Hecla Mining Co (HL) 2014 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the second-quarter 2014 Hecla Mining Company earnings conference call. My name is Derek and I will be your operator for today. (Operator Instructions). I would now like to turn the conference over to Mr. Mike Westerlund, Vice President Investor Relations. You may proceed.

Thank you operator. Welcome, everyone, and thank you for joining us for Hecla's second-quarter 2014 financial and operations results conference call.

Our financial results news release that was issued this morning before market open, along with today's presentation, are available on Hecla's website. On today's call we have Phil Baker, Hecla's President and CEO; Jim Sabala, Senior Vice President and Chief Financial Officer; Larry Radford, Hecla's Senior Vice President Operations; and Dean McDonald, Senior Vice President Exploration.

Any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act and constitute forward-looking information under Canadian Securities laws, as shown on Slide 2. Such statements include projections and goals which are likely to involve risks detailed in our Form 10-K, Form 10-Q and in the forward-looking disclaimer included in the earnings release and at the beginning of this presentation. These risks could cause results to differ from those projected in the forward-looking statements.

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 terms such as measured, indicated, and inferred resources, and we urge you to consider the disclosures that we make in our SEC filings.

With that, I'll pass the call to Phil Baker.

Thanks, Mike, and hello everyone. This has been a strong second quarter for Hecla with all three mines operating well in a stronger price environment. Let's look at some of the key highlights on Slide 3.

Our silver production is up 12% quarter-over-quarter as Greens Creek continues to produce solidly and Lucky Friday is fully operational. Our gold production is up 96% quarter-over-quarter, mainly due to the acquisition and successful integration of the Casa Berardi mine. This has been a good quarter, and Jim and Larry will provide more details in a few minutes.

These production increases come at a time of rising metals prices. Of particular note is zinc, which has risen sharply over the past several months, up about 21% since the beginning of the second quarter. The prospect for continued improvement in zinc prices looks good. Since we only hedge a portion of the production, we will capture those higher prices both for today and into the future. Our hedging program has been successful, accomplishing what we set out for it to do, and I will let Jim talk about it a bit later.

The real benefit from increasing production in a rising price environment comes when you look at our financial results. Revenues are up 38%. Operating cash flow is up $27.7 million, adjusted EBITDA up 18% and cash costs after byproduct credits per silver ounce declined over the prior-year period and is on its way to being even lower for the full year.

We made the commitment at the beginning of the year that we would operate within adjusted EBITDA in order to preserve our financial strength, and I'm happy to report that we continue to meet that objective. We ended the second quarter with $222 million in cash which, when you remove the $14 million in warrant proceeds, leaves about $208 million, which was the cash balance at the end of the first quarter.

Finally, our exploration results at San Sebastian, Casa Berardi and Greens Creek are exciting. Some of the intercepts at San Sebastian's middle vein are over 1 ounce gold equivalent. The results at Casa are the best we have seen in the year we've owned it and at Greens Creek, exceptional drill results are the norm. Dean will talk more about them.

So, what does the remainder of the year look like? As indicated on Slide 4 and in our news release, production guidance is reaffirmed. Our cash cost after byproduct credits guidance for Greens Creek is lowered to $3 per silver ounce, down from the previous guidance of $5. Company-wide, our new cost guidance is about 25% lower, going from $6.50 to $5.

When you look at our growth profile, we expect to produce 20 million of silver equivalent ounces in 2014, looking at precious metals only, which, if achieved, is about double the 10 million silver equivalent ounces we produced in 2012. And earlier this month, we announced the promotion of Mark Board to the position of Vice President Technology and Innovation from Director of Geotechnical Engineering. Mark is a world-class rock mechanics engineer with over 35 years of experience, a PhD from the University of Minnesota, and was recently elected as a member of the National Academy of Engineers. The NAE, along with the National Academy of Science, provides what is considered unbiased advice to Congress and government agencies on technical issues. There have only been about five mining professionals inducted in the history of the NAE, which is about 50 years.

