Good day, and thank you for standing by. Welcome to the Q4 and year-end 2021 Hecla Mining Company earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session.
To ask a question, you will need to press star one on your telephone. If you require any further assistance, please press star zero. Now, it is my pleasure to hand the conference over to your first speaker today, Anvita Patel. Thank you. Please go ahead.
Thank you, operator, and welcome, everyone. Thank you for joining us for Hecla's fourth quarter and full year 2021 financial and operations results conference call. I'm Anvita Patel, Hecla's Assistant Treasurer. Our financial results news release that was issued this morning, along with today's presentation, are available on Hecla's website.
On today's call, we have Phil Baker, Hecla's President and CEO, Lauren Roberts, Hecla's Senior Vice President and Chief Operating Officer, and Russell Lawler, Hecla's Senior Vice President and Chief Financial Officer. Any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act and involve risks as shown on slides 2 and 3 in our earnings release and in our 10-K and 10-Q filings with the SEC.
These and other risks could cause results to differ from those projected in the forward-looking statements. Reconciliations of Non-GAAP measures cited in this call and related slides are found in the slides or news release. With that, I will pass the call to Phil.
Thanks, Anvita. Good morning, everyone, and thanks for joining our call. We're gonna start with slide four, where you'll see there are four key messages that we're trying to communicate. First, silver is fundamental to the transition to the lower carbon energy, with solar power being a key renewable to make it happen. Silver demand to be used for energy has increased and is continuing to increase.
The U.S. Energy Information Administration projects that silver demand for solar will be 0.5 billion ounces annually. Realize the current silver market is only a little more than 1 billion ounces. That's a huge increase in the demand for silver for energy use. Second message. For the transition to solar power to happen, you really have to have a reliable supply chain.
To do that, you need silver mined in reliable countries. Most silver is mined in China, Peru, and Mexico. Hecla has the United States' largest reserve of any mining company and produces more than 40% of all the silver mined here. We are the most reliable silver producer.
Our third message is that on the ESG front, Hecla stands out with a safety record of our employees that is 40% below the national average. We are also net neutral on greenhouse gas emissions for Scope 1 and two because we have among the smallest emissions in our industry, and that small amount allows us to use offset credits at a very, very low cost to get net neutral.
Then the final message, and really what we'll spend the bulk of this conference call on, is what a great year Hecla had operationally as well as financially. Aside from our safety and environmental performance, our most significant achievement was the UCB mining method at the Lucky Friday.
Now, we mined 86% of our tons last year with the UCB method, but we didn't speak about this until almost the end of the year because we wanted to make sure we understood how the cycle worked, confirmed how it would improve our seismicity management, determine how we manage dilution, and consider the impacts on the workforce. We wanted to put ourselves in a place where we are now, which is where we're focusing on optimizing the method, not whether the method works or not.
It clearly works, with the UCB method contributing to the 75% increase in the Lucky Friday silver production over 2020. 2022's silver production is expected to be a 20% increase over 2021, and we'll have even more growth in 2023 as the mine becomes a consistent five million ounce producer.
Now, the Lucky Friday's been around for 80 years, but this new mining method fundamentally changes this long-standing mine. If you look at the history of the mine, Lucky Friday has never had sustained production above 2.5 million ounces. With the higher grade that we get as we go deeper, and this new mining method, that production doubles and the costs stay relatively flat.
What happens is the Lucky Friday generates two or three times or more free cash flow than what we've done in the past. It's because of the innovation of this new mining method and our determination to make the mine safer, to mine it better, that the Lucky Friday provides this growth exposure to silver without the risk of large capital investment.
In this inflationary time, having growth with low capital is very unusual, and you know, you have so much less risk to get that growth. Now, Lauren's gonna talk about the method more in detail, and I also encourage you to consider our technical report that was filed as an exhibit to the 10-K that describes the method and gives a lot of visibility into the Lucky Friday's strong economics.
Adding a strong Lucky Friday in 2021 led to a record financial year with revenues of $807 million and adjusted EBITDA of $279 million. Cash flow from operations was $221 million, and free cash flow was $111 million, and those were the second highest in our history.
This and last year's performance has allowed Hecla to generate in excess of $200 million in free cash flow over the past two years and further enhance our common stock dividend policy by lowering the realized silver price threshold to $20 per ounce. As a result of this, about 20% of our free cash flow went to shareholders last year. If you turn to slide five, I wanna take a moment to highlight the achievements of our exploration program.
