Good morning, and welcome to the Hecla Acquires Alexco Resource conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. Thank you. Anvita Patil, you may begin your conference.
Thank you, operator, and welcome everyone. I'm Anvita Patil, Hecla's Vice President of Investor Relations and Treasurer. With us today, we have Phil Baker, President and CEO of Hecla, Clynton Nauman, Chairman, President, and CEO of Alexco, as well as Lauren Roberts, Hecla's Senior Vice President and Chief Operating Officer, Russell Lawlar, Hecla's Senior Vice President and Chief Financial Officer, Robert Brown, Hecla's Vice President of Sustainability and Corporate Development, and Kurt Allen, Hecla's Vice President of Exploration. Before we begin, I would like to remind you that our discussion during this conference call will include forward-looking statements. For a complete discussion of the risks and assumptions, which may affect actual results differing from estimates contained in our forward-looking information, please refer to pages two and three of this presentation. I will now turn the call over to Phil.
Thanks, Anvita, and good morning, everyone. Thank you for joining us today. We're very excited to discuss the Alexco acquisition. This is a transaction that began as a journey back in 2007 when Don Poirier did our first due diligence on the district. That was just two years after Clynton Nauman had arrived at Keno before they started their consolidation of the district and dealing with the environmental matters and then developing resources. Since that time, we have been engaged with Alexco, trying to determine how we could advance the operation exploration, how we could be part of this district.
The reason for that is we have seen this district to be similar to the Silver Valley, where the Lucky Friday is located, because it has the same geologic environment. In fact, there are only three known in the world that have the same environment. You know how productive the Silver Valley has been for silver. We also have seen it as a smaller version of Greens Creek because its grades are even higher than Greens Creek. In fact, Keno's silver grade is similar to Greens Creek's grades when it started 35 years ago. We believe that the acquisition of Alexco, combined with the termination of the streaming arrangement, will allow the potential of the district to happen.
I'm gonna highlight the key terms of the agreement, walk through the strategic rationale of the deal, and briefly describe the asset and how we see development moving forward. I think this would be slide four. Just a few basic thoughts. You know, at Hecla, when we think about what drives our strategy, there's a few key elements, and I'm gonna go through these, and they're gonna seem a little bit of mom and apple pie, but companies and investors forget them, maybe because they are so simple. They're things like, does the property have geologic potential beyond what is known? Is the land position large enough to grow that potential? Is the juris...
Is it a jurisdiction that supports mining, has rule of law that you can operate in for decades without interruption or unfair taxes or even expropriation? Is there available infrastructure? Is the quality of the known deposits high? When I say quality, that could be grade, that could be recoveries, it can be dilution or stripping. It's a lot of things that go into that quality. Can the mine have a long mine- life so you can learn the geology to find more, and have the potential to improve the economics by increasing throughput and/or lowering costs through management innovation? Finally, is there community acceptance? There's lots of boxes to be checked, but not many assets check all the boxes. In fact, even assets that Hecla has doesn't currently check all those boxes.
The Keno Hill assets checks them all. It has from the beginning when we started looking at this so many years ago. It's a very large land package. There's about 88 sq mi with significant geologic potential on at least half of that. When you consider that this environment is the same as the Silver Valley, where mining's been continuous for almost 150 years, you get a sense of how significant that potential is. It's in the Yukon, which is one of the best mining jurisdictions in the world. It's probably the highest grade silver deposit in the world. It's even better than Greens Creek is now.
There's an existing reserve that we think will have a mine life in excess of 10 years and could conceivably produce 3 million oz a year, with maybe some years as much as 5 million oz, depending on grade. There's a 400-ton-a-day mill that conceivably could do maybe 500, maybe 550 tons if you could have a mine that could produce that many tons. There's potentially some synergies with Greens Creek on transportation and on the smelting side of the business. The Yukon and the First Nations could not be more supportive. Because it checks all these boxes. We've always believed this district could be a multi-decade asset that delivers real value to shareholders, provides multi-generational jobs to employees, becomes a foundational business for, you know, a community.
From a very high level, that tells you why we have wanted to acquire Keno. Let me move to slide five to tell you how we are acquiring it. It's gonna be a plan of arrangement under BC law, so we're gonna need 2/3s of the shareholders to approve the transaction. And those shareholders are gonna get a 23% premium based upon the five-day VWAP and a 12% based on the U.S. close on Friday. We are providing a $30 million loan in light of the need Alexco has to finance continued development of Bermingham and Flame & Moth. In addition, we're gonna subscribe to additional shares, increasing our ownership to 9.9%. Then once we acquire Alexco, we'll terminate the stream with Wheaton in exchange for $135 million in equity.