We now have geotechnical engineering teams working largely at Mark's direction in each of the mines, so we've asked Mark to also focus on technology and innovation. Given our mines' expected mine life, I think this is not only justified but required.

If you consider the history of Hecla, which is over 100 years, it's because of the innovations we've applied to mines like the Lucky Friday where we were an earlier developer of paste fill and underhand cut and fill mining. And in the same way, we individually have been changed by new technologies. Think about the iPhone and the iPad. Well, the same thing is happening in the mines. Real-time and continuous data capture and analysis is moving underground. Photo technology is being used to understand the movement of rocks. Battery-powered and autonomous and semi-autonomous equipment is already operational in some mines, just to name a few. And Mark is going to lead the focus on how we use these and other technologies to improve our long-term performance. I'm excited about this effort because I think there is the potential for multiple game changers to make our mining both safer and more profitable.

And I'll turn the call over to Jim for the second-quarter financial review.

Thank you Phil. The second quarter of 2014 can best be described as a quarter of continuing improvement compared to the same period last year. We saw improvement in our key financial metrics, the production of both silver and gold, and increased realized metals prices.

On Slide 6, we summarize the key financial metrics for the second quarter of 2014 compared to last year's quarter. Revenue increased 38% to $118 million. Adjusted EBITDA increased 18% to $40 million. Operating cash flow has increased by $28 million and cash costs after byproduct credit per silver ounce declined 4% to $5.34. These results have come about for several reasons, including continued consistent operations and the continued availability of low-cost electric power at Greens Creek, increased production at Lucky Friday as our operations ramped up, and the benefit of consistent operations at Casa Berardi, as our optimization efforts there continue. As we are all aware, with the mining company, it comes down to efficient production and in that area, we've also shown improvement for the second quarter.

On Slide 7, you can see our silver production increased 12% to 2.5 million ounces mainly due to increased production at Lucky Friday. In addition, our gold production increased to 43,000 ounces, almost double what it was in the second quarter of 2013, primarily the result of our acquisition of Casa Berardi on June 1 of last year and continued production at Greens Creek.

When we acquired Casa Berardi, we knew there were a number of areas at the mine that we believed we could improve on. And as a result of the work by the staff at the Casa Berardi mine and the Hecla technical team that has been working nonstop there, we expect to see the benefits of improvement projects during the course of 2015.

The solid production improvement combined with a careful attention to costs by our operators and strength in the base metals market has allowed us to continue to report industry-leading load low per ounce cash costs after byproduct credits and strong margins. As shown on Slide 8, silver operations continued to deliver the strong cash margin in the first quarter of 73% of sales or $14.28. Our cash costs after byproduct credits per silver ounce were $5.34. That's a reduction of 4% over Q2 2013 and remains at the low end of the spectrum for our industry.

And of course, improving metals prices did not hurt. During the quarter, the average realized price for all four metals we produced improved, as shown on Slide 8. For the quarter, our average realized silver price was up 21%, gold 4%, zinc 12%, and lead 8%.

Hecla now offers the investor a truly diversified revenue stream with 40% of our revenue from gold, 33% from silver, 14% from zinc, and 13% from lead. In addition, we have an active hedging program which seeks to reduce price risk associated with our forecasted base metals production while still allowing some upward participation in base metals prices.

And when we have an uptick in metals prices, people often ask why do you hedge? In Hecla's case, it comes down to the following. It brings consistency to our operating performance. Reducing operating volatility allows us to maximize asset value over the long-term if we have predictable cash flows. Second, it preserves our ability to service our debt as evidenced by the outstanding market performance of our bonds. And thirdly, it allows us to continue long-term capital investment in business development activities unimpeded by short-term variables. And we do it in a way to preserve some of the upside.

For example, on Slide 11, through 2016, we have locked in about $190 million of revenue. And importantly, we have preserved a large portion of the upside if prices continue to strengthen. For zinc, we have prices guaranteed of just under $1, but we have flexible pricing for 53% of 2015's metal, 69% of 2016 and all of 2017's production.