We spent a little less than $50 million. We were able to resume our drilling at our operations and sites after the slowdown that we had in 2020 due to COVID-19. As a result of that, our silver reserves increased 6% over last year, and they're now the second highest in our history at 200 million ounces, with Greens Creek reserves at 125 million ounces, and that's its highest since 2002. It's an increase of about 12% over 2020. The chart on the left shows not only that we replaced mining depletion but also converted 26 million ounces of resources to reserves.
Now, our gold reserves at the end of 2021 were 2.7 million ounces, the second highest in our history, and that's shown in the graph on the right. Our company-wide measured and indicated resources declined largely due to reserve conversions. However, we did increase our silver inferred resources by 8% to 490 million ounces, with increases at Greens Creek, Lucky Friday and San Sebastian.
We expect to continue to see increases in reserves and resources that should allow us to maintain our reserve lives, the 14+ years that we have. I mentioned the technical report on the Lucky Friday. We also filed reports for Greens Creek and Casa Berardi to give support for the reserves.
In those reports, there's an economic analysis that's in section 19 that shows very strong economics of the reserves. What it does is it assumes that the inferred resources that we mine, which is about 5%-15% of what we typically mine at those two mines, that was waste. We've also done is we've included in section 21 the summarized information, the supplemental information that gives our long-term plans that includes this inferred materials at their expected grade.
Given our long history of the two mines, we have a pretty good idea of what the mine will look like when you include the inferred materials. That gives you a sense of what that looks like. I'd encourage you to look at section 21 as well as section 19. With that, I'd like to pass the call over to Russell.
Thank you, Phil. Turning to slide seven, as Phil noted earlier, we generated record revenue of more than $800 million, of which silver contributed 34%, while gold contributed 42%. Each of our operations contributed significantly to our revenue led by Greens Creek at about 50%, Casa Berardi at 30%, and Lucky Friday at 16%.
With the projected production growth at Lucky Friday, we anticipate its contribution to grow. Record revenues coupled with high margins generated record-adjusted EBITDA for the year at $279 million, resulting in our leverage ratio being 1.1 times, which is significantly below our target of two times. Our cash flow from operations at $221 million and free cash flow of a hundred and eleven million were the second highest.
As a result of our consistent and strong operational performance, our balance sheet has continued to strengthen as we ended the year with $210 million in cash, in excess of $440 million of liquidity. Turning to slide 8, there's been a lot of discussion in the industry regarding inflationary pressures, both in the operating costs of companies as well as capital costs.
At Hecla, we are facing inflationary pressures too. However, we anticipate those factors to be muted relative to the rest of the industry for a few reasons. First, for the most part, we operate high grade, high value, but low tonnage underground mines. Since we don't move a lot of rock, our production comes from processing less tons than others within the industry, therefore making our mines less susceptible to some cost pressures.
Second, we are less exposed to increasing costs of energy, as the majority of the power at our sites come from local utilities based on renewable energy sources. Third, we don't have any large capital expenditures to speak of.
As you look on slide eight, we don't have any planned large capital expenditures as our capital ranges from a low of $91 million in 2020 to what we anticipate spending in 2022 of $135 million. In 2021, our total capital and production costs were approximately $480 million, split approximately $370 million as production cost and $109 million for capital. Our 2022 total expected spend on production cost is about 6% higher than 2021.
While our guided capital spend for 2022 is slightly higher than 2021, it is primarily due to our investment at the Lucky Friday. A 5% inflation factor would add less than $7 million to the total capital spend. Turning to slide nine, what record revenue generation, strong margins, and consistent capital spend add up to is a strong free cash flow at all our operating mines.
You can see all our mines generate positive free cash flow, and company-wide, we generated more than $110 million in free cash flow during 2021, which was the second highest in the company's history. With this strong and consistent free cash flow generation, we've seen an increase to our cash balance of 60% over 2020 and more than three times that of 2019. With that, I'll pass the call to Lauren to go through operations.
Thanks, Russell. I will start on slide 11. Greens Creek had another strong year as the mine produced 9.2 million ounces at an all-in sustaining cost of $3.19 per ounce, which was below our lower end of guidance at $3.25 per silver ounce. The cost beat was due to higher byproduct credits and more favorable treatment charges than originally estimated.
