Hecla Mining Co (HL) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2014 Hecla Mining Company earnings conference call. My name is Lacey and I will be your coordinator for today. (Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Mike Westerlund, Vice President of Investor Relations. Please proceed.

Thank you, operator. Welcome, everyone, and thank you for joining us for Hecla's third-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 law, 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 the 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 will pass the call to Phil Baker.

Thanks, Mike. Hello, everyone. Thanks for being on the call. If there's one thing I hope you take away from the call today, it's that the third quarter results clearly show the strength that Hecla has in times of weak prices. This strength comes from production growth, diversification of metals, our low-cost profile, our strong cash balance, and the ability to manage our capital and exploration investments, depending upon the prevailing metals prices.

Now, this has been a strong third quarter for Hecla, with all three mines operating well. And we've seen quarter-over-quarter growth in production in our entire suite of metals: silver, gold, lead, and zinc. Greens Creek continues its solid, low-cost, consistent cash-generating performance. Lucky Friday is exceeding expectations, with silver production increasing 19% over the second quarter of this year, and 103% over the third quarter of last year. We are also making improvements to our Casa Berardi mine, and Larry will provide more details on all three mines in a few moments.

These production increases come in times of volatile and low silver prices, and we are fortunate to have several competitive advantages to reduce that volatility and deal with the low silver prices. For example, because of our low cash costs after byproduct credits profile, our high-quality assets are not very price-sensitive, meaning that we don't have to change our mine plans or start high-grading at current prices.

Another advantage is that we produce large amounts of four metals. The prices of gold and silver are weaker, but the prices of lead and zinc are stronger, giving us a natural revenue hedge. We also hedge a portion of our lead and zinc production, cushioning us further against price volatility.

In addition to these competitive advantages, we also are taking steps to weatherproof the business. We are currently in our planning phase for 2015, and expect our expenditures on capital to be reduced. And the long mine lives of our high-quality assets also means that exploration for new reserves and resources can be reduced if necessary.

As part of our 2015 planning process, we run scenarios at significantly lower prices than current spot for all our metals. If prices were to deteriorate significantly, you would see us alter our plans accordingly. At current prices, we're very comfortable with the plans that are coming together for next year. We know the value that our capital projects can bring to Hecla, both in terms of growing production and EBITDA from our existing assets, as well as increasing the consistency of the performance of those assets.

And when it comes to growth over the next few years, our main growth initiative is the #4 Shaft at the Lucky Friday, which is proceeding on-track and on-budget, and will give us access to richer ore at depth in the Lucky Friday. We are within two years of completing this long-term project, and the increased grade from that material we'll access from the shaft is the driver of this production and EBITDA growth.

In addition, you will see us talking more about San Sebastian today and in the coming months, and this is because it's looking like it could become a producing mine. We believe that San Sebastian is a district that, over time, will ultimately have more than 100 million silver equivalent ounces.

The resource is expanding rapidly, with the discovery of new veins in close proximity to each other. These veins have impressive strike lengths which are increasing. And the near surface material is high grade, and could be very low-cost to access. So returns, we would think, could be very good for San Sebastian.

And so it's like it was in 2001, when we started mining here before we started with small pits. We are likely to do the same thing, so watch for more news early in the new year.

We set the goal at the beginning of the year to operate within adjusted EBITDA to preserve our financial strengths, and we have more than met that objective. In fact, when you look at our current cash balance at the third quarter of $222 million, which is unchanged from the end of the second quarter, we have generated $10 million of free cash flow this year so far.

Now let's go to slide 4. When we look at our expectations for the year -- we've announced those expectations on October 20th that we're going to increase production from the Lucky Friday from -- in the range of 3 million to 3.2 million ounces; and, at Greens Creek, should finish the year at the high end of the 6.5 million to 7 million ounces. And so as the Company as a whole will be at the high end of the 9.5 million to 10 million ounce guidance.

With the continued decline in metals prices, I expect that we will use some of our cash on our balance sheet in the fourth quarter. But we're still going to end the year around $200 million in cash and cash equivalents.