A similar situation exists for lead. Our hedge book is at prices from $1.03 to $1.07. We have 44% of 2015's metal, 55% of 2016 and all of the subsequent years available.

As we have previously communicated, one of our goals during 2014 is to operate within adjusted EBITDA. As you can see on the cash bridge on Slide 12, adjusted EBITDA was $39.8 million compared to our discretionary expenditure of $35.2 million. If metals prices move significantly in the coming quarters, we could adjust discretionary expenditures and modify our business plan as appropriate.

So, as demonstrated on Slide 13, we finished the quarter on the back of strong operating results with the contribution from all three of our long-lived mines and excellent liquidity. We have $222 million in cash and equivalents and, including our revolver, we have a total of over $320 million in total liquidity available to the Company. Of this, about $14 million were warrant proceeds which were paid under the Coeur d'Alene basin settlement early in the third quarter. We expect the final payment to come later in this quarter as the final batch of warrants becomes due on August 10. And with that, the final payment to the government, that decades-old legacy liability is extinguished.

With that, now, I'd like to turn the call over to Larry for a review of operations.

Thanks Jim. On the operating side, Lucky Friday continues to impress, showing a 17% increase in production over the first quarter and 278% over the prior-year period, as you can see on Slide 15. The higher volume of 821,000 ounces of silver has led to lower cash costs after byproduct credits per silver ounce of $9.10.

The mine is running well. We recently had a tour of bond investors and analysts through the mine, and the feedback was what we already knew -- the mine is orderly and businesslike and our miners are experts. We are now running a record seven stopes.

Regarding the #4 Shaft project on Slide 16, we are approaching the 7500 station and the shaft is more than 68% complete. We're on track for completion of this $215 million budgeted project in 2016. The #4 Shaft project is designed to give us access to higher grade ore zones, potentially increasing silver production at Lucky Friday to the 5 million ounces per-year rate as soon as 2017. I'm particularly pleased to note that the #4 Shaft team has worked nearly 1000 days without a lost time accident.

On Slide 17, Greens Creek had another consistent quarter, producing 1.7 million ounces at a cash cost after byproduct credits per silver ounce of $3.52. The reduction in silver ounces produced is due to mine sequencing and has contributed to slightly higher costs, although, by industry standards, they are very low and are well within our guidance for the year. The costs continued to be helped by the availability of hydropower, which we expect to last through the third quarter. The planned expansion of the Greens Creek tailings facility continues to work its way through the permitting process. If all permits are received as anticipated, construction should begin in 2015.

On Slide 18, you can see that Casa Berardi has produced 28,623 ounces of gold in the second quarter at a cash cost after byproduct credits of $952 per gold ounce. This small drop in production from the first quarter contributed to the higher cash costs. This brings the mine production to about 122,000 ounces of gold since we acquired it on June 1, 2013.

We continue to work on our plan to optimize Casa Berardi's operations as it undergoes the transition from mining zones west of the West mineshaft to mining zones east of the shaft. We have brought the 118 and Principal zones into production. The Principal zone has service ramp access which has allowed for increased tonnage. So far, we have identified about $140 million in potential improvements over the life of the mine, in recoveries and reduced dilution and in reduced need for development. We expect to really start seeing the benefits of these programs in 2015.

On Slide 20, you can see some images from the shaft deepening project at Casa. The project that was originally started by Aurizon to deepen the West mineshaft by 340 meters has now reached the shaft bottom. This project is expected to provide additional access to the 118 zone, improve ventilation, provide lower-cost material handling, and to enable deeper exploration. We continue to expect the shaft work and loading pockets to be finished late in the third quarter. Commissioning will require the shaft to be down for about two weeks and we will decide by the end of the third quarter when the optimal time is for this to take place.

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

Thanks Larry. Our exploration and predevelopment budgets have been more restricted this year, but this has not stopped us from systematically adding new resources at our mines and projects and continuing to convert those resources to reserves extending mine life at all the Hecla mines.