The 2021 realized silver margin at the mine was approximately $22 per ounce, an increase of 75% over 2020. These high silver margins drive the solid free cash flow generation at the mine. In 2021, Greens Creek generated $185 million in free cash flow, and over the past three years has generated more than $445 million in free cash flow.
In addition to the strong operational and financial performance, we increased reserves by 12% and at 125 million ounces, the reserves are the second highest since 2002. This high grade, high margin mine is among the best in the world. Silver production guidance for 2022 is 8.6-8.9 million ounces, as we will be mining lower grades per the production sequence.
Silver cash costs are expected to be in the range of $0.75-$2.50 per ounce, while the silver all-in sustaining cost guidance is $6.50-$8.50 per ounce. Moving to slide 12, introduction of the UCB mining method and anticipated higher grades at depth have positioned the Lucky Friday for a strong decade ahead.
We are very excited about the UCB mining method, which is showing significant improvements in managing seismicity and improving productivity. Lucky Friday has 75 million ounces in silver reserves, which translates to a reserve mine life plan of 17 years. The Lucky Friday mine produced 3.6 million ounces of silver in 2021, with almost 1 million ounces produced in the fourth quarter. In 2021, production was a 75% increase over 2020.
All-in sustaining costs for the year were $14.34 per ounce, in line with our guidance. The mine generated $32.7 million in free cash flow for the year, with 86% of the tons mined using the UCB method. The mine is expected to produce 4.3-4.6 million ounces of silver in 2022, and cash costs of $0.75-$2 per ounce, and all-in sustaining costs of $7.25-$9.25 per ounce. Production in 2022 is planned to be almost 20% greater than 2021, while the all-in sustaining cost per ounce is expected to decline by more than 30% due to higher production and byproduct credits.
Turning to slides 13 and 14, the UCB mining method is a new, productive mining method developed by Hecla in an effort to proactively control fault-slip seismicity in deep, high-stress, narrow vein mining. The method uses bench drilling and blasting methods to fragment significant vertical and lateral extents of the vein beneath a top cut taken along the strike of the vein and under engineered backfill.
The method is accomplished without the use of drop raises or lower mucking drives, which may result in local stress concentrations and increased exposure to seismic events. Large blasts using up to 35,000 pounds of a pumped emulsion and programmable electronic detonators fragment up to 350 feet of strike length to a depth of approximately 30 feet. These large blasts proactively induce fault-slip seismicity at the mine at the time of the blast and shortly after it.
This blasted corridor is then mined underhand for two cuts. As these cuts are mined, little to no blasting is done to advance them. Dilution is controlled by supporting the hanging wall and footwall as the mining progresses through the blasted ore. The entire cycle repeats and stoping advances down dip, underfill, and in a de-stressed zone.
The method allows for greater control of fault-slip seismicity, significantly improving safety. In conjunction, a notable productivity increase has been achieved by reducing seismic delays and utilizing bulk mining techniques. Moving to slide 15, the Casa Berardi mine achieved record throughput as the mill achieved 4,187 tons per day in 2021. Our investments in mill optimization continued to deliver results in 2021, with mill recoveries increasing 4 percentage points in conjunction with the increase in throughput.
For the year, the mine produced 134,500 ounces of gold at cash costs of $1,125 per ounce, and all-in sustaining costs of $1,399 per ounce, while generating free cash flow of $13.7 million. From 2019 to 2021, the mine has generated more than $100 million in free cash flow.
While our investments in optimizing production have yielded results, we are seeing increased costs due to the greater volumes mined and processed, contractor costs, and higher underground maintenance costs. For 2022, our production guidance for the mine is 125,000-132,000 ounces at cash costs of $1,175-$1,325 per ounce, and all-in sustaining costs of $1,450-$1,600 per ounce.
Of note is the 16% increase in reserves at the mine to 1.8 million ounces, mainly attributable to additions at the 160 pit. With these reserves, Casa Berardi has a reserve mine plan of 14 years. With that, I would like to return the call to Phil.
Thanks, Lauren. Slide 17 shows our consolidated production guidance. It takes all of the production guidance that Lauren's given you on a mine-by-mine basis and aggregates it. Then we also give you guidance with for 2023 and 2024. As we look at our business for the next few years, we anticipate seeing growth in the production of silver due to the high-grade material we'll be mining at the Lucky Friday, coupled with the productivity gains due to the UCB method.