With that, I will turn the call over to Jim for a review of our financials.

Thank you, Phil, and good morning, everyone. The third quarter of 2014 can best be described as another quarter of continuing improvement compared to the same period of last year. We saw improvement in our key financial metrics, as well as silver and gold production.

And it all starts with production. And on slide 6 you can see our silver production increased 25% to 2.9 million ounces, due to increased production at the Lucky Friday and another strong quarter from Greens Creek.

Our gold production also increased 15% to 42.5 thousand ounces, primarily the result of improved production at Casa Berardi. This is the first quarterly comparison we've had now where we've had ownership of Casa for the full quarter as compared to the previous year.

And improving production drives the financial metrics. On slide 7, we summarize the key financial statistics for the third quarter of 2014 compared to last year's comparable quarter. Revenue increased 27% to $136 million. Adjusted EBITDA has increased 38% to $43 million. Operating cash flow increased $7 million, even after the payments of $55 million made in the third quarter of 2014 to satisfy the remaining obligation of the Coeur d'Alene Basin settlement, putting that forever behind Hecla Mining Company.

What takes that payment out of the statistic for a truly comparable benchmark? Operating cash flow for this quarter was $57 million, an increase of $62 million. Cash costs, after byproduct credits, per ounce declined 27% to $5.43.

These results have come about for several reasons, including consistent operations and the availability of low-cost hydroelectric power at Greens Creek, increasing production at Casa Berardi as operations ramped up, and the benefit of consistent and improving operations at Casa Berardi.

The solid production improvement, combined with careful attention to costs by our operators, and strength in the base metals markets have allowed us to continue to report industry-leading low per-ounce cash costs after byproduct credits, and strong margins.

As shown on slide 8, silver operations continue to deliver a strong cash margin in the third quarter of 71% of sales or $13.10. Our cash costs, after byproduct credits, per ounce of silver of $5.43 is a reduction of 27% over Q3 2013, and remains at the low end of the spectrum for our industry. Our cash cost, after byproduct credits, per gold ounce of $898 is a reduction of 16% over Q3 of 2013.

Our improved operating performance and strong margins come despite lower precious metals prices. As shown on slide 9, average realized prices for silver and gold were 17% and 4% lower, respectively, compared to the third quarter of last year. Offsetting this was an increase in our realized price of zinc of 22%, while lead prices were up slightly.

And as set forth on slide 10, it demonstrates that Hecla offers the investor a truly diversified revenue stream, with 37% of our revenue from gold, 31% from silver, 20% from zinc, and 12% from lead. We also have diversification among three distinct mines, with 50% of our revenue coming from Greens Creek, 21% from Lucky Friday, and 29% from Casa Berardi.

In addition, as Phil mentioned, we have an active hedging program which seeks to significantly reduce price risk associated with our forecast-based metals production, while still allowing upward participation in base metals prices.

So the question is, why do we hedge a portion of our base metals production? First, 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 performance of our bonds. And third, it allows us to continue long-term capital investment and business development activities with less impact from short-term variables. And we do it in a way to preserve the upside.

For example, on slide 11, through 2016 we've locked in about $175 million of revenue. But, 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 have flexible pricing for 41% of 2015, 57% 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 per pound, and we have 59% of 2015, 52% 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 set forth on slide 12, adjusted EBITDA was $42.6 million compared to our discretionary expenditures of $40.4 million. If metals prices move significantly in coming quarters, we could adjust discretionary expenditures and modify our business plan as appropriate. As Phil mentioned, we are in the midst of our planning process for 2015, and capital and exploration expenditures are two of the levers that we can pull if we need to.

And, finally, on slide 13, we show our liquidity trend. We finished the quarter on the back of strong operating results, with contribution from all three of our long-lived mines and excellent liquidity. We have $222 million in cash and cash equivalents. Consequently, we have a total of over $320 million in total liquidity available to the Company. This is even after paying the final payment of about $55 million in the Coeur d'Alene Basin settlement in the third quarter, almost all of which was funded by proceeds from the exercise of remaining warrants. And as a result, as mentioned earlier, that decades-old legacy liability is extinguished.

