Hello, and welcome to the Q2 2019 Hecla Mining earnings conference call. At this time, all participants are on a listen only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press 5 and 0 on your touchtone telephone. I would now like to introduce your host for today's call. Mike Westerlund, you may begin.
Thank you, operator. Welcome everyone, and thank you for joining us for Hecla's second quarter 2019 financial and operations results conference call. Our financial results news release that was issued this morning before market open, along with today's presentation and the exploration release from Tuesday, are available on Hecla's website. On today's call, we have Phil Baker, President and CEO; Lindsay Hall, Senior Vice President and Chief Financial Officer; Lauren Roberts, Senior Vice President and Chief Operating Officer; Larry Radford, Senior Vice President and Chief Technical Officer; and Dean McDonald, Senior Vice President, Exploration. Any forward-looking statements made today by management team come under the Private Securities Litigation Reform Act and constitute forward-looking information under Canadian securities law, as shown on slide two and three.
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 and exploration releases, and at the beginning of this presentation. These risks could cause results to differ from those projected in the forward-looking statements. During this call, we may disclose non-GAAP financial measurements. You can find reconciliations of these measurements to the nearest GAAP measurements in the accompanying presentation, which is available on our website at www.hecla-mining.com. In our filings with the SEC, we're only allowed to disclose mineral deposits that we can reasonably expect to economically and legally extract or produce. Investors are cautioned about our use of terms such as measured, indicated, and inferred resources, which are not reserves, and we urge you to consider the disclosures that we make in our SEC filings.
With that, I'll pass the call to Phil Baker.
Thanks, Mike, and good morning, everyone. The financial performance in the second quarter was poor and impacted by several items. The team's going to be discussing this in a moment. I just want to highlight a couple of points and set the stage for the next couple of quarters. You can just follow along on some of the main points on, I think, slide four. We called out in the news release's headline the increasing Greens Creek silver production, which is due to realizing higher grades this year over plan because of newly identified mineralization. As outlined in our 43-101, over the next five years, we expect to continue to see higher than average reserve grade. Greens Creek strong cash flows in the first half of the year should be repeated in the second half and into the future.
Of course, the amount of cash flow varies by quarter, depending on prices, grade of the byproduct metals, volume, and timing of concentrate ships. That's part of what happened to us this quarter. For most of the last decade, we have consistently invested in exploration and grown reserves, which is the foundation of any mining company. Today, we have among the longest mine lives compared to peers with more than a decade of reserve life at each of Greens Creek, Casa Berardi, and Lucky Friday. We also have their resources. By having these long reserve lives, we can see how to make these mines better with new technologies that can generate returns for many years to come. An example of that is the automated haulage at Casa that is at half the cost of non-automated. We also are making discoveries that are immediately going into the mine plan.
At Casa, we're seeing that in the east mine, and Dean's going to talk a little bit about that. We can generate good value from our exploration and other investments. With Nevada not working as we had hoped, we are reducing those expenditures and others by $25 million, as we talked about in June. In fact, we are working to extract $30 million of costs. Most of it is capital exploration and G&A. This reduction, coupled with our anticipated higher cash flows from Casa Berardi, San Sebastian, and the continued performance from Greens Creek, these are all assets in which we have a proven track record operating, should increase substantially our cash flow over the remainder of the year. We're also seeing improved financial performance in Nevada.
In this third quarter, for the first time since the acquisition of Klondex a year ago, our plans show us generating more cash than we spend, so we can start deleveraging by reducing the revolver. With the anticipated cash generation really picking up in the fourth quarter, we expect no revolver debt by the end of the year, and at spot prices, it may be even better. In addition to minimizing spending in Nevada, reducing expenditures company-wide, and beginning in the third quarter, the planned reduction in our revolver debt, we are taking other steps to increase our cash and EBITDA in anticipation of any debt refinancing. One of those steps is the purchase of put options to set a floor of $15.13 and $1,400 for our silver and gold sales, respectively, going forward.
Fortunately, it looks like we're not going to have to rely on these puts, and we'll realize the higher spot prices that we're enjoying today. We are monitoring the market, however, to purchase more put options for 2020, should the cost of the puts decline. They're quite expensive at the moment. Another step was amending certain terms of our revolving credit agreement to give us additional headroom on the net debt-to-EBITDA metric through the second quarter of 2020. We don't expect any constraints on the availability from the revolver covenants, and of course, we don't expect to utilize much of any of it by year-end. Finally, we are looking towards the refinancing of our high-yield notes. As part of this, we are considering all of our options if we don't use the high yield market to refinance all the bonds.