With these improvements, we anticipate seeing margins and free cash flow generation at Lucky Friday continue to expand, and we expect that the mine will move to be in the best third of the cost curve of primary silver mines. Greens Creek will hold its position as a top-tier silver asset, continuing to deliver the significant margins and free cash flow.
Just to comment on the guidance relative to the guidance that we gave a year ago, realize that with higher zinc prices, we're able to mine. Remember, Hecla is the third-largest zinc producer in the United States. As a result, we're able to mine a lower grade silver and actually generate the same or maybe even better cash flow.
That's why you see a little bit of a reduction in the production from a year ago to this year. On the gold side, we anticipate production over the next few years to grow slightly with our gold production coming from, you know, Casa and Greens Creek. We're gonna remain a very low-cost silver producer with our all-in sustaining cost guidance being $9.75-$11.75.
On gold, we're guiding to an AISC of $1,450-$1,600 per ounce. We're gonna continue to work to improve the operations at Casa and deal with the inflationary pressure that we see in the Abitibi. Looking to capital, we anticipate spending approximately $135 million as Russell mentioned, which is slightly higher than previous years.
Remember that this change is driven mainly from new equipment, increasing the number of stopes at the Lucky Friday, and just a slight increase as a result of that. Cost and capital assumptions include costs associated with managing COVID and assumed 5% inflation. We also anticipate spending $45 million for exploration and predevelopment. About a quarter of that will be spent at Greens Creek and Casa.
In addition to extending reserves and resources, both properties have programs identifying and testing new targets. The Nevada program, which is about a third of the program, is gonna focus on the two miles of the East Graben Corridor at Midas, where we've had some very high-grade intersections. We're gonna complete the predevelopment drift and exploration drilling at Hollister's Hatter Graben.
At San Sebastian, we're testing for deeper mineralization near the mine infrastructure to try to expand the Hugh Zone type mineralization, as well as mining more for just silver and gold in an area called La Roca. Our programs for Republic and the Creede districts that have been on hold for a number of years will also have some drilling this year.
I wanna take a moment to speak about the reset that we are taking at our Montana assets. We withdrew the previous owner's plan of operations on both properties since it was based on their view of what the mines would be. They really didn't have the data to formulate what we need to do for a modern, innovative mine plan.
We're submitting a new plan of operation limited to geologic and environmental activities for just the Montanore site, so we can develop our own plans. At this point, Rock Creek will only have care and maintenance activities with our mineral and property rights intact. Remember that Rock Creek and Montanore combined are the third-largest silver copper deposit in the U.S. and host more than 300 million ounces of silver and 3 billion pounds of copper, and these. That's an inferred.
Given the growing importance of these two metals, we believe that this sort of one step back to allow two step forwards approach will allow production to begin early as next year, next decade. That has not changed our view that early in the next decade, we should be able to be in production there.
Before I open the line to questions, I wanna take just a moment to remember my friend and predecessor, CEO Arthur Brown, who passed away recently. Art worked for Hecla for almost 40 years, and he was the CEO for Hecla for almost half of that. The UCB method is only the most recent example of Hecla's culture of innovation.
Art had Hecla on the cutting edge of a number of new technologies, many that are standard in many operations around the world, like paste backfill, and the circular shaft that we have at the Lucky Friday. His legacy is continuing innovation, not only at the Lucky Friday, but the automation advances that we've had at Greens Creek and Casa Berardi. Hecla would not be the company that we are today without him. Please keep his family in your thoughts. With that, operator, I would like to open the call to questions.
Thank you, sir. As a reminder to all participants, if you have a question, please press star one on your telephone keypad. Again, that's star one on your telephone keypad. However, if your question has been answered and you wish to remove yourself from the queue, please press the pound sign. Now we will compile the Q&A roster. Your first question comes from Lucas Pipes with B. Riley Securities. Your line is open.
Hi. Hi, good morning, everyone. This is actually Matt Key here asking a question for Lucas. You mentioned that inflationary pressures aren't expected to be kind of as big of an impact on your business as others. I was kind of hoping you could provide some greater details on that. Kind of compared to the previous year, do you still expect to experience kind of a % increase in unit cost due to inflation?
Or should this be kind of offset by higher kind of byproduct pricing and other moving parts? Thanks. Yeah. Well, definitely we have the higher byproduct credits with the prices of zinc and lead. So that will, on a net basis, benefit us. Like everyone else, we certainly feel the inflationary pressures.
