is anticipated that this scoping work will be completed in the third quarter of 2013. Preparations have begun on the rehabilitation of the ramp access, and engineering design is advancing to determine access to the Middle Vein and Hugh Zone. With the addition of new resources from the Equity-North Amethyst drilling, the San Juan Silver Project in Colorado now encompasses 7.6 million ounces of silver, mineralized material, and 33.1 million ounces of silver and other resources.

As shown in slide 20, the development of the ramp into the Bulldog underground infrastructure is now advanced to over 800 feet, and is expected to be completed in the fourth quarter of this year. Once this access is established, underground sampling and drilling are expected to commence in an effort to confirm the resource and provide platforms to expand these resources. The refinement of scoping studies and economic models continues, with the preliminary economic study due in the third quarter of 2013.

Slide 21 shows our exploration and predevelopment projects for 2013. The $51.5 million of budgeted expenditures are at approximately the same level as 2012. However, we expect to see additional funds at both San Sebastian and Creede compared to last year. These are both development projects which we expect to advance more quickly towards production.

And with that, I'll pass the call back to Phil for some closing comments.

Thanks, Dean. Just a couple of things I want to cover.

If you look at slide 23, the work accomplished this past year sets us up for expected production growth of approximately 25% to between 8 million to 9 million ounces of silver. We expect production levels and costs to be higher in the first half of the year, as the Lucky Friday ramps up production to normal levels, with 2013 silver production at the Friday to be approximately 2 million.

Companywide operating cash costs are expected to be approximately $5 per ounce for the full year, which we think is still among the lowest in the silver industry, and, in the current strong silver market, and with our base metals hedging program, should continue to generate strong margins and cash flows for Hecla. Cash costs at Greens Creek expected to come down -- to come in at approximately [3.25], which we believe is -- still puts it among the lowest in the world.

We plan to continue to improve the infrastructure at Greens Creek in an effort to reduce risk and further expand reserves. Consequently, our companywide capital programs are expected to be approximately $152 million, which includes the resumption of the #4 Shaft. In addition to our operations, we expect to see continued progress at our exploration and predevelopment projects in Mexico, Colorado, Idaho, and Nevada.

Our goal is to generate organic growth in production to 15 million ounces by 2017. And we believe we're on track for that goal, and have a strong balance sheet and cash flow generation to make that happen, as well as the assets.

Finally, over the past year, Hecla has made investments in three companies -- Dolly Varden; Canamex; and, just announced last week, Brixton. In aggregate, we've invested $8.3 million. These investments are consistent with our strategy to invest or acquire underground gold assets in Canada or the US, in certain states in Mexico, or in silver assets throughout the Americas. We plan to continue to make these investments and acquisitions, because we see long-term value.

Thank you for your interest. And, with that, operator, I'll open the line for questions.

(Operator Instructions) John Bridges, JPMorgan.

John, are you there?

Hi. Can you hear me?

Yes, we can.

Sorry. Phantom mute button. Phil, Jim, thanks for taking the call. The rehabilitation, could you fill in a little bit more on the remaining rehabilitation? Had you highlighted that before? It's a bit of a surprise.

You know, as we've said from the beginning, when we would reopen the mine, we would have rehab that we would have to do in the workings. And that's what this is now. Some of the rehab work is related to orders and citations from MSHA; some is not.

What we're -- what we have done is made a point of going in and doing a consistent, thorough rehab job as we reopen the -- all of the stopes. So, we've just -- we've made that a prioritization back when we started getting in the mine, back in August of last year.

There is this additional support or what --?

It's bolt -- it's really bolting and it is additional ground support. It's bolting, and for the most part, chain link fencing. And then, over time, we've got a -- one of the pieces of equipment we've purchased is shotcrete. We'll be shotcreting the ramping system just to protect, really, the wire mesh.

But wasn't this a problem before when the shotcrete got fired off the walls?

No. That's -- shotcrete -- this shotcrete equipment is new for us.

Okay. The contract of the shaft sinking contractors, were there any payments to them to balance out the inability to work for a year? And is that included in the new $200 million guidance?

Yes. Cementation acted as our -- as the contractor that did the shaft cleaning. And so while they were demobbed for the #4 Shaft, they were remobbed for the Silver Shaft. So there -- while there's some minor costs, it's not a material item for us. And so they overall -- roughly $200 million total cost for the #4 Shaft is -- we're still on track for that.

Okay, fine. And then, presumably, we've got a big slug of concentrate sitting -- or that moved over into the first quarter?

Well, what we have done is produce some concentrates, shipped it to Teck, and we'll continue to do that. Every few weeks, we would expect to produce some more concentrate. Some of the guidance that we had given in the past was roughly 200 tons a day on average of production for -- in the first quarter, and roughly 500, 600, 700 tons a day in the second quarter. We're still on track for that. But the bulk of all of the production is going to come in the second half of the year.

No, I was thinking in terms of Greens Creek, because there's a big disconnect between your production and sales.

Yes. There was a big inventory and a receivable at the end of the year.

Jim, you want to add anything?

It's just a result of normal transit on the high seas, John. We had some shipments right at the end of the year that didn't make it in time for the cash settlement.

Okay, great. I'll get out of the way. Thanks a lot. Good luck, guys.

Thanks, John.

Anthony Sorrentino, Sorrentino Metals.

Good morning, everyone.

Hey. Good to have you on the line.

Okay. Thank you. Going back to MSHA again, at what point -- at what time or at what point do you think how long will it take before you have to go back to MSHA to get approval for production decisions, or decisions related to the Lucky Friday mine?

Well, they come in and they inspect periodically. And so they'll continue to do that. And we continue to do our work and they inspect it. And we would -- we're anticipating that there will be a additional areas of the mine released as we go forward.

This is nothing unusual. This is the process that MSHA has followed for years, where they just inspect areas. And if they have an issue with an area, then they either issue a citation or an order, and the Company responds to those things.

Right. And would you have any idea when all of the areas would be released, that there would be no other conditions going forward?

Yes, we're anticipating that that will be around mid-year. And hence, our guidance for normal production rates in the second half of the year.

Right. Okay. And you had said that you anticipated that the #4 Shaft project would be completed by 2016, and that the production at that time would be about 5 million ounces. Is that consistent with the original schedule? Or is that a little bit later and a little bit less in terms of ounces?

It's one year later because of the Lucky Friday being down, and it's the same number of ounces.

Okay. All right. Very good. Okay. Thank you very much.

Thanks. Good to talk to you.

Same here.

Trevor Turnbull.

Hi, Trevor.

Hi, Phil, how are you? Just wondered, Dean went through an exploration update with a number of the projects you have in Colorado and Mexico. And then I know you've made some investments in some of the smaller explore co's. And I was just wondering if you could maybe handicap for us which of those projects, either internally or maybe outside the Company, you think will end up making the third mine for you guys.

It's just kind of hard to get a sense -- I know you've got some studies in progress and some more drilling that needs to take place. But I'm just wondering, do you have a sense of which ones you've got the highest hopes for advancing the fastest?

Yes, I think it's pretty clear that San Sebastian has the highest chance to become another mine for us the soonest. And, really, for two reasons. One is the addition of the Middle Vein is going to greatly improve the economics of what was already a fairly good picture.

And then, secondly, the permitting process in Mexico is one that is faster and maybe a little more certain than what we have in the US. We're still quite high -- you know, don't take this the wrong way -- we're still quite high on what we're doing in Colorado and the work we're doing at the Bulldog. That still could conceivably come in as well in that time frame, but we think San Sebastian is more likely.

Yes, I guess reading between the lines, that's kind of the impression that I would had as well. And then, on the corporate development front, as you've looked at these investments in smaller companies, is that kind of the strategy going forward? Or would you still look at an outright acquisition of something, given the opportunities?

We're certainly looking at both. We think there's value in both smaller things, and we think there's larger opportunities where it fits our skill set. And so we're looking at both of them.

Okay, that's great. Thanks, Phil.

Jeffrey Wright, Global Hunter Securities.

Hey. Good morning, Phil.

Hey there.

If I'm looking at the $77 million approximate for Greens Creek CapEx this year, on a percentage basis, or maybe just a dollar basis, how much would be for mining rehab and development versus equipment? I'm just trying to get a sense of how much equipment you need to --

We'll pull out the schedule for that. But clearly, some of the things that we're spending money on are like the East ore area, where it's a rehab of an old ramping system that we want to increase the size of. Because, over the course of the past 20 years, the equipment size has grown, and so our equipment can't fit in that ramping system safely. So, that's one of the bigger capital expenditures that we have.

Jim, you have the list there. Why don't you go through?

Yes. I'll just give you the three biggest ones, if I can. And as Phil talked about the East ore, that's right around $20 million. Of total mine rehabilitation and development, including the East ore body, we've got about $13.5 million in other development projects at the mine; about $14 million in surface infrastructure projects; and about $10 million in mobile equipment and rolling stock.

And then, just sort of pure rehabilitation that's not related, like East ore is to the development of that ore body, there's a fair amount that will go on, but it's, in terms of its cost, it's not a high-cost item for us.

Larry, do you have any comment that you want to make on that?

No, I think you've covered pretty well.

Okay. Thanks. Okay. No, that's very helpful. And if I was -- could you guys also comment on grade -- anticipated grade through 2013 at Greens? Or were you -- do you think grade is going to be consistent with [either 3Q/4Q]? Are we going up or going down a little bit?

Maybe one of you guys can look at what's in the model, because I don't recall off the top of my head. But you know, it's -- these things generally bounce around within a few tenths on -- or less than -- hundreds on gold, and an ounce or so on silver. But do you remember, Jim or Larry?

Yes. I think silver grades are generally trending a bit down through the year. Zinc grades, it looks like, are trending slightly up.

Okay. And to Phil's point, if we're talking about trending down just the variabilities, within about 20 to 30 grams per ton, correct?

Well, it's about an ounce of silver per ton.

Yes. Okay. Appreciate it. I'll jump back in the queue. Thanks, guys.

Okay. Thank you.

John Tumazos, Very Independent Research.

(multiple speakers) Your balance sheet is very, very sweet with no debt, and the Greens Creek acquisition paid for, and now Lucky Friday resumed. Your projects seem to involve exploration expense for underground development, as you look for the veins, and relatively small mills that might be hundreds of tons a day for 25 million to 50 million. In these three juniors that you're investing in, is the style of exploration and mineralization similar? And is it fair to say that there's no $100 million capital projects on the horizon?

Well, I guess I'd make two comments. One with respect to our predevelopment projects, both San Sebastian, San Juan -- you know, Colorado and Mexico, both of those projects, I think the sort of size you're talking about probably are $100 million-plus sort of capital. And this is -- look, this is just me sort of pulling numbers out of the air. Call it $100 million to $200 million, sort of in that range, when you consider all of the infrastructure that you have to put in place.

With respect to those other projects, the predevelopment projects, it's really early, early days to be able to know what a mill might involve and all of the logistics might involve. But, suffice it to say, it is low tonnage, high-value mineralization, largely for at least two of them. And we would not anticipate some sort of major capital program any time soon for those that would be -- stress Hecla's balance sheet.

Dean, do you want to add anything on it as far as the styles of the mineralization (multiple speakers) --?

Sure. John, with our investment in Dolly Varden, Dolly Varden is in -- has had historic production, and is a long trend of Eskay Creek. So we anticipate that style of mineralization, a bit like Greens Creek. So, very high-grade, typically lower tonnage.

Canamex in Nevada, primarily veins, some breccias. There is a near-surface target that may be amenable to open pit mining, but for the most part, it's veins and breccias underground. Brixton, which is probably the earliest stage, large breccia zones. And so it's too early to say what it could be. Certainly, very high-grade so far. It may be a larger deposit than the first two I've described.

So is it fair to say that the combination of all your predevelopment efforts have you excited enough and busy enough that you're not in the acquisition market, like some of the other silver companies that are prominent?

Well, John, I guess two things. One is, we clearly think there's value out there and, hence, why we've made investments in some companies. We would also say that could apply to the acquisition of companies.

So, we're in the fortunate position that everything we have in-hand, outside those three investments, we control their future. We can determine when we make the investment. So we don't have a timetable that we have to follow. So it gives us quite a bit of flexibility that if we do see value someplace, that we can re-focus, re-orient the direction that we're going in.

So we're -- that's what we're trying to do, John. (multiple speakers) We're looking at things and we're prepared to allocate capital where we see the best value.

Anything else, John?

No. Thank you very much.

Okay. Appreciate it.

Hey, let me, before we take the next question, let me just go back to the question about the grades for the coming year. In 2012, we had an average grade of about 11 ounces. We would expect to see 2013 at over 12 ounces. So, up from the average for the year, probably down from the average for the fourth quarter. And that's -- we're hitting where we would expect to be for Greens Creek.

So we'll take the next question.

Steve Butler.

Hi, Steve.

Phil -- yes, good morning, guys. Phil, you guided to the [half-one] and [half-two] cost per ounce for Lucky Friday; obviously, [$17] down to [$9.50]. Most of that, I assume, Phil, must be just simply the scale or the denominator of the tons per day, as you alluded to. Is it the fixed cost issue?

Yes, that's right.

Okay. So grade profile is not part of the culprit for the cost trend?

No. No. It's just simply how few ounces that we're able to produce. The number of stopes that we have rehabilitated that we can get into isn't there yet.

Right. And the previous question, I guess, just to clarify, the mid-year or the 2013 mine plan, Phil, is predicated on you getting additional releases from other -- for other mining areas from MSHA as you go throughout the year. Is that correct?

Yes, that's right. I mean, it's just -- the work that we need to do to be able to access the mine. And it's from not only their perspective, but it's from ours. I mean, we have that obligation to make sure the areas we go into are safe, and that's what we're doing.

All right. And the reference to shotcreting and screening, as you say, Phil, just to get a perspective there, are these costs sort of incremental from going forward, and they weren't a material part of your cost base in the past?

And, if so, what has shotcreting and screening and maybe extra bolting maybe added to your mining costs per ton -- which I last -- sort of, we were last guided or last had estimates of about $58 to -- well, I'll call it in the $60 per ton range, plus or mining minus costs in the past. Is that a higher number going forward?

Yes, I mean, certainly, you had inflation in just the whole industry and we certainly have experienced it. And you've added a few additional people and that adds to the cost. But it's not a material increase, and certainly, it's embedded in the guidance that we've given you for the year.

I'm thinking, in terms of cost per ton, we would anticipate maybe, as time goes on -- not in the first quarter, first-half of the year, and not for 2013, but as we go back to 2014, I want to say cost per ton is about 10% higher than what we had in the past. And I think it's a result, really, of the general inflation more than anything.

Larry, you want to add to that?

Yes. The budget for 2013 for rehab and shotcrete is $2 million. That's (multiple speakers) capital item.

Okay. Thanks, Larry. And the throughput in the second half for Lucky Friday would be around what level -- about 900-odd tons per day or --?

Yes. Yes. We would expect to get to about that level.

Okay. Thanks, Phil.

Okay. Thanks, Steve.

Thank you. (Operator Instructions).

Okay. Well, if there are any other questions, we certainly would welcome a phone call. Let me just add that we have a new member of our team -- I should have done this at the beginning -- Mike Westerlund, who is our VP of Investor Relations. Certainly feel free to give him a call or Jim or myself. We'd be happy to answer any further questions you might have.

So, with that, we'll sign off. Have a good day. Thanks.

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