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

Thanks, Jim. On the operating side, Lucky Friday continues to impress, showing a 19% increase in production over the second quarter, and 103% increase over the prior-year period, as you can see on slide 15. The higher volume of 973,000 ounces of silver has led to a lower cash cost, after byproduct credits, per ounce of silver of $8.71. The mine is running well. As we said on the October 20 release, we expect the fourth-quarter production to be less than Q3 due to mine sequencing.

Regarding the #4 Shaft project on slide 16, we are at the 7,500 station and the shaft is more than 73% complete. We are on track for completion of this approximately $215 million budgeted project in 2016.

On slide 17, Greens Creek had another consistent quarter, producing 1.9 million ounces at a cash cost, after byproduct credits, per silver ounce of $3.75. The increase in silver ounces produced is due to mine sequencing and has contributed to lower costs, which are very low by industry standards, and support our guidance for the year. The costs continue to be helped by the availability of hydropower, which we expect to last through the end of the year. 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 produced 28,977 ounces of gold in the third quarter at a cash cost, after byproduct credits, of $898 per gold ounce. The small increase in production from the second quarter contributed to the lower cash cost, despite interruptions to resulting from the shaft deepening project changeover, which I will discuss in a moment. This brings the mine production to about 151,000 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 a transition from mining zones west of the West Mine Shaft to mining zones east of the shaft. We have brought the 118 and Principal Zones into production. The Principal Zone has surface ramp access which has allowed for increased tonnage.

There are three principal areas of focus in the mine optimization. The first is increasing recoveries. We anticipated lower recoveries from the arsenopyrite-rich ore in the 118 Zone.

Originally, we had planned on a re-grind sulfide concentration of the sulfides to increase recoveries. However, our preferred solution that was a project to optimize the CIL circuit to prevent preg-robbing, which has been successful. In addition, improvements to that gravity circuit have also added to overall performance. Year-to-date recoveries are similar to those we saw in 2013. So what this means is that we are receiving the benefit of higher recoveries already without requiring the new grinding flotation circuit.

The other two initiatives to decrease dilution and development are continuing.

On slide 19 you can see some images from the shaft deepening project at Casa. The project that was originally started by Aurizon to deepen the West Mine Shaft 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.

During the quarter, the West Mine Shaft deepening project reached a functional completion with the removal of the bulkhead dividing the operating shaft and the deepened section. This changeover required the shaft to be intermittently closed over a 22-day period, which impacted production for the quarter. We are now in the final steps of finishing off the project, and production in the fourth quarter is expected to increase as the shaft resumes normal operations.

I'll turn the call over to Dean for exploration and pre-development. Dean?

Thanks, Larry. Our exploration and pre-development budgets have been more constrained this year, but we continue to make several high-grade precious metal vein discoveries at San Sebastian. At the mines, we are systematically adding new resources and continuing to convert those resources to reserve, extending mine life even when contemplating lower metal prices. During the quarter, we had active underground drilling programs at the mine, and on surface at San Sebastian, Greens Creek, and Casa Berardi.

A table of recent intersections can be found at the end of the Q3 press release. At our most advanced exploration predevelopment project -- the San Sebastian property near Durango, Mexico -- we had considerable exploration success in the past year by adding and upgrading new, high-grade silver-gold resources at the Middle, North, and recently discovered East Francine veins, as shown in the plan map on slide 21.

These veins are open along strike and at depth, and their close proximity should have many synergies as mine planning is advanced. We are investigating a scenario where we open pit as well as underground mine, with the bulk of the resources being mined underground. As Phil noted earlier, this is similar to the approach we took in 2001 to 2005 when we last mined on the project.