During the quarter, we had active underground drilling programs at Greens Creek, Casa Berardi, and Lucky Friday and on surface at San Sebastian, Greens Creek, and in Quebec. There's been considerable success in drilling high-grade intersections at the three mines in San Sebastian and a table of recent intersections can be found at the end of the Q2 press release.

At Greens Creek, we continue to deliver high-grade drill intersections that will add resources along the 200 South and Southwest bench trends, as shown in Slide 22, and upgrade resources to reserves at deep 200 South 5250 and West Wall zones. In the next two quarters, we expect to complete more exploration and definition drilling in these areas, which should boost resources and reserves and continue to extend my life.

On surface, drilling in the Killer Creek area north-northwest of the mine has gone to follow-up on broad high-grade stock work mineralized zones defined by surface drill programs in 2012 and 2013 and evaluate the deeper mine contact. We have been very active at Casa Berardi with extensive definition and exploration drill programs, as shown on the longitudinal section in Slide 23. Recent drilling programs have been very successful at upgrading and expanding resources in the 113, 118, 124 and 140 zones.

The improved coordination between surface and underground teams is giving a renewed focus to our exploration program and is resulting in some of the highest grade intersections since we acquired the mine, confirming our strong belief in its exploration potential.

We are particularly encouraged at the 124 and 140 zones where strong mineralization extends down-plunge from near surface to depths up to 1500 feet. A review of the Southwest zone has been a catalyst for new resource modeling and mine planning in the area, and where a considerable proportion of this resource could be brought into the life of mine plans as new reserves.

At one of our more advanced exploration predevelopment projects, the San Sebastian property, near Durango, Mexico, we had considerable success in adding and upgrading new high-grade silver-gold resources in the middle vein, as shown in the longitudinal section in Slide 24. Drilling pierce points shown in the longitudinal represent the drill spacing required to upgrade the resource to an indicated category and define some very high-grade zones within 300 feet of surface.

The list of recent intersections as shown in the press release includes some spectacularly rich intervals, including 84 ounces per ton silver and 0.32 ounces per ton gold over 9.5 feet, and 79 ounces per ton silver and 0.12 ounces per ton gold over 6.6 feet. These are some of the highest grade intersections identified in the history of the property, reinvigorating our search in the immediate area for new veins.

As shown on Slide 25, shallow drilling and trenching results in the vicinity of the middle vein reveal a number of prospective new surface targets such as the North vein and extension veins that we expect to evaluate by drilling in the next two quarters. Metallurgical test work of the middle vein mineralization with related mill design and mine optimization continued to advance this project towards a potential production decision.

Finally, at the San Juan silver project, we are making steady progress in permitting and engineering design.

And with that, I'll pass the call back to Phil.

Thanks Dean. Operator, I'd like to open the line for questions.

(Operator Instructions). Jorge Beristain.

Hi. It's Jorge with Deutsche Bank. Just a question I have is given how well think zinc has done year-to-date, if you could just refresh us on the sensitivity, particularly at Greens Creek, if you were to move to, say, using about $1 baseline for zinc. And also remind us of where you are in the hedging, how many quarters forward and when we could start to see the real flow-through of higher zinc prices on your unit costs up there?

Jim?

Sure. Jorge, in terms of cost per ounce, which is the benchmark statistic, $0.01 change in zinc price this year impacts cost per ounce in the second half about $0.16 an ounce.

So, order of magnitude, given that we are seeing -- I think you're using about a baseline right now of $0.80, right?

Right.

So we are talking, doing the math, is that $3 roughly? $3.20?

$0.01 times 25C 16, whatever that math works out to.

So, $0.20 x 16, so yes, that's what I'm asking you. It looks like you are carrying a pretty hefty tailwind there. And I just wanted to understand when would that -- or could it actually start impacting your results, given that you are kind of hedged I guess on a --?

Well, it impacts us right away, Jorge, because we don't hedge 100% of it. Our policy called for a maximum of 60%, and we never got there. And I think, as indicated on Slide 11 that I've got, we've got 37% of our forecast zinc hedged. So that means 63% is open. And then for 2015, 53% is available. For 2016, we've got 69%. So, there is tremendous sensitivity to both zinc and lead right from the get-go.