Fortunately, our power is primarily hydro, and that is very, very stable pricing of that power. The pressure that we feel goes to the other parts of the costs of our business. You know, the biggest cost for us, of course, is labor. You know, we're not gonna be able to avoid the inflationary pressure in the cost of labor. I do think because of the byproduct credits on a net basis we'll do well. Anything, Lauren, that you wanna add?
I just reiterate that we're relatively low volume and high grade, so the impacts associated with things like fuel, grinding media, cement, the other things that we're seeing inflationary pressure in are modest relative to our peer group.
Russell, anything else?
No, nothing to add. I think you guys did a good job.
Okay.
Got it. That's super helpful. Just one more from me. Obviously 2022 looking to be, hopefully, a very strong year for you guys. I was just kind of wanted to press you on kind of capital returns to shareholders. Is share buyback something that you guys would ever kind of consider in this market, or are you mainly focused on kind of just maintaining that recurring and variable dividend at this time?
We are authorized to buy shares back. That's certainly not off the table. I would suggest to you that the first thing we want to do is continue to strengthen our balance sheet. We do have further investments that we want to make in particular, exploration.
We're anticipating success with some of the exploration that we think will require modest amounts of capital in the future. We'll need to build up the balance sheet for that purpose. The next lever we would pull would relate to the dividend policy that we have. I think that's a more likely thing.
Because the fact that buying shares back, in order for it to be meaningful, it's gotta be a pretty large number, and we're not gonna burden our balance sheet to do that now. We see higher prices and significantly more cash flow. Certainly, that's something that we would consider if we're not seeing the share price react to what we think would be an appropriate way. Russell, anything to add?
You know, as we look at capital allocation, certainly, you know, we'll look to the various metrics or the various levers that you can pull. You know, share buybacks, like Phil said, we have an authorization to do so. But, you know, we think that, you know, we'll consider it. But frankly, you know, there's probably better ways to return capital to shareholders, dividends being essentially that. Other investments for the cash flow that we produce as well, like the exploration.
Thanks, Matt.
Thanks. Best of luck moving forward.
Okay.
Your next question is from the line of Michael Jalonen with Bank of America. Your line is open.
Morning, Phil and Russell and everybody else on the call. I just had a couple questions, Phil. I noticed for reserves, for gold reserves, the gold price was raised from $1,300-$1,600. Just wondering what the logic was for that, because other companies have been keeping their prices flat. How much of the gold reserve increase was due to using a higher gold price? Thanks.
Well, you know, Mike, it's in trying to determine what price to use, we look at a number of things. One of the things we did look at was where other companies were. We think we're sort of right in line with other companies. The other thing that's a reality is that Casa is a relatively high-cost producer. It's not fair to that operation to set its reserves at some lower price when the operational how you run the operation is based on the actual current price. We thought we should be more in line. Lauren, anything to add?
I agree, Phil, and I think the one maybe expansion I would put on that is we mine many different zones at Casa Berardi. In those zones, there might be multiple lenses. As we mine out to the limits of those lenses, we have to make an operational call whether we leave or take material. Those operational calls are irreversible because this is at the end of stoping blocks and at the end of horizons. In order not to strand those resources, we felt it was appropriate to run at a bit higher price.
Okay. Phil, I don't know which companies you're talking about who are using 1,600 from my work, but maybe I better go back and review.
Well, we have a slide on that, Mike, that we'll send you that has who we were comparing to.
Okay. Thanks. Well, I don't think Barrick's on that list.
Well, we don't really compete with Barrick actually, Mike.
Going back to the stranded reserves, that this happened in 2010, 11, 12 when costs went up because companies went after the stranded reserves. While mine life is longer at Casa Berardi, does that mean operating costs will remain higher also in line with 2022 guidance?
Well, the issue that we have with our costs really relates to just the nature of the ore body, and we are working hard to try to drive those costs down. You know, one of the key things we think we need to do is to continue to explore underground because we think there's more high-grade mineralization to be found.
Remember, the 113 zone was significantly higher grade than what we mine today. There is a history, and it was mined, I don't know, for the better part of seven years or so. There's a history of high-grade mineralization there. You know, so we're continuing to explore to try to find that higher grade mineralization.
At the same time, we're working to try to lower the costs. We've done a lot of work. The first step really was trying to increase the throughput through the mine. Second, was trying to increase the recoveries. We've had great success with both of those things. You know, the third thing is really improving the efficiency, the productivity of the workforce. That's, you know, we're putting all of our efforts into that. Lauren?