Drilling in the last quarter has defined a new, high-grade gold-silver resource at the North vein. Currently, the vein has been defined for continuous strike length of over 2,500 feet and to a depth of over 330 feet, as shown in the longitudinal section in slide 22. Drilling pierce points, shown in the grade by thickness longitudinal, defined some very high-grade zones near surface, and are at a drill spacing required to upgrade most of the resource to an indicated category. The resource is open at depth, open both to the northwest and southeast, where it crosses the San Ricardo fault system.

The list of recent intersections, as shown in the press release, includes some spectacularly rich intervals, including 0.85 ounces per ton gold and 12.6 ounces per ton silver over 8.7 feet; and 0.29 ounces per ton gold and 13.6 ounces per ton silver over 17.8 feet.

The cross-section in slide 28 includes a number of high-grade gold-silver-rich intersections in the near surface, flat line North vein. What is particularly interesting from a mining perspective is that for about 700 feet of strike length, these two flat line, north, and middle veins overlap near surface, and may be suitable for open pit mining.

We believe we have found the faulted extension of the Francine vein, whose production was one of the highest grade mines in Mexico. Over 10 holes have been completed on this vein. And the drill holes shown in slide 24 represents an intersection of 1.1 ounces per ton gold and 203 ounces per ton silver over 18.1 true feet of width. Another intersection of note is 1.4 ounces per ton gold and 381.6 ounces per ton silver over 11.9 feet. This is one of the highest-grade intersections identified in the history of the property.

When combined with our new understanding of the fault offset of the San Ricardo fault, it is reinvigorating our search for extensions of additional veins to the southeast.

The current exploration drill program at San Sebastian has been expanded and three core drills are active, two drilling the North vein and one on the East Francine vein. Metallurgical test work of the Middle and North vein mineralization is ongoing, with preliminary results showing the material is leachable. And related mill design and mine optimization continue to advance this project towards a potential production decision.

It Greens Creek, we continue to deliver high-grade drill intersections that should add resources all along the Southwest bench, 200 South, and Deep 200 South Gallagher Fault Block trends, as shown in slide 25; and upgrade resources to reserves at the Northwest West, West Wall zones, Central West, and Deep 200 South trends. In the next quarter, we expect to complete more exploration and definition drilling in these areas, which should boost resources and reserves and continue to extend mine life.

We've been very active at Casa Berardi, with extensive definition and exploration drill programs from surface and underground, as shown on the longitudinal section in slide 26.

Recent drilling programs have been very successful at upgrading and expanding resources in the 113, 1718, 123, and 124 Zones. The recent drill results on the 123 Zone are some of the highest grade and widest intersections since Hecla acquired the mine. Concurrent surface and underground drilling exploration on the 124 and 140 Zones defined strong mineralization that extends down plunge from near surface to depths up to 1,500 feet, confirming our belief that significant exploration potential exists in many areas between the two head frames.

A review of the Southwest Zone has produced new resource models that will allow mine planning in the area, where a considerable portion of this resource could be brought in as new reserves. A review of the East mine resources and drill intersections has revealed some high-grade vein opportunities.

In summary, with excellent drilling results at San Sebastian at the Middle, North, and East Francine, we are expecting significant new resources for year-end. We are working through our reserves and resource calculations at the mines, and we do not see a significant change in either silver or gold reserves or resources, despite using lower metal prices than last year.

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

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

Okay. Thanks, Dean. We've seen precious metals declined dramatically, particularly silver. Even today we've seen a big decline. Hecla is a 125-year-old company; the Lucky Friday is a 70-plus-year-old mine. Greens Creek has been around more than 25 years. We have seen these declines in prices before. These are assets -- and Casa is positioned to be another asset to weather this storm, and allow us to emerge with more production, more cash flow, more reserves, and more resources.

And so with that, operator, I'd be happy to open the line for questions.

(Operator Instructions). John Bridges, JPMorgan.

I remember how important San Sebastian was to you in the early 2000s. I just wonder how quickly you could get this thing up and running if things really deteriorated. And, actually, as that cash flow -- do you have remaining permits in place? How quickly could you get this thing moving?