We think with Hecla owning the property, Alexco shareholders will own 3% and Wheaton's will own 5.6%. That's gonna generate very good future returns for them at with our ownership of the property. That's because we see the ability to create real value at Keno, and that's in addition to the other things that are happening in the rest of Hecla. Finally, I'll mention that we have the typical protections for the deal. We have a $10 million break fee that not only pays for the transaction costs and engagement that we've had, but also for the technical assistance that we've been giving Alexco over the past six months. We also have a right to match.
Bottom line is, we and Alexco believe that Hecla operating Keno Hill is really the way to best create value, not just for shareholders, but for the employees, for the First Nations, and for the community. With that, I'd like to turn it over to Clynt to walk through why the Alexco board unanimously agreed to the Hecla acquisition and why Alexco shareholders should support it too. Clynt?
Yeah. Thanks, Phil. Turning to slide six. Just a point to make that Hecla's technical expertise as an industry leader in high-grade, narrow-vein underground silver mining, I think is gonna position Keno Hill to achieve its full potential. You can add to this Hecla's organizational strength and strong balance sheet, which is available to invest in exploration across the district, which, as you know, has been very successful for Alexco. With Hecla, who shares our commitment to the environment and the community, the acquisition provides a superior opportunity for the First Nation of Na-Cho Nyak Dun, and the wider Yukon community. We believe Keno Hill will unlock its full value under a proven operator, and the acquisition will deliver long-term value to all Alexco shareholders with continued exposure to silver production without the addition of any jurisdictional risk. Specifically, benefits to Alexco shareholders are significant.
The transaction provides an immediate compelling premium and access to immediate and non-dilutive financing for continued development and construction at Keno Hill. As I alluded to before, Alexco shareholders will continue to participate in Keno Hill's upside potential, as well as be partners to the largest silver producer in the United States with premier silver mines in Tier 1 jurisdictions. Hecla has a strong history of innovation in developing assets and has the financial capacity to invest in the future potential of Keno Hill, especially now the mine will be unencumbered with the termination of the stream. Alexco shareholders will also have access to significantly greater trading liquidity. Finally, this transaction has received the unanimous support of Alexco's board of directors. With that, I'll pass it back to you, Phil.
Thanks, Clynt, let's move to slide seven, where we talk about how we're gonna approach advancing Keno. Alexco's current plan is to do development only for the next six months or so, and while we think that plan could work, we are likely to take the better part of a year or even 18 months of development and equipment acquisition before we put the known reserve, which is 37 million oz, into production. We believe a key to the success of the mine is to have multiple sources of feed from Bermingham and Flame & Moth with an equipment fleet largely dedicated to the areas so we can deal with unexpected conditions. Now, the throughput is only 400 tons per day, which is less than half of Lucky Friday and 1/4 of Greens Creek.
Getting consistent performance once you have enough levels of development equipment should be achievable. What we're gonna do at Keno, I think you can use Greens Creek and Lucky Friday as examples. You know, at Greens Creek, what we have done since we acquired it in 2008 was increase production and throughput. That increase has come from management of the mine that has continually focused on the risks to that continued, that consistent performance. We've selectively applied new technologies like automated mucking during shift change. Despite the 40 years of exploration that we previously have had, we've continued to evolve our thinking. That has allowed us to expand our reserves and resource. I think our reserves are the second highest in the mine's history now.
As a result, of course, we've extended the asset mine life. Realize this mine took 10 years. Greens Creek took 10 years before it became a positive cash- flowing mine, and Clynt was the manager that started that success. Since going cash flow positive, Greens Creek has generated over $2 billion of free cash flow. I think Keno can be a smaller version of this. Lucky Friday is another example of our ability to increase value. This mine, which has an 80-year operating history this year, but even with all those years behind it, the best decade for the mine is ahead of it, with Silver Express production expected to be roughly double over the coming decade when compared to any of the past decades. We're doing that with a whole new mining method.