It's a good conversation. I guess the way I would look at it is we are desiring to increase our underground production relative to the open pit production because the grade is significantly better. We're, as Phil says, focusing very directly on productivity in the underground mine in order to increase that throughput level. In some aspects, Casa is actually leading the curve for us as Hecla.
It has the lowest overall development costs because they're extremely productive developers. It's really a matter of sorting out the remaining bits of the underground mining system in order to increase the productivity and deliver more underground ore to the mill. I would just touch on your comment about what happened in past years, and I can assure you that we're not chasing stuff that doesn't make cash flow and money today. We just don't do that.
All right. Well, thanks for that, Lauren and Phil, and look forward hopefully to a mine tour of Casa Berardi in 2022. I'm getting tired of my basement, Phil.
Well, I hope to do that, and I also hope to have a mine tour of the Lucky Friday so we can show you guys up close what we're doing there. You know, really excited, and we think there's even more productivity gains to be had there as we optimize the method.
Okay. I look forward to that also. Just one last question. Sorry, I've been dominating, but could you provide a breakdown of the capital spending of $135 million by asset? Or maybe I missed it.
No, we haven't, but we certainly can.
Yeah, we certainly have that detail, but you know, we did not provide it in the press release.
You have it, you have it right there.
Uh, so I, I think-
Oh, is that last?
This is this here.
You have it handy or?
Yeah, you know, I would say that most of the largest portion of that comes from Lucky Friday. Call it roughly $45-$50 million coming from Lucky Friday. You know, at Greens Creek, call it $35-$40 million. Then, roughly $35-$40 million at Casa Berardi as well. Yeah, I'm doing the math in my head, and those I'm giving you ranges, so we should be coming up pretty close to that $135 million.
No, that's perfect. Thank you, Russell. Thank you, Phil and Lauren, for answering my questions. I'm done. Thank you.
Sure, Mike. Okay, see ya.
Once again, ladies and gentlemen, if you have a question, please press star one now. Again, it's star one on your telephone keypad. Your next question is from Joseph Reagor. Please state your company name. Your line is open.
Hey, guys. It's Joe from Roth Capital. Couple of questions. First, you guys touched on it already that the inflationary pressures aren't hitting you guys quite as hard as, you know, some large open pit guys. But have you seen any issues in supply chain as far as just availability of things you need, if you had to order ahead and, you know, should we expect maybe some working capital consumption, anything like that?
Lauren?
Yeah. I guess, taking a step back first, let me just say that when we began reacting to the COVID situation a few years back now, we increased at that time our inventory levels. Our working capital went up a bit, as we increased working capital in anticipation of difficulties with the supply chain. We've sustained those levels going forward.
I don't think I would expect an increase in working capital from that perspective. With respect to things where we are seeing inflationary pressure, I think there's some common themes across the industry. We're seeing price of steel go up, for instance. Grinding media, reagents has gone up. Fuel is going up.
As Phil mentioned, our core energy consumption for the mills, which is our biggest consumer, of course, is essentially all hydro. We're not seeing pressure there. We do see odd little perturbations, I guess, in the supply chain, where maybe it's difficult to get a particular item from a particular supplier, but we've been able to find workarounds for those things. It's, I would characterize it more as a frustration than a significant impact to the business.
Okay, fair enough. Just something that a couple other companies have pointed to, so I wanted to get your take. You know, Casa had a strong finish to the year. I know you guys mined from many different areas. You said that already. You know, should we continue to assume that there's gonna be, you know, some volatility quarter to quarter in grade, or, you know, is there any expectations going into 2022 of, you know, what might be your best quarter, what might be the worst?
Well, we absolutely, with Casa and Greens Creek, you will have huge volatility in quarter to quarter, and it's just the nature of these underground ore bodies. Not so much for the Lucky Friday, but for those two, it's remarkable how big of a difference you can have from one quarter to another. You know, off the top of my head, I'm not sure which, if one quarter is better than the other. I just don't remember.
You'll certainly see volatility. You know, it does seem to trend towards.
Is one quarter better than the other?
The end of the year, I think, is where you'll see probably a bit better production.
More back-end weighted.
Yeah. That's right.
Not super heavy.
Yeah.