As I indicated in June, we have a number of possible alternatives we are considering. Since that June release, conditions have improved. Gold and silver prices are higher, interest rates are lower. We believe the quality of our alternatives has improved since then, and we fully expect that within a year, we will refinance the debt. That gives you a sense of how we see things. We are implementing our plans in Nevada, recognizing it will take study like we did at Greens Creek early in its life. We are lowering company-wide costs, increasing production in the second half, realizing higher prices that are protected by puts, and all of which makes Hecla stronger by year-end. Before I turn things over to Lindsay, let me talk about management changes.
First, I'm pleased to welcome back to Hecla, Lorne Roberts, who most recently was the Chief Operating Officer at Kinross and is taking the role of COO at Hecla. Many of you will know Lorne from his time at Kinross, but for those of you that don't, he brings 30 years of mining experience, mostly underground, 10 of it in Nevada, and has good experience working in challenging ground conditions at hot mines and with mechanical mining. He has a lot of direct experience with the issues we have in Nevada at Casa and the Lucky Friday. I say welcome back because he used to work for Hecla from 1989 to 1997. We're looking forward to his contribution. Larry has taken a temporary position of Chief Technical Officer to allow transition to Lorne while keeping operating plans on track and having good continuity on our innovations.
By the way, Larry has passed off responsibilities to Lauren twice before in their careers. I want to extend my personal thanks to Dean McDonald, who is retiring at the end of September. He has been a strong leader for the company since joining Hecla in 2006 and opening our Vancouver office. He's led the team that established record silver reserves in 10 of the past 11 years, almost all from exploration, an impressive achievement when you consider the overall reserves in our industry have been shrinking. I urge you to read the second quarter results. This will be Dean's last set of exploration results that he gets to author for Hecla because of the success that we're having finding new high-grade underground at Casa and on the El Toro vein at San Sebastian.
Dean's role is being divided between two of our highly skilled people, Keith Blair, who becomes Chief Geologist, and Kurt Allen, who becomes Director of Exploration. With that, I'll pass the call to Lindsay.
Thanks, Phil. We recorded a net loss of $46.7 million, which represents an EPS loss of $0.10 for the quarter, which was higher than the market was expecting. Included in the loss was gross loss in our Nevada operations of $20 million, which included some $18 million of depreciation expense. Because Nevada has few reserves, the depreciation expense will always be greater than at our other operations. Going forward, we'd expect a run rate of approximately $14 million-$15 million for each of the next two quarters. Also this quarter at Greens Creek, we sold less base metals at lower prices and more silver at lower prices than last year. In the case of Greens Creek, the gross profit was lower for the most part because of pricing year-over-year.
Also included in the net loss was $5 million related to the write-down of the Fayolle assets, an exploration stage project in Quebec that we are selling. It was a tough quarter operationally at three of our mines, but for different reasons. Base metal pricing in the case of Greens Creek, Casa, some milling issues, and at Nevada, just not seeing the gold ore grades we expected. Turning to EBITDA for the quarter, we have calculated adjusted EBITDA of $22.9 million, some $30 million less than the prior year's quarter, again, for the reasons consistent with the net income variance. Lower operational results at Casa and Greens Creek were responsible for the lower EBITDA. We also calculated a debt-to-EBITDA ratio for the 12 months ended June 30th to be 3.9 times.
With the pause in Nevada on most capital expenditures, additional revenues from higher commodity prices, and if we improve the achievements, improvements in the operational performance, we expect this ratio to improve in the coming quarters. We have worked with our syndicate of banks to relax the net debt-to-EBITDA ratio while we assess our options to refinance the bonds, which Phil has spoken about. Our draw on the revolver today is some $85 million, with $15 million of cash in the bank, we expect to reduce that net number of $70 million drawdown to $35 million by the third quarter and reduce it to zero by year-end.
Lastly, we finalized the purchase price allocation for Nevada this quarter at an accounting value of $485 million and undertook a carrying value assessment given the changes we have currently implemented and concluded that a write-down on these assets was not triggered at this time. Overall, it was a tough quarter, but we are taking the necessary actions on a timely basis that we think will improve our financial position. We expect to be cash flow positive over the next couple of quarters, so we are on the right track. With that, I'll pass it over to Larry.
Thanks, Lindsay. We've made some changes to our annual estimates by increasing our silver production estimate, and we are maintaining our gold production estimate. Going to slide eight, we have made significant changes to Nevada operations, as announced in early June, in order to reduce the cash flow impact of the operations while we work through a number of issues. As described on slide eight, we have nearly stopped all development. Our plan is to mine out Fire Creek by the middle of next year and are exploring options to extend its life further. Among the issues we face in Nevada's water, keep in mind that we're not overly concerned with the amount of water, which is very small by the standard of Nevada mines. We are more focused on ensuring that our permits are sufficient to match the expected water outflow. We are permitted to discharge 100 gallons per minute.