Providing new thinking, innovation, we've been able to really cause this mine to be something new and special and increase its value. We think we'll be able to do all of that at Keno. Let's turn to slide eight, where one of the keys to unlocking consistency and innovating performance is exploration success. Looking at the Keno Hill District, it hosts several large high-grade deposits. Over 200 million oz has been mined with the Hector-Calumet being about 80 million in the first half of the last century. This land package is 88 sq mi with exploration only near surface. I think it's. The deepest the exploration's gone is about 250 meters below the surface, and it's the exploration's only been on a fraction of the total property.
We're at the very early stages of exploring on this property, much like we were at Greens Creek in the early 1990s, where we've seen how Greens Creek has grown over the years. If you move to slide nine, you can see the success that Clynt and the team has had in growing reserves and resources, with reserves seeing a 22% increase from just the previous year alone. You know, this is the deposit that just has continued to grow. In January of this year, Alexco announced a 43% expansion of Bermingham's Indicated Resource.
When you look at our history of reserve and resource growth, combined with our financial capabilities, and you look at the remarkable growth in the reserve and resource at Keno, we think we're well positioned for this thing to continue to expand and grow over the coming decades. Finally, looking at slide ten, I think, yeah, I don't think Alexco and Hecla could be any more aligned on community environmental stewardship. You know, Alexco really started as an environmental business that was able to put the land package together and start exploration and then ultimately development. Hecla is now 130 years old, and we've always met our environmental obligations. In the communities that we operate in, we're among the largest taxpayers employ and h ave been employing generations of families.
In fact, just this year, we had one family who celebrated working, you know, someone in their family working continuously for over a hundred years. That's the sort of commitment that we bring to Keno Hill, the same sort of commitment Alexco has had and then all of the commitment that Hecla's had. Clynton and I and our boards think this is a great transaction for both companies as well as employees and communities, and we hope you think so too. With this, I'll close our prepared remarks, and I'll ask the operator to open the line for questions.
Thank you. At this time, I would like to remind everyone, in order to ask a question, press star one on your telephone keypad. Again, to ask a question, press star one on your telephone keypad. Your first question comes from Trevor Turnbull from Scotiabank. Please go ahead.
Yeah. Hi, Phil. Congratulations to you and Clynton. It seems like this acquisition, as I got on the call, perhaps you touched on this, but I just wondered if you did decide to make any changes to that. Is there any permitting you have to think about? The other question I had was just kind of about environmental. Is there any environmental concerns that you have to think about with respect to the historic operations?
Well, yeah. The answer to the second question is absolutely. There's an arrangement that Clynton set up years ago in 2005, 2006 when we went in. We have to follow those arrangements, and it works well for the company, it works well for the government, and it works well for the environment, where there's work that is actually done, and it gets paid for. End of mine, then liability with respect to that small area gets transferred over. Otherwise, it's well managed and it is boxed off so that responsibility. You know, giving me permits. I'm not sure what would be required. I don't know if, Lauren, you have...
If you know, and if you don't, probably Clynton does.
Yeah. I think, Phil, that it would be normal- course permitting. There's nothing large with respect to what you have contemplated for the operation.
Okay.
Things like tailings capacity, there's plenty of that for the near term and so forth.
Yes.
I guess just my other, my final question, with respect to manpower and workforce, is there any concerns with getting enough people to work up there? Or is this the type of situation where if you decide to put a little more manpower to work, there's a kind of a waiting pool of good people ready to go to work?
Well, Trevor, I don't think the mining industry is no different than anything else. There's a shortage of people sort of across the board, and certainly all operations feel it, including the ones at Keno Hill. Having said that, there is a cadre of employees that have been there for some time, and that wanna be there. You know, they've been very loyal to Alexco, and we think they'll want to work for Hecla. We think we'll have this continued base. You know, obviously we'll have to bring in people to supplement what's there and as people transition. Is it an issue? Yes. Is it a problem? No.
It's just, it's one that's an issue that we can manage, just like we do at the other operations.
Well, great. Again, exciting news, and look forward to seeing how it all moves forward. Thanks, Phil.
Thanks, Trevor.
Again, to ask a question, press star one on your telephone keypad. Your next question comes from Joseph Reagor from ROTH Capital Partners. Please go ahead.
Hey, guys. Thanks for taking the questions, and congrats on the transaction.
Good to talk to you again.
Just point of clarity. I think you stated that the plan is to take about 18 months before restart rather than the roughly six months that Alexco was planning. One, is that the correct time? If so, what are you gonna do with the additional year?