Okay. Still very helpful from a modeling standpoint. One final thing. On the capital budget, it seems you guys are putting, you know, a little bit more than maybe we anticipated into capital this year. Is that a sign of additional projects? Is it inflationary pressures? You know, like, how do we kinda bridge from, you know, maybe previous expectations to what you're ending up spending on capital?
Joe, I would characterize it as really two primary drivers or three. Risk reduction. We have the cash flow available to us. We have the opportunity to reduce the risk of upsets because we've been, you know, upgraded our fleet or upgraded pieces of equipment. Second, we identify things that have very strong returns.
The third is this transition at the Lucky Friday to a more bulk mining method where we need equipment that we didn't need before. You know, these pieces of equipment are, you know, call it $1 million pieces of equipment.
We're not talking about huge capital, and we have the ability to throttle it up or throttle it back. Our ability to throttle up a lot more than this is not great. You know? You just don't have enough room to spend more capital, even if you wanted to. Lauren, anything to add?
I think the one thing I would add to what Phil said is we do have a couple of sustaining capital expenditures that come along periodically, and these are tailings raises, and there's two of them in calendar year 2022. That eats a chunk of capital, but it is, you know, it's just sustaining nature of the business. We are making a modest investment associated with the increase in throughput at Lucky Friday, some infrastructure things as well as fleet.
Okay, thanks. I'll turn it over.
Okay. Appreciate it, Joe.
Once again, if you have a question, please press star one now. Your last question is from the line of Ryan Thompson with BMO Capital Markets. Your line is open.
Hey, guys. Thanks for the update. Just a question on the growing production at Lucky Friday. Should we be thinking that more grade driven or tonnage driven or both? Maybe you could just remind me sort of the mill capacity there. Is there any opportunities for an expansion or pushing that mill harder? Just any comments around that would be helpful.
Well, it is both. Now, grade is going up, and it would've happened, you know, anyway. Because of the mining method, it's been accelerated, that increase in production, metal production, silver production. It is both. I think we get to 1,000 tons a day during 2022, or we primarily average about 1,000 tons a day during 2022.
We think that our limit is about 1,200 tons a day hoisting capacity, and mill will certainly look at the ability to go beyond that because the mining method conceivably could go more than the 1,000 tons a day from a seismic management standpoint. At this point, it's, you know, we would expect to try to get to about 1,200 tons a day over the course of the next couple of years. Lauren?
I think the way to think about Lucky Friday milling capacity is historically viewed as kind of 300-350,000 tons a year being the full capacity of the mill. When we looked at that a bit closer, that was really the full capacity of the mine.
By unburdening the mine, we're able to take advantage of latent capacity in the mill, which we think is going to be on the order of 425,000 tons a year. A significant increase in milling capacity with no investment in the mill, fundamentally. It's simply improving our ability to deliver more ore from the mines.
There are a couple of modest infrastructure improvements we're doing in the hoisting system and the ore handling system in order to move the larger volumes. The mill's just sitting there ready to chew it up for us.
Okay, that's good to hear. I think in your last comments, you said there was two tailings dam raises, but I didn't catch. Is one of those at Lucky Friday? Do you have to sort of increase the-
Yes
tailings there to push more tons?
Yeah.
Okay.
There's a raise at Lucky Friday and a raise at Casa Berardi in 2022.
Okay. How many years, like, will that get you of capacity, and when should we be thinking about, I guess, the next raise as you push more tons there?
Yeah, Lucky Friday, this raise will give us at least two years before we start construction on another raise. Casa Berardi, it's really going to be. I think the way to think about it is it's an annual process at Casa Berardi. We go back and forth between two different tailings cells, and we try to do one year and the other year.
Got it. Perfect. Okay. Thanks a lot for the update. That is all I had.
Okay. Thanks, Ryan. You know, one thing, Ryan, your question about the tailings reminds me of is the fact that we've got the land position now at the Lucky Friday that really covers off the next few decades of the ability to have a place to put the tails. You know, land comes at a.
There is not a lot of flat land up in the Silver Valley, so it was a big deal for us to get this position. We're in great shape from that regard. Okay. Appreciate it. Looks like we don't have any more questions, operator. I just want to thank folks for being on the call.
Certainly, if you have any other questions, give, you know, me or Russell or Anvita or Lauren a call. We do have available some slots for calls later this morning. You know, please, you know, let us know if you'd like to talk to us later today. Thanks very much.
This concludes today's conference call. Thank you for joining. You may now disconnect safely, and have a great day.