So, you'll start seeing, given that the price increases really happened in the second quarter, it starts to flow through in the third quarter, given the way the pricing is on the shipments out of Greens Creek.

Sorry, we'll start to see that in 3Q?

Yes. You start seeing it in 3Q, given the way the pricing is on the shipments out of Greens Creek.

And it really hits heavy in 4Q.

And then could you also comment a little bit on the energy situation with hydro up there? It wasn't quite clear. You were saying that there was -- volumes were impacted by lack of electricity, but on the other hand it looks like you are reducing costs quite a bit because of lower electricity prices. So, if you could just explain that.

So, volumes are not impacted by lack of electricity, so if we gave that impression, that's not the case. What we do have is the availability of hydro and it looks like it will be through the third quarter. And that is a function of how much water is in the dam. We are the last recipient of hydro power, so when the water runs low, then we are removed from the system. So, that's what we're trying to say, is that we think we'll continue to have that lower-cost hydro in the third quarter. But it does not affect our volumes. I mean if we don't have hydro, we just diesel -- generate diesel power.

Okay. So then what was the main driver then for your lower outlook for costs in 2014?

As we go forward with the third and the fourth quarter, you see just lower costs. Realize that we had some one-time costs that related to employees' bonuses from the prior year that hit in the second quarter. We won't have that in the second half of the year and there are some other costs of that sort that will allow just the actual costs to be lower in the second half of the year. And we'll have slightly higher production. So those two things is what's allowing the cash cost per ounce, the guidance, to be $3 for the second half of the year -- or for the whole year, on average for the whole year.

Got it. Okay, thank you.

Garrett Nelson, BB&T Capital Markets.

Congrats on being able to lower your full-year silver cash cost guidance. It's definitely good to be a low-cost producer in this price environment. As the largest US silver producer, I'm curious to hear your perspective on silver market fundamentals. There seems to be this supply overhang, which is why prices continue to hover around $20 an ounce, plus or minus. When do you think prices will finally break out of this range that they are in right now? And does it feel like fundamentals are improving on the demand side specifically?

Well, I think, in the short term, silver will track with gold to a large degree, and so the same factors that caused gold to move will drive silver. In the longer term, and the longer term being sort of a two- to three-year timeframe, it really becomes -- I think the silver price gets tied to economic growth worldwide. And as we see that occur, as people are consuming more of the products that have silver in them, I think you'll see silver disconnect from gold and move higher and substantially higher over time.

As far as how it feels, it sure seems like the economy is improving in the United States. It's not quite as clear around the world, so it's a bit of a mixed bag sort of in the short term. Jim, do you want to add anything to that? No?

But we are very, very optimistic for the price of both gold and silver, both short- and long-term, because you look at all of the things that are happening around the world. Things seem to be getting politically more difficult yet at the same time, you are seeing better economic growth in certainly certain regions of the world.

Okay, great. Thanks for those thoughts.

And then, I wanted to ask about uses of cash. Your cash balance increased by about $16 million sequentially. Again, good to be a low-cost producer. Have you given any thought to increasing the dividend buybacks, or is your strategy to keep plenty of cash available on the balance sheet for acquisitions, which you talked about a bit at the investor day? And then on that front, have there been any developments or are you still looking at acquisitions?

Yes. So with respect to our cash, remember that the warrant proceeds will be used to make the final payments on the Coeur d'Alene basin litigation that was settled a number of years ago. So, we will take those warrant proceeds and do that, both the wind proceeds that we receive in the second quarter as well as those in the third. So that's number one.

Number two, we made a commitment to spend within EBITDA, and we will do that to the extent that we have additional resources. I think our first priority are some additional capital programs and additional exploration programs, and so we'll be evaluating whether we can increase those programs and still meet the commitment to spend within EBITDA.