Yeah. It's gonna be somewhere between a year and 18 months, and how long it is will become a function as we develop the detailed plans. What we wanna do is get enough working faces in front of us to where we can have consistent performance. You know, the worst thing you can do in a mining operation is having to take shortcuts in order to maintain the tons for the mill. We're gonna get enough development in front of us to avoid that. We'll also be put in a position to do infill drilling, which could conceivably convert material that is otherwise not in reserve.
You know, we think it's investing an additional six months to a year to assure ourselves that we've got things in place, all of the underlying infrastructure built, is gonna be well worth the time. Lauren, what would you like to add to that?
No, you captured it very well, Phil. It's just a matter of building out infrastructure and development to allow for consistent production through the mill once we turn it on.
Okay. Second thing. Alexco has this, you know, revenue stream that they get for essentially environmental work that they do, in the region. Is that a business you guys are gonna continue, or is that something you might look to, you know, kind of spin out of the transaction?
Well, we'll do the work that we need to do on the property that we have, and then to the extent that it's not our core business, we certainly welcome others focusing on that and, you know, carrying that load. You know, our business is mining precious metals and the base metals that come with them. We'll do what we need to do and do it well, but we really don't wanna expand beyond that.
Okay. One final thing, if I could. There's a number of, let's call it, early- stage projects in the region, either immediately next door or, you know, within trucking distance.
Long term, any thoughts about, you know, the possibility of consolidating further or do you think there's plenty of exploration upside just on the property you're picking up now?
Well, there is plenty of exploration opportunity on what we're picking up. The Yukon is a you know, just a tremendous province or tremendous area to mine in. There's lots of great exploration work that's gone on. There's a lot of expertise that's there. So we do look at it as a place that we want to grow and continue to add deposits. They might be right next door, they might be someplace further afield, but the Yukon is a place that we've had on our radar for really the past decade as a place that we should be, whether it was with Keno Hill or you know, other deposits.
Okay. All right. I'll turn it over. Thank you.
Sure thing.
Your next question comes from Lucas Pipes from B. Riley Securities. Please go ahead.
Hey, good morning, everyone, and thanks for taking my question, and congrats on the announcement. Sorry if I missed this, but did you share the capital number that would be associated with that 18-month build-out?
Yeah. It's gonna be order of magnitude $30+ million, maybe as much as $50 million, depending on new equipment that we might want to bring on. You know, it's not gonna be any more than that.
That would be separate from the bridge loan or in addition to?
That's inclusive of the bridge loan.
Got it. Okay, that's helpful. Just between that and then, the royalty buyout, are there thoughts about financing that or using cash on hand, and would there be any impact to the dividend from this transaction?
No impact on the dividend, and the arrangement with Wheaton is our equity. You know, this gives them the opportunity to participate in, you know, Keno Hill and all the other assets that we have. You know, we're looking forward to them as a shareholder.
Perfect. Great. Well, I really appreciate the color, and best of luck.
Thanks a lot.
Your next question comes from John Tumazos from John Tumazos Very Independent Research. Please go ahead.
Phil, congratulations on the comprehensive transaction to refinance Alexco. The company's never been so well-financed before.
Well, thanks, John.
As you said, the entire district has potential, and the prior company thought they were ready to do backflips when they filled up the 400-ton-a-day mill. Do you think 18 months is enough time to reevaluate the district and consider the right scale for Hecla in the Yukon? Could you talk-
Well-
A little bit about the exploration strategy, where, how, where you're going to look other than the several deposits that Alexco historically has worked?
Well, I think the short answer is 18 months is really about the known reserve and, you know, some of the resource associated with that reserve. That's what that's all about, is putting in place a plan and having the development and the equipment and the infrastructure in order to execute the plan. That's what that is about. In the meantime, we'll do the exploration on the land position that Alexco has. That focus is really gonna be building off the success that these guys have had. It's been tremendous. They have in many ways, cracked the code as to where to look. There's clearly more potential at depth.
Realize that the deepest that the exploration has gone has been 250 meters, and that's been as a result of. It hadn't been a geologic limitation, it's been an infrastructure limitation and the need to have material that could be trucked to, easily trucked to the mill. So there's lots of exploration that needs to be done on the back of what, Clynton and his team has already done. Then beyond that, there is the broader exploration to the east and the west of these deposits, and that will come over time. Then beyond that, there is the broader question of other opportunities within the Yukon. So it. You know, John, this is not just an 18-month exercise.