We have approval from the Nevada Division of Water Resources to increase this rate to 162 GPM. We expect approval from the Bureau of Land Management for this increase in the near future. The mine is currently discharging about 90 GPM, most of which is treated and is discharged or evaporated. Some water is low in contaminants and can be discharged directly without treatment. As the mine expands north and south, more inflow is expected. The mine models are in the process of being refined, but we expect inflows of approximately 300 GPM. We are working on getting a non-consumptive water right of 1,000 GPM. The process of obtaining this water right is expected to take 12 months. Also in Nevada, we continue to work on a toll milling agreement for Fire Creek ore. Why is it important? It could mean lower trucking and processing costs.
It could mean the ability to process all types of ore, all of which could enable a reduction in the cut-off grade, opening up areas of the mine that were considered uneconomic. If this happens, we can turn on the development to these areas quickly and get them back into production. For the full year shown on slide nine, we are raising our forecast to 62,000 ounces. Although there is risk in this estimate, principally ground conditions, which can be quite variable, I believe it is a reasonable estimate due to steps that we're taking at Fire Creek, which include decreasing development, and the stope development is expected to be largely complete in September. The all-in sustaining cost after byproduct credits is projected to be under $1,000 for the second half of the year.
I'm also pleased to report that the Midas Mine is receiving a first-place safety award for small underground mines from the Nevada Mining Association in September. Moving on. Greens Creek continues to be the main cash flow driver of the company on slide 10. Greens Creek silver production is up as several high-grade stopes extended further than we had anticipated. We are increasing our estimate for silver production to nine million ounces this year, and base metals production is down, so the net benefit is positive from a value point of view. The cash costs and all-in sustaining costs after byproduct credits have increased because the value of the byproduct metals has declined. This happens once in a while, and this is one of those quarters. We increased the cost estimates this year a bit to reflect this.
Moving to slide 11, the production challenges from the first quarter at Casa Berardi spilled over into the second quarter, which has kept production from fully recovering. The principal issue has been mill availability. Pre-crushing of ore began in July and is planned to continue until year-end. We expect an additional 400 tons per day and several thousand ounces from this initiative in the second half of the year. We also expect grade to improve by 10% in the second half. Moving to Lucky Friday, we have raised our production estimate for Lucky Friday, which is still a relatively small amount but is helping to offset some of the costs of the ongoing strike. In addition, the fabrication of the remote vein miner is complete, as you can see on slide 12. The unit looks great, as you can see in the photo.
The focus now turns to operating it in Epiroc's test mine in Sweden in the third quarter. Pending successful testing, the plan is for the unit to be disassembled and sent to Lucky Friday and is expected to arrive in the second quarter of 2020. Moving to slide 13, San Sebastian is on track. The Hugh Zone bulk sample shown on this slide is on target, and the contractor should begin the longhole mining trial soon. Exploration drilling at El Toro is encouraging. As El Toro permitting is on the critical path to a continued operation, we are beginning the baseline work now to minimize any production hiatus. Hecla has an option on Golden Minerals' Velardeña mill, where we process the oxide material through 2020. Although Golden Minerals has announced the potential sale of its subsidiary that owns the mill to Outland, a Mexican mining company, our option remains valid.
Although we are only beginning our budgetary planning for 2020, there are three new developments at Hecla that give me optimism. First, the plan to move high grade forward in the mine plan at Greens Creek hits full throttle in 2020. Second, the Casa Berardi drilling success in the 148 and 152 zones that Dean will cover has potential to be brought in as additional production in 2020. Third, the El Toro exploration that Dean will also cover has the potential to extend San Sebastian production. Finally, a personal note. I welcome Lauren to Hecla. We worked together in both Barrick and Kinross, and I'm gratified to be handing off to a seasoned professional. This is my eighth year with Hecla, not counting when I worked at the Star Mine as a miner in 1981.
Since joining Hecla, we've added mines, increased consistency and performance, and introduced many innovations that have improved safety and productivity. As I hand off to Lauren and begin contemplating retirement after 36 years in the business, I look back with satisfaction on the work that the Hecla team has done. I will now pass it to Dean.