Then, beyond that, we are certainly looking at acquisitions and spending a fair bit of time evaluating these opportunities. They are, frankly, few and far between to find assets that you really believe are properly valued in the market. So, we are not going -- we don't have to stretch. We think we have assets that provide consistent operations, consistent production, consistent cash flows, and we think we have growth in those assets. I mean, the Lucky Friday is going to move to be a 5 million ounce producer. We are very excited with what we see at San Sebastian. There is more work to be done, but we think that will be a growth asset for us. And San Juan and other assets that we are evaluating could fall into that same category over time. So, we'll continue to look at trying to acquire assets, but we don't feel compelled to have to do something to improve the outlook for the Company.

Guys, anything you all want to add to that? Okay.

And then could you remind us of the Coeur d'Alene settlement amount and the specifics regarding that?

Yes, Jim, go ahead.

The first tranche which we have which ties to the Series 1 warrants that were exercised is approximately $14 million, and that was just remitted within the last day or two. And then the final payment, which will occur during the course of this quarter, is around $41.5 million.

And that was part of a I think $253 million settlement -- $253 million?

$263 million.

$263 million. Sorry. $263 million that was entered into back in 2010. And this is the final payment over the course of those four years. We are very glad to get this behind us. It shows our commitment, though, to managing our environmental liabilities. You know, most of the other players in the Silver Valley that were subject to this liability went bankrupt, and they were not able to fulfill their commitment. We have been able to do that. It's a lot of money. And it's pretty amazing that a company our size has been able to generate the cash flows to be able to do this.

And just to clarify that final payment, we would expect it to come from the exercise of the warrant proceeds.

Right. Okay. Thanks a lot Phil and Jim.

Joseph Reagor, ROTH Capital Partners.

So, a lot of stuff has already been touched on, but I noticed that you guys combined your exploration discussions of Fayolle and Opinaca in the press release in that you had found two additional new structures near Fayolle. Are you looking at these as kind of a joint project now, and is that something to do with those new structures kind of create a potential for a camp there?

Joe, this is Dean. The two projects are quite distant from one another. So, Fayolle is fairly close to Casa Berardi and in time, we may find some synergies there. Opinaca is quite a bit further north in the vicinity of the Eleonore project of Goldcorp. So there is no expectation that Fayolle and Opinaca will be worked in any kind of form together.

We just put the information together just to be talking about our Quebec activities. That's sort of how we manage that. We have a team of explorationists who are working on both of these projects.

Okay, that's fine. And then, on those two new structures, when can we expect some results on those? You know, you mentioned the discovery of them but I don't know. Do we have any assay results there yet?

With Fayolle, we've completed the program for this year. With Opinaca, there's crews in the field right now. That work is primarily fieldwork, trenching, sampling. Once we've digested those results, that may lead to some drilling at Opinaca later this year.

Okay. And then just kind of a big picture question, with the issues with the Mexican tax litigation kind of putting a damper on Mexican projects, and it sounds like the other projects that you guys have are earlier stage, are you guys considering maybe putting some of the cash, or if your valuation improves compared to some of the smaller companies out there that are cash-strapped, are you guys looking at acquisitions?

Yes, Joe, we are, and that's one of the things that we think we bring to investors is a company with a strong enough balance sheet to be able to come in and engage on projects that are attractive and projects that we think we can generate good returns on. So, we are spending a lot of time evaluating smaller things that we can use cash to be able to do.

Okay. That covers it for me. Thank you.

(Operator Instructions). Trevor Turnbull, Scotiabank.

I had a quick question on some of the operations. Looking at Lucky, you had pretty good grades in the quarter, silver grades. And it looks like they were about as high as they've been going back to about 2011. And I was just wondering if that's the trend we should think about for the second half of the year, or if it would be closer to kind of the Q1 2013 grades, which weren't quite as high as Q2.

Go ahead.

Yes, I think our grades have plateaued and what you see is pretty much what we'll have for the rest of the year. Our guidance is still maintained and we believe we'll come in right on -- a little bit above guidance.

But that 3 million ounces is the right number.