This will be a, I'm sure, you know, kind of a decade-long exercise, much like the way we've approached, you know, all three of our operating properties. They have long-term potential, and they've got a resource base that's large enough to be able to support this long-term view.
Could you compare veins, say, to Lucky Friday, in terms of typical thickness, typical grade, and how much of the revenue would be byproducts?
Yeah, are you able to give a sort of a sense of that?
You know, certainly, Phil. I think the way I would think about this, John, is, you know, the Lucky Friday is a nice wide vein that goes around 2,500 ft of strike length, continuously. It's a relatively continuous compact mining horizon. The zones at Keno Hill tend to be shorter strike lengths. They can be wider or narrower, but also very good grade. I would say the driver on the value is the silver, although the base metal grades are quite good in some instances as well.
Clynt, anything you'd wanna add to that?
No, I think that covers it pretty well, Phil.
Okay, great. Thanks.
Your next question comes from Dalton Baretto from Canaccord. Please go ahead.
Great. Thank you. Phil, I can't help but notice the similarities in the rationale behind this transaction and the one behind the Klondex acquisition. I'm just wondering, what gives you comfort that this won't end up being another Klondex?
Well, the short answer, Dalton, there's two comments I'd make. One is, this has a reserve. Remember, the Klondex acquisition was really based on two things, the conversion of the inferred to reserve, and then that funding the exploration in the district. That exploration is still ongoing, and, you know, the story is yet to be told on the success of the Klondex acquisition. In this case, though, there is no reliance on conversion. It is strictly based on the reserve. Remember, there's 37 million oz of reserve at Keno Hill. We have in front of us, with the reserve, you know, a 10+ year mine life.
It's starting from a different starting point.
Okay, great. Thank you for that. Maybe I can ask, you know, maybe this one's for Clynton. Can you give me some context around some of the ground condition challenges that you've been seeing to date and maybe some of the water issues?
Well, before Clynt answers, I mean, that's something we certainly have spent a lot of time looking at, both ground conditions and water. We. You know, I mentioned that we've provided technical support to Alexco for the last, you know, better part of four or five months. We've had our geotechnical engineer there for a significant period of time, as well as a number of other employees. Lauren, maybe if you can start, and I'll ask Clynt to add to whatever you might say.
Absolutely. The ground conditions that we see there are actually fairly typical of this sort of deposit. We have extensive experience with the geology. We've learned over the years some means by which the ground and the sill conditions, the road bed conditions, can be managed effectively. We are looking to deploy those same proven techniques and methods that we developed elsewhere at Keno Hill. I think in the period of time that we were there doing due diligence, we were able to observe and provide some pointers and assistance. I think that we have seen some improvements in how the ground is managed. We're not overly concerned about it. This is right in our wheelhouse.
Talk a little bit, Lauren, about the water. You know, the issues that Alexco's had and what we'll be doing and, you know, this ties into the this year to 18 months development.
Right. The water is pretty consistent with respect to volume. One of the things that we noticed over the period of time that we were working on the property is that amount of volume didn't increase significantly as the development deepened. As the development deepened, the water followed the development down, and that makes the ground conditions much easier to manage in the regions above the active development. That is one of the strategies we'll employ, and that will be to be two to three sub-levels ahead of the mining front with the development in order to pull the water away from the working phases.
Clynton, anything you wanna add?
No, I think that encompasses it, you know, extremely well. Obviously, you know, Hecla's proven experience in and around these types of deposits and in these, you know, in this type of geology is, you know, pretty obvious. I think it's a great fit.
Thanks, guys. That's all for me. Congratulations.
Okay, thank you.
There are no further questions at this time. I will turn the call back over to the presenters for closing remarks.
Okay. Well, thanks very much for participating in the call. You know, obviously, if you have questions, please reach out to Anvita Patil and the rest of us, and we'd be happy to answer them. We are, you know, going to be engaged with employees of Alexco as well as the various constituencies that are affected by the mine, and we look forward to talking to those folks. Please reach out. We're anxious to let you know what we see as the future for Keno Hill, because we see it as one of these assets that's similar to Greens Creek, Lucky Friday, that we can add real value to over time. Thanks very much.
Appreciate you joining us. Have a good day.
This concludes today's conference call. You may now disconnect.