Thanks, Larry. Although exploration budgets have become more constrained, we continued to have good success in the second quarter with drill programs at and near our mines. Where we are confirming and expanding resources with the potential for increasing reserves in the near future. A list of important drill intersections is provided in the appendix of the exploration release, which was issued on Tuesday. At Casa Berardi, we had considerable drilling success along the main trends, as shown in slide 15. Three areas of note are the cluster of high-grade underground resources at depth in the 113 through 123 zones in the west mine on the left side of the image. In the central part of the slide, high-grade lenses defined closer to surface in the 124 and 128 zones are below and east of the principal pit.
In the east mine, the expansion of the high-grade 148, 152, and 160 zones. A notable success is the quick evolution of the east mine. Access to this part of the mine was only reestablished about six months ago, already drill results, as shown in slide 16, have defined and expanded a series of high-grade lenses extending from the 148 zone, along a strike length of 2,000 feet to the 160 zone. High-grade lenses in the 148 zone average over 10 feet in width and appear to persist further east to the 160 zone. Also present in the 160 zone are drill intervals up to 30 feet wide with good grade that may be amenable to more bulk mining methods.
At San Sebastian, as shown in slide 17, surface drilling is pushing hard to extend near-surface oxide mineralization along the El Toro vein, which is about a mile and a half south-southwest of the current mine. The longitudinal shows the vein has a mineralized strike length of 5,000 feet, and localized high-grade pods are located between the surface and 450 feet of depth. There is a substantial increase in the width and grade of the vein, where a strong hanging wall vein intersects the main El Toro vein. Both veins remain open for expansion. Significantly, as shown in the cross-section in slide 18, this hanging wall vein appears high grade and merges with the main El Toro vein at depth as well as along strike.
Although both veins have additional exploration potential, the current combination and configuration of veins look attractive and are being evaluated for a number of mining scenarios. The El Toro area may provide an extension of oxide mine production past 2020. It's sometimes easy to forget about Greens Creek because it's so robust and dependable, but drilling continues to upgrade resources in the upper and central part of the mine, as seen in slide 19. Recently, exploration drilling has begun to evaluate extensions to the south. The opportunity to continue to extend mine life at Greens Creek is readily apparent, and some of the stronger trends are defined with the red arrows in the slide. Surface drilling has begun south of the Fire Creek mine in the South Notice Area to evaluate a series of strong geophysical targets that resemble the geophysical features of the veins already being mined.
At the Hollister mine, important surface drilling is about to start as we begin drilling east of the current Hatter Graben resource. We're confident we can make the Hatter Graben substantially larger. This was recently reinforced by the discovery of outcrop along trend, over one mile east of the current Hatter resource, as seen in slide 20, of a very prominent silicified dike with veins that are reminiscent of Hatter mineralization. Over the last 13 years, I've worked with a great exploration team that has been very effective at leveraging our budget to sustain and grow the reserves and resources throughout that period, regardless of commodity prices and fluctuating budgets. I am retiring, our succession plan has been in place for a number of years, and I believe that with Kurt and Keith and the rest of the exploration team, the successes will continue.
With that, I'd like to pass it back to Phil.
Thanks. Thanks, Dean. Why don't we go ahead and open the line for questions, operator?
Ladies and gentlemen, at this time, if you'd like to ask a question, please press star then the one key on your touch-tone telephone. That's star one for questions. If your question has been answered and you wish to remove yourself from the queue, you may do so by pressing the pound key. Our first question comes from the line of John Bridges with J.P. Morgan. Your line is open.
Morning, Phil, everybody. I guess the elephant in the room is still the refi. You mentioned that your options have become higher quality as a result of the higher metal prices. Could you give us a bit more color as to the extent to which things have improved and to which avenues you're most focused on?
John, at this point, we're still considering all options. We're not, at the moment, focusing on any one. The initial thing to do was to make the changes that we've made in Nevada and start to generate the free cash flow. You'll see that over the course of the next couple of quarters. On the back of that, we would expect to do something, all options as to how we might handle the refinancing are on the table. Lindsay, anything to add?
No. I'd say, John, a little bit is just high-yield market's a little bit more positive today than it was maybe a few months ago. We see that as a positive as an avenue to refinance the bond.
Yeah. Our bonds are, I don't know, trading at a yield that's maybe four percentage points better than it was two months ago. We're going to give things a little bit of time, I expect. Having said that, we'll wake up and be conscious of what the market's doing and be prepared to move quickly if it makes sense.
Okay. Perhaps as a follow-up, the water situation. What's a non-consumptive water right? Is that you buying a ranch that you can put water onto like some of the others in Nevada?
No, it's not, Larry.
No, it's basically because as it is described, you're not consuming anything. It's a government-awarded water right.