Look, the construction of the mill would be the key element here, and it's a couple-year process to get that to happen. So, nothing could occur immediately, but this would probably be relatively low-capital project, something less than $100 million. And when you look at this surface material, there would be a substantial amount of that. And I say that -- maybe it's a few years' worth of that sort of material. And it's quite high-grade, quite high-margin surface material.

So, absolutely, the idea of being able to access that material and generate immediate free cash flow is appealing, and something we're working on.

But is there a custom mill, like the one you used before? Are those still available?

Sure. That is also an alternative is to consider mills that are in the area and feed those mills. And that's on the table, as well.

And if all you had to do was get permission to -- or plan to dig the whole, how quickly could you do that?

Call it nine months from the time we start that process.

This is a useful little discovery here.

We think so. And that's why we're trying to highlight this a bit more. We think this thing has good potential. It has produced -- in those early years, we produced about 25 million silver equivalent ounces. And we started the year with about 55 million, 60 million silver equivalent ounces. We think this will continue to grow. And it is high grade.

Yes, I remember how important the asset was to you in the early (multiple speakers).

Yes, it was -- 2013, it was the highest cash-flow-generating asset for the Company.

Yes. Well done, guys. Thanks a lot.

Jorge Beristain, Deutsche Bank.

Jorge Beristain with DB. I just was wondering, Phil, if you could give us -- you have said, over and over, that your mantra is trying to live within your EBITDA or adjusted EBITDA generation.

But as we look out ahead into 2015, it does seem that you've got some spillover CapEx still pending. And if we just run a mark-to-market on where silver and gold and everything are today, it would seem you are sort of trending towards about $100 million-ish potential EBITDA, including even roughly the effect of the hedges.

So, I'm just wondering if you could break down order of magnitude. Do you see still spending $35 million on Greens Creek, $60 million on Lucky Friday, $30 million on Casa? And then would there be any growth CapEx on top of that? Because I'm just trying to ordinally rank, if something had to give, where you would see tucking into CapEx to still live within your EBITDA.

Jorge, we're still in that planning process, so I'm not prepared to give guidance with respect to 2015. What I will say is that we're -- the way we're starting the process is to attempt to live within EBITDA (technical difficulty). I think we probably would have more than what you are projecting, but we have quite a bit of flexibility as to what we turn off. First, starting with the exploration efforts, and then moving into various capital programs. So, just stay tuned, is all I can tell you, with respect to 2015.

We are prepared to spend down a little bit of that cash on our balance sheet, so with over $200 million today, and we think we'll end the year somewhere around $200 million, we have the flexibility to do that.

Okay. And if maybe I could have a follow-up with Jim. Just in terms of your recent debt issuance, and could you just bring us up to speed if there's any covenants or any kind of triggers there, and the timeline on debt repayment?

There are no covenants that we're -- have to deal with. It's just covenants that we essentially exist.

So, I'll let Jim comment on that.

No. Jorge, as Phil indicated, there are no maintenance covenants. There are only incurrence covenants. And they are the type of covenants that as long as you keep making the interest payments, you are just fine. And obviously we are under no stress whatsoever in that area, with the liquidity we've got. And in terms of reduction of debt, that was an eight-year piece of paper when we issued it. And so while we always look at opportunities, I think it's safe to say that that's not immediately in our screen to reduce those bonds. Nor do we have really the ability to do so without paying a premium.

Got it. And sorry, if I could just squeeze one more in. Your San Sebastian, you quoted it could be a 100 million ounce opportunity, and you said that it would only cost about $100 million of CapEx, or essentially $1 an ounce to get that into production. Could you give us an idea of roughly what the operating cost per proud would be, the C1?

Yes, we haven't developed that. But let me be clear on the 100 million ounces. We've produced about 25 from there. We have, on the books at the beginning of the year, silver equivalent of about 55 million, 60 million ounces. So, we're seeing it's -- we think that the property will ultimately be over 100 million ounces from where we're starting right now. Stay tuned on what the specific capital will be, and what the operating cost will be. But what I can suggest to you is that we will take this project forward if it generates significant returns in the current price environment.