Okay. And then I have pretty much the same question but kind of from the opposite perspective, that the Greens grades were just slightly below where they've been for the last little while, on the silver side at least. And I apologize, I did miss the very opening comments, so if you addressed that. But just wondered, again, are we kind of where we should be for the second half looking at Q2, or is there a bit of a rebound on grade?

Well, we produce a little more gold -- or a little more silver in the second half of the year, and that's why our costs are going to be lower. So, grades are -- I don't remember if it's tonnage or grade --

Grade is pretty (inaudible).

It's running at Greens Creek at 2200 tons a day and it's pretty consistent. So, what's variant is just the grade, and that's just varying according to the mine sequencing. Our guidance is still good.

So, it's going to be slightly higher grades.

Right, okay. Because, yes, that mill runs pretty much on that 2200 it seems like -- doesn't seem like there's been a lot of variability there. So, yes, I would expect it to be the grade. That's really all I had. Thanks Phil.

Christopher Allen, private investor.

My question is just kind of regarding your investments in the small junior companies, and more specifically Brixton Metals and how it fits into the growth profile for Hecla.

Well, look. We look at some of these investments as junior companies as an opportunity to come into them in a weak price environment for juniors. Their access to capital is fairly limited and we are very -- we have a positive view of both the asset and the management of Brixton. We think they've done a good job up there. We have both the technical, team technical involvement as well as being involved on the board. And so we are quite supportive of what they are doing. And we look at it has something that we see needs to develop, and we will continue to be supportive as long as we see an opportunity for this thing to turn into a mine. I mean, that's ultimately what we are interested in doing, is operating mines.

Dean, is there anything you want to add?

Yes, just with Brixton, it's been a very challenging market for juniors. My feeling is Brixton has managed their money well. They have run programs technically that we think are very sound, and we still believe that property holds the potential for a large discovery.

Excellent. Thank you. So, I guess it's safe to say that you would participate in future financings of Brixton?

You know, it just depends on everything else that's going on with us. Remember we've made a commitment to spend within EBITDA --

Yes.

-- so that's the first place thing that has to be achieved. And then there's all sorts of other considerations, so I'm not going to make any promise with respect to any future financings. What I can tell you is where things are right now, which is we are quite supportive.

For sure. Great. Thank you very much for your time.

David Baum, Platts Metals.

I wanted to ask you guys if the collapse of the London silver fix next month is going to have an impact on your smelter settlements and maybe your larger thoughts on that event?

Look, it will not impact our contracts. We have renegotiated all of the contracts utilizing what will be the new standard, and that will become effective next month, so I think it's a nonevent, the changing of how this is done. And I think in fact it will be better. It will be more transparent than what we've had with the existing silver fix.

Jim, anything to add?

No. I can tell you that I've participated in a number of seminars between CME, Thomson Reuters, and they've done a very good job of putting together a platform that will provide the information. As Phil says, we've concluded that we will use the current fix through roughly the middle of the month and then it will take over and we'll average the two and then we'll be on the new platform going forward.

All right. Thank you gents.

Davis Schecter, private investor.

I'm sorry fellas. I was going to ask you about the silver fix as well. You just answered the question.

All right, thanks Davis. Okay, I think that concludes the questions.

There's just a couple of things I want to say in conclusion, and that is what I hope you take away from the conference call is that the financial, operational, and exploration performance is consistent with the expectations we set earlier in the year. We said at the beginning of the year that we would spend within adjusted EBITDA and that we are going to produce ounces that have great margins and we're going to have exploration success at our large prospective land packages and we're going to maintain a strong balance sheet. That's what we said we were going to do and we think we've done all of that.

And for the remainder of the year, we expect to keep delivering on these promises and start the mine optimization there, both medium-term impacts, and that would be the sort of work that we are doing at Casa for example, and long-term, which would be the sort of work that Mark Board will lead.

We think that zinc and lead prices will continue to be strong and with our limited hedge program, we are going to benefit both now and in the future. And we think this is something that sets us apart from our peers.

So I look forward to talking to you again at the end of the third quarter to update the progress on all of these items. With that, we'd like to end the conference call. Thanks so much for participating.

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