Okay. If I may squeak in one, the toll treatment, do you have refractory material you can see that would go into a toll treatment or is this positioning ahead of what you're going to find with current drilling?
Yeah, we're aware that we have material that would be great feed for an autoclave or a roaster. We just see it as an opportunity. Larry, go ahead.
Yeah, there is one heading that's the north end of Spiral Three. It's the far north of the mine that is in high material with a high sulfide content. In fact, we've sent some of it out for testing and to third parties for their evaluation.
Okay, thanks. Dean, best of luck in your new endeavors. Thank you.
Thanks, John.
Thank you. Our next question comes from the line of Matthew Fields with Bank of America Merrill Lynch. Your line is open.
Hi, Matt.
Phil, hey, Lindsay, and everybody. Congratulations, Dean, on your career, and good luck. I don't know if I heard it correctly. Lindsay, did you say early on the call that there was $70 million drawn on the revolver as of today?
Yes, that's correct, Matt. Net.
Okay.
$85 less $15 cash on the balance sheet today.
$85 drawn less $15 of cash?
Yes.
Okay. As of quarter end, there was $52 net, meaning there was more drawn, less $9.5 million of cash? I don't understand the net drawing.
All we do is take the cash. The draw less the cash is what we call the net. If you use 52 to 70, that's the increase in the net draw.
Okay.
Between June 30th and today.
If you printed a financial statement today, it would say $70 or $85?
85 on the drawn, $15 million of cash.
Okay, thank you. I'm trying to work through the second half, because if you're going to have nothing on the revolver drawn, that means a free cash flow generation of at least $52 million. Even at $1,500 gold and $17 silver, and with the higher production at Greens Creek, I still don't even get you close. Is there an asset sale baked into your expectation?
No, there's no asset sales. There's no financing. It's all free cash flow generation from the mines.
Let's just work backwards, because if we're at $52 of cash flow, if your guidance for CapEx is $138, that means you have $67 of CapEx to go. You have about $20 million of interest. That means you need $139 million of EBITDA over the second half, roughly, to get $50 million of free cash flow. Am I missing something?
I think those numbers are right. Sorry about the background noise.
Okay. Great. Is the message that the CapEx guide of $138 is too high and you're going to cut that significantly?
Nope. No.
Is there no big working capital release baked in here?
No, there's just normal sort of working capital changes.
Okay. All right. That's it for me. Good luck.
Okay. Thanks, Matt.
Thank you. Our next question comes from the line of Jake Zukowski with ROTH Capital. Your line is open.
Hey, guys. Thanks for taking my questions.
Hi, Jake.
Just looking at Greens Creek and with the mine sensitivity to base metal prices, have you put in place or have you put much thought into putting some hedges back in place on those base metals to sort of smooth out some of that out, especially given the recent run in prices?
To put additional hedges in? Well, we periodically put in hedges. Typically, they're at higher prices than where we are now. Are you able to hear me?
Yeah.
Okay. If you look at the hedges that we've put in place, for the most part, the zinc hedges have been roughly $1.25 per pound.
Yep.
Lead hedges have been roughly $0.95 per pound or higher. When we think about when to put in new positions, generally speaking, we are not putting in positions when we think the exposure to the downside is less than the opportunity to the upside. Jake, I think it's unlikely that you'll see us put in many new positions.
Okay.
At these prices.
Fair to say you'd like to see prices a little bit higher before you set that?
Yeah, while we see prices could go down some, we're not inclined to lock in these levels.
Fair enough. Just on the exploration front, the El Toro vein at San Sebastian sounds like it might be a source of some more oxide material there. I know it's early, but can you maybe just provide some color on what you're hoping to see regarding timing and maybe even costs in developing that?
Dean?
We're certainly still working on costs and evaluating both open pit and underground scenarios. When we look at in terms of permitting and acquiring the land, it's probably about a one-year timeframe. We're looking at that one year and slightly beyond for, be it open pit or underground.
Got it. Okay. That's all from my end. Thanks, guys.
Thanks, Jake.
Thank you. Our next question comes from the line of Cosmos Chiu with CIBC. Your line is open.
Hi, Phil and Lindsay, and thanks and good luck to Larry and Dean. Maybe first off on the Casa Berardi here. Looking at your production the first half, as you mentioned, you'll need a better second half to hit guidance. Could you give us a bit more color in terms of the higher grades coming out? Historically, I guess, as you go deeper into the mine, it would be higher grade. Which zones is in the mine plan for the second half? Is it 118, 123? What is it?
I believe it's 123. I'll look it up right now.
We'll look that up, Cosmos, as to exactly what
Okay.
just to be clear, depth does not seem to suggest higher grade or lower grade, right, Dean?
No. Really what happens, I think, in general, Cosmo, is you get into these specific zones, and as you know, they have fairly short strike lengths, but the down plunge direction is what's critical. With the 128, and we've been mining that off and on for the last few years, that tends to be a high-grade zone with good recoveries. Not unlike what we're seeing now with the 148 and 152 zones.
Larry, so in the first half, which zones did you mine? Again, what are you mining in the second half?
Well, it doesn't really change first to second half. It's just, there are just basically stopes that are taken in sequence that come out higher. We could mine them earlier if we chose to, but we'd end up sterilizing something.
Yeah.
Was the lower grade in the first half more or less planned? Is that what you're telling me, Larry?
It was absolutely planned, and it's also worth noting, Cosmos, that the open pit has higher grade in the second half as well.
The plan has always been higher grade during the course of the year. The thing that was not planned was lower tonnage that we had in the first half of the year. That was where we had the shortfall. As we've talked about in previous calls, it started as a problem that came as a result of the new crusher that we put in, and as we had to then modify the mill. Those modifications have been completed, and we now have an in-pit crusher to try to catch up.
Yep.
Larry, anything to add to that?
Yeah, I just took a quick scan through what I call double-digit stopes, where we're above 10 grams. It's not one particular area. There's 123, there's the principal of 124 area. They're just in sequence that they come out later in the year.
Mm-hmm. Great.
It's the same zones we mine through all year.
Could you remind me right now, is there anything coming out of the East Mine at this time?
No.
Nothing yet.
There's no production.
Okay.
Remember we just reopened that six months ago.
Yeah. Okay. If I remember correctly from, I've covered Casa for a long time. The East Mine, in the past, they've had issues in terms of ground conditions, especially with graphite. During your exploration and your exploration program at this point in time, is that still sort of an issue?
Well, that was an issue for east and west, and it's really what Aurizon solved. That was sort of the big success that they had, and we've just furthered that and improved upon what they've done. Now we're going to apply it to the east mine. Larry?
Yeah. The graphite fault extends the full length of the operation, and we have a very disciplined approach to going through it.
It's short round and spiraling and shotcrete and very procedure oriented. We've changed our approach to how we access the stopes now. The stopes used to terminate up against the graphite fault. We're mining the other side, so we only have to go through it once.
That's not a development. It's been managed through the years very well.
Mm-hmm. Yeah.
I guess, taking a step back here in terms of the overall cost guidance for the year in 2019, as you touched on it, I just want to confirm, I guess the silver all-in sustaining cost guidance increased due to byproducts. How about the cost increase for the gold segment?
With respect to the silver, you're absolutely right. It is the fact that we have lower volumes, lower prices for the base metals that has caused that to increase. For the gold and aggregate, I thought we were just slightly higher, and it's a result of the higher Casa Berardi for the course of the year.
We just are not able to maintain that guidance for Casa.
I guess going back to a previous question here in terms of the hedges, I have two questions on the hedges. Number one, you talk about the gold and silver hedges. I just want to make sure, Lindsay, is it so substantially all of the production for the rest of 2019 into the early parts of 2020, now there's a floor of $1,400 an ounce and $15.13, I believe. Is that the case, like substantially all?
Yep. That's correct.
Okay. How much did that cost? Was it expensive?
Well, it always seems expensive, particularly when the prices are $100 higher than that.
I think doing everything was about $12 million or something like that.
Yeah. That was my understanding as well.
Did you consider, like, a collar or you didn't want that cap to the upside?
Correct. We didn't want the cap. The way we look at it is that cost, or at least the way I look at it is that cost is well worth paying. You can afford to pay when you have higher than those prices, right?
I would rather lose that cash and realize what's turned out to be significantly higher prices than we could have gotten in a collar-
with the same put strike. I have no issue with the fact that we've had to pay that price and retain the upside.
Yeah. I guess moving to the base metal hedges. Someone else asked a question, but right now it's about 13%, I believe, of your base metal that's hedged. Clearly, base metal prices have been a lot more volatile than precious metal prices. Phil, as you mentioned, at this point in time, you wouldn't consider putting on more base metal hedges. At what point would you consider it? Because that was part of the reason why you've had to increase your own sustaining cost guidance as well at Greens Creek and overall for silver.
At what point would we put new hedges in?
Yeah. Is there, like, a target right now? It's about 13%. Would you want it to be higher than 13% of your production being hedged?
I'll let Lindsay answer as well, but my view is, the likelihood of significantly lower lead and zinc prices for a significantly longer period of time is pretty low. I do expect that they're going to go down some over the course of the quarter, but we're not trading the base metals hedges. This is really just to protect ourselves. I don't see us putting in a lot of positions at these prices.
No, I'd say, Cosmos, I'd just go back to 2018, what we did. You kind of saw the prices edging at 2018, and if we like the prices, we'd hedge more. At these prices, kind of uninteresting to us, as Phil alluded to, like, downward pressure is probably not that great. We're fine with where we're at, but we like to hedge things, but not at these prices and go back to 2018 to see what we did.
Certainly should prices decline, you could see us unwind the hedges. You've seen us do that before as well.
Mm-hmm. Yeah, for sure. Maybe one last question from me in terms of the line of credit. You drew about $50 million on that line of credit, I believe $85 as of right now. In the past, my understanding was that you needed that line of credit for working capital purposes at Greens Creek between production and shipment and payment. I guess clearly that was not 100% of the case in Q2. I'm just wondering, do you still need that line of credit for that purpose as we look into the second half of 2019?
Well, our expectation is you'll see it decline during the course of the third quarter, and then by the end of the year, that it will be unutilized, at least close to it if you net it against the cash.
Do we need to have some level of either cash or a line of credit to deal with the lumpiness of Greens Creek? Absolutely. What we would expect is, toward the end of the year, start of next year, that it will be cash that we'll be relying on rather than the revolver.
Mm-hmm. Great. Thank you. That's all I have.
Okay.
Thank you. Our next question comes from the line of Heiko Ihle with H.C. Wainwright. Your line is open.
Hey, guys. Thanks for taking my questions.
Sure thing, Heiko.
Most of them have been answered because some people decided to ask five questions in the queue here. Just, I apologize for bringing up the hedges again. I know I'm the third person in the Q&A to do so, but you guys called it a short-term floor for silver and gold prices in your release. Your current hedge goes through Q1 2020, so something likely gets done, call it next quarter or maybe even this quarter. We crossed $1,500 gold today. Silver's at $17. At what point in time, if ever, would you ever be looking into a costless collar?
The thought being, say you get yourself $150 in upside, $150 in downside, it costs you more or less nothing. You're still pulling in the money to keep your balance sheet safe.
You never would say never to that, but I'm very reluctant to sell upside because if I can buy it and lock it in, and I can do it at the highest price possible, then I would prefer to do that. You just see the precious metals prices move dramatically, and nobody can predict it, that you're going to have that increase. I think probably two weeks ago, three weeks ago, there weren't very many people thinking the price of silver would be $17. I think we would be short-changing our shareholders if we were to sell that upside. I'd be reluctant to do it, but Lindsay and others could convince me.
I align with my boss, Mr. Baker, on this. Couldn't have said it better.
Fair enough. In Nevada, any estimate how many people are currently actually working at the sites? If you can break this down between Fire Creek and Hollister, that might be useful as well. Following up on that, any idea how many people are going to be there, call it December 31st?
Well, we really don't have people working at Hollister, to speak of. Larry, where are we with Fire Creek?
The total headcount is 163 in Nevada right now. There's a handful of miners at Midas doing some remnant mining there. Nearly all of the effort's at Fire Creek right now. Well, actually, we've brought in a few temp employees because we're still filling at Fire Creek, and we will be filling for another two months. We have had attrition. Once we finish that filling, then we should be pretty well right-sized. As far as attrition and concern about it, we still have enough electricians on site, but that's the area that we just need to keep an eye on and make sure we have enough of.
Okay. Just, sorry to bring this up again. You said there was essentially no one at Hollister, so it's what? Five people? 10 people? 20 people?
At Hollister?
Yeah.
It's just caretaking.
Because remember, we've stopped development, so we're drilling from surface.
Treating water. It's just basically caretaking.
Remember, Heiko, we're just pausing, as we talked about in June. We're fully committed to Nevada, but what we thought we could do, we were not able to do. We're taking a step back, and we're making sure we've thought through how to proceed with Nevada. Nothing has changed in terms of our view of the value there. Don't misinterpret the fact that we're not actively mining there, that there's any lack of commitment. The important thing at the moment is to make sure we have our balance sheet in place. The reserves, the resources, the exploration potential is going to still be there. We're just having to delay the time that we're realizing that.
No worries. Excellent. I'll get back in queue. Thank you.
Thanks, Heiko.
Thank you. Our next question comes from the line of Anthony Sorrentino with Sorrentino Metals. Your line is open.
Good morning, everyone.
Good morning.
Good morning. With regard to Nevada, you had mentioned that you looked at the asset values over there at Nevada and decided not to write them down. Was that just your decision, or did accounting rules and regulations prohibit you from writing down the value?
Yeah, that's absolutely right. You got to follow the procedures provided for in GAAP, and that's what we've done, and this is the outcome that we've come to. Lindsay?
Nope. No, we followed the regulations under U.S. GAAP in assessing it.
Okay, very good. My other questions have already been answered. Thank you, and best of luck to Dean.
Thank you.
Thank you.
Thank you. Our next question comes from the line of Adam Graf with B. Riley. Your line is open.
Oh, thank you. Hey, Phil, Lindsay, Dean, and Larry. Thanks for taking my question. Most of my question's been asked. Just a quick confirmation. The access in Nevada from Hollister over to Hatter, the progress on that access has been halted?
That's right. We've halted that. We've set it up for being able to go back in and complete it, but we're going to manage our cash flow to make sure that we hit the numbers that I talked about earlier in the call.
All right. The exploration slide that you guys showed over at Hatter with the outcrop. Am I understanding correctly, you guys think you can extend the known veins at Hatter over to the east, or you think you found something separate, a parallel or a faulted off system there that has some surface expression?
I'm not sure we know exactly what we've found. We just know that that's an exciting thing to see as far away from Hatter as it is. Dean,
Yeah. What we do know, there has been a few historic drill holes between the Hatter Graben resource and the outcrop that's in the presentation. We have a bit of information. It's certainly a long trend. That it's a fault offset of one of the Hatter veins or if it's something parallel and completely new, we really don't have the information to say that categorically. It's certainly part of what I would suggest is the Hatter system.
Is the thought there on the exploration strategy to start on the east side of what you know, at Hatter and sort of just start working your way over towards that outcrop with widely spaced drill holes?
That's exactly it.
At this point, we don't have a plan with respect to the outcrop that we've seen, we're still getting assays and still trying to evaluate what it is. Then we'd have to find the budget to spend.
Yeah. Certainly at this point, the intention is go from known to less known.
Mm-hmm. Just sticking with Nevada for a moment, do you guys have any guidance or expectations roughly for the mining cost per ton at Fire Creek in the second half, a ballpark?
It's roughly $300 a ton. Pretty rough.
Is there any future thought there, when you guys have operations back to where you'd like them to be, where that mining cost would be?
That's really the question that we have to answer. Certainly toll milling is something that could have a big impact, given that we've got that large Midas mill, the cost per ton is quite high to mill it. Of course, Lauren has joined us and Lauren has quite a bit of experience in Nevada, so maybe he'll have some ideas as to how to improve the cost picture at the Nevada operations.
Just to be clear, that $300 per ton, that's just the mining cost at Fire Creek, not the.
That's right.
not including milling or anything else.
Yeah. Milling and transportation, in the second quarter was about $100 a ton. Do you have something, Lindsay?
Any effort to or any thoughts about getting outside ore to toll mill through Midas?
Yeah, that's something that we've contemplated and certainly as prices rise, there's probably going to be more opportunity to do that. We also have another mill in Nevada, and the Aurora mill, and we've had people that have approached us to toll mill through that facility.
We're working through some of those things as well.
Are any of those near-term opportunities or are those all longer-term?
No. Look, I wouldn't put value in it, other than just optionality, and it just shows the sort of options that we have. It's a lot more than maybe people realize.
Just, if you guys permit me, just one more question on El Toro in Mexico. I know in the recent past, San Sebastian, you guys have been happy to have San Sebastian be free cash flow neutral. Does El Toro give you the potential to throw us some significant cash flows there, like San Sebastian in the earlier days?
Yeah. First, I'll just say our expectation for San Sebastian is it's going to generate a fair amount of free cash flow in the second half of the year, particularly the fourth quarter. As far as longer term with El Toro, it's still early days to be able to say what that's going to look like. We're doing the mine planning now. Clearly, we're excited about its potential to maintain oxide production, but we're not going to do it just to maintain it. We're going to do it because it generates returns. We see the potential for that. Now, can it be as good as San Sebastian was in 2016? That's probably unlikely. That year, San Sebastian generated $80 million in free cash flow, so we're not expecting that. You never know, right, Dean?
All right, perfect. Thank you so much for answering my questions.
Thank you. Our next question comes from the line of John Tumazos with John Tumazos Independent Research. Your line is open.
Hi, John.
John, thank you for taking my question. Trying to phrase this in a way that you can answer, maybe I'm not clever enough to do that, but if you refinanced with a public bond, would a guess be that it might be 9%? If you refinanced with a bank, might it cost 6%? What can you guide us for our spreadsheets for the financing cost in 2021