And I think there's the potential of this thing doing that, given the low cost of mining the surface material and the fact that it's high grade. There's lots of that surface material that probably has a value of maybe $400, Larry? $400 rock.

In that range, yes.

Yes. So there's the potential for lots of margin from the surface material. And there's the potential for a few years of production from that surface material.

Great, thank you.

Garrett Nelson, BB&T Capital Markets.

Nice work at Casa Berardi on the cost side. It's especially in light of the 22-day closure of the West Mine Shaft during the quarter. Was that work completed entirely during the third quarter, or did it carry over into the fourth quarter? I'm just trying to get a better sense of operational expectations at that mine in the fourth quarter and into 2015.

Go ahead, Larry.

Yes, the biggest task was to remove the bulkhead that separated the upper section, which is the operating section, from the lower section, which is the deepened section. So that was the -- we obviously had to put longer ropes on the hoist and that sort of thing. And that was all completed in the third quarter. There was a little bit of cleanup work of that spilled into the fourth quarter, which was basically electrical work and a little bit of hydraulic work. But to give you a sense for it, going into the fourth quarter, we had only four of the contract employees left on the mine site.

Okay, great. And then I'm also trying to get a better sense of Hecla's earnings sensitivity to the Canadian dollar, as the US dollar just continues to rise. Obviously that's helping, to some degree, on the cost side at that mine. But have you disclosed anywhere the Company's, say, annual EBITDA sensitivity to a 1% change in the US dollar to Canadian dollar exchange rate?

We haven't. But I will give you an easy way that you can put it into your models. Since our revenues are US dollar-driven, all of our costs virtually are denominated in Canadian dollars. And so when you look at our $898 cost of production, you can modify that pro rata for any changes in the Canadian dollar.

Okay, great. Thanks a lot.

David Deterding, Wells Fargo.

Just looking here at the -- I know you are not prepared to give what your CapEx is for 2015. But as you think about just maintenance CapEx, if things got really bad, what would be a level you think would be a maintenance CapEx level that you could run your mines at?

Well, look, you can go back to 2009, which is -- we were coming out of the 2008 event, and you can see the level of CapEx that we had at the Lucky Friday and at Greens Creek. Those were both, order of magnitude, $13 million. Do I think we can go that low? I don't know. We'd have to work through everything. Certainly there's work that we need to do at the tailings for Greens Creek, and we're not going to stop the development of the #4 Shaft. So, it certainly -- the maintenance capital might be that low, but the total capital would be higher.

If you had a scenario where prices went significantly lower than today, I guess the thing I would say, David, is we do have that balance sheet that we can weather the storm. Because certainly prices couldn't stay a lot lower than where they are today for years. I think you'd be talking about a relatively short period of time.

Okay. That's a great segue into my next question on slide 13. You guys have had this liquidity between $312 million and $338 million over the past -- or $308 million and $338 million for the last five quarters. Your cash balance has stayed steady. And you mentioned that you'd be willing to spend down some of that capital next year, as you build out some of these projects. What is a comfortable level you guys feel that you want to have in liquidity?

Yes, I'll let Jim add to this, but certainly somewhere around the $100 million range is always in the back of my mind because of the working capital requirements that we have at Greens Creek. If we have the ability to reduce that working capital requirement at Greens Creek, then maybe I'd be willing to see us go a little lower than that.

Jim?

Yes, I agree with everything Phil said, and really don't have anything additional, David.

Okay. And then my just last question. You were talking about prices staying much lower than this for a longer period of time. I think we've talked in the past about industry consolidation potentially at that $15 level, and we're almost there. Any thoughts on what we might see if we see silver prices stay in this $15, $16 range for the next 12-plus months?

Well, I think it puts a lot of pressure on the development capital for a number of mines. So what ends up happening is, yes, they are able to operate and they're able to stay in business for the next year, two years, but they just get way behind on development. And they put themselves in a position where they cannot complete their mine plans.

And that's where we really have the opportunity, with the cash flow that our mines generate, we will be able to work our way through that price environment. And coming out the other side, we would be in a position to be able to put capital into those mines that are troubled. And so, we just see it as a great place to be.

But if you're not able to do that, we still see growth from the Lucky Friday. And we're trying to indicate we're going to see growth, we think, from San Sebastian.

Great. Thanks, guys.

Anthony Sorrentino, Sorrentino Metals.

With regard to the #4 Shaft at Lucky Friday, when that's complete in 2016, what will your annual silver production be from Lucky Friday?

Once we complete the shaft and we do the development, then we think we have the ability to operate at roughly a 5 million ounce a year rate. And there will be years, ups and downs from that number, but what happens is the grade of the Lucky Friday increases as we go deeper. So, generally speaking, that's the sort of range that we would see this mine operating at.

Okay. And that would probably come in 2017, which would be the first full year of the use of the #4 Shaft?

Yes, at that rate, you wouldn't see that level of production, because you've got to do that development on the 6,500 and 7,500. But post-2017, again, we have years that are higher; we have years that are lower; but that's the general rate that we would expect to see, post-2017.

Okay, fine. And talking about San Sebastian, you had mentioned about the possibility that there might be 100 million ounce equivalent there at San Sebastian. Have you decided over how many years you would try to bring that into production? Would you try to do that over 5 years, or 10 years, or 15 years?

It's hard to say how long you will -- what rate you can mine at. Clearly, surface mining would be easier, and you can have a higher tonnage than you can from underground. But we think this -- when you think of the combination of surface and underground, we think this will have a long mine life. It's going to be significant -- once we make the decision, and should it be positive, it will not be short. It will certainly be in excess of 5, 10 years.

Okay, sounds good. All right, thank you very much.

Matthew Fields, Bank of America.

Just wondering, looking at your EBITDA reconciliation, there's a $5 million add-back for Other that's unspecified. Can you just give us a little color on what that is?

Yes, we can do that.

Jim, do you want to take that?

Off the top of my head, I don't know what it is (laughter), to be quite frank. I'll need to get back to you on it.

Okay, that's fine. And then just looking at the 2014 guidance, and what that implies for the fourth quarter, at Lucky Friday it looks like to stay at that $9.75 cash cost, it looks like fourth-quarter costs are going to go way up at Lucky Friday, and production will be a little down. Is there something going on there at the mine this quarter?

No. Look, we think it's -- the production level will be in that -- or the total will get us to 3 million to 3.2 million ounces. Cost-wise, there's nothing particularly extraordinary that I can think of.

Larry?

It's all volume-driven.

Yes.

And it's really a -- it's a mine sequencing --.

So it really becomes a question of grade. So, you can't say that -- we're running through the same tons, I do think. I don't have it in front of me, but I do think the grade is probably somewhat lower in the fourth quarter.

Do you have that, Larry?

Yes, the grade is down around 11 to 11.4 variant, a little of each month in the fourth quarter.

Okay. That's helpful, thanks. And then just, finally, a lot of San Sebastian questions have been asked, and then you guys are not ready to give very specific color on this. Can we expect --?

Yes, because of the story -- Matthew, the story at this point is the exploration. That's the thing that's so remarkable, is the success that we have had with that exploration.

No, absolutely. Can we expect a more concrete plan in fourth-quarter results, maybe with a 2015 CapEx estimate, and all that?

That's certainly what we're working towards.

Okay.

That's what we're working towards. Part of the problem that our mine planners, operators have, is that this thing keeps growing. And they keep putting a pin in it, and then two months later it is significantly larger. So, we're trying to deal with the good news that's coming out of the exploration effort.

All right. Well, I guess that's a good problem to have.

Absolutely.

Thanks very much.

To follow up on your EBITDA question, it's related to the impairment on some miscellaneous stock positions that we have, and also some non-cash accruals for reclamation.

So that is $5 million.

Thanks very much, guys.

Scott Murray, Black Stone Financial.

Two quick questions. The first one is your thoughts and comments about stock buyback, based on the price of Hecla's stock today. And the other one would be your thoughts and comments regarding supply/demand of silver over the next 1 to 5 years. Thank you.

Sure. So, with respect to the stock buybacks, we have authorization to buy shares back. And in periods where we're not in blackout, the way we have utilized that authorization has been on days where our share price is performing materially worse than our peers for no apparent reason, then we will buy some shares back. And I would anticipate that we'll continue that program. We think that's a good use of some of the cash on the balance sheet.

With respect to making a big call on buying lots of shares back in a broad way, you're really making a call on the metals price. And while we are very bullish about silver, gold, lead, and zinc, we don't know when those prices will turn, and that's not the business that were in. So, we're inclined to do the share buyback that we've done in the past.

With respect to what we think about the supply/demand fundamentals for silver over the next five years, it's extraordinarily good. From the standpoint that there are so many new applications that are consuming silver, and those new applications are being applied to significantly more people.

Yes, China has slowed down its growth; but it's off a much, much larger base. And so the impact of that on silver consumption is huge. You've got 300 million, 400 million people in China whose lifestyle is very similar to the lifestyle in the Western world. And people in the Western world consume roughly 0.4 of an ounce of silver per annum. And so the perspective, the outlook for silver seems to us to be very, very good. And it will continue to improve beyond that five-year timeframe.

So, hence, why you see us making so much of an investment in the Lucky Friday, talking so much about San Sebastian, having so much of a focus on silver relative to the other metals.

I think he is off the line.

(multiple speakers) answered my questions. thank you.

Joseph Reagor, ROTH Capital Partners.

Congrats on a strong quarter, despite obviously a weak environment. Just one follow-on to what the last caller was asking: on the share buyback, can you remind us what's available on that, still?

It's a lot. It's roughly 20 million shares, if I recall, was the authorization. And I believe we had executed about 1.5 million shares of that. So, those aren't the exact numbers, but that's pretty darn close.

Okay, so about 18.5 million shares left.

Yes.

Okay. And then there's been varying degrees of conversation about you guys on the industry consolidation side. At times, it sounded like you guys have invested in small caps, thinking that you get a foothold early. Now you guys were mentioning on today's call about being able to fund mines that aren't fundable internally; Coming out the back side of, let's say, a 12- to 24-months poor price environment.

Given that kind of a thought process, what about today, next 6 to 12 months, even if we stay in this kind of $1,100s gold price environment and $15 silver, are you guys looking to do your own consolidation, buying up local projects? Are you looking to potentially buy an operating asset, et cetera?

The answer is yes to all those things. But we are going to protect our balance sheet. We're going to make sure that it is assets that we have confidence that we can turn around in this price environment. But, yes, we're certainly looking at things. And we don't have a ban on acquiring assets for a couple of years. We are prepared to use a portion of our balance sheet to do that.

Would you be (multiple speakers).

Jim, do you want to add anything? Okay.

Would you guys be willing to take on additional debt, as you did in the Aurizon transaction?

Yes, so long as we maintain the coverage ratios that we're targeting, which is roughly -- Jim, what? 2 times EBITDA?

3 times.

3 times, on a gross basis.

Okay. All right, that covers it for me. Thanks a lot, guys.

Ladies and gentlemen, this concludes the question-and-answer portion of today's call.

I will now turn the call back to Phil Baker for any closing comments.

Well, I want to thank everyone for being on the call. If you have any questions, please contact Mike or me. And just rest assured they we recognize that price environment that we're in, and we certainly are tightening the business down accordingly. And we're fortunate in that we start with a business that has good margins, and so the amount of tightening that we need to do is not dramatic, but we do do that. And we think we're in a great position to continue to grow the business, as well as add new assets to the Company.

So, thanks very much for participating on the call. Have a good day.

Thank you for your participation in today's conference. This concludes your presentation. You may all disconnect. Good day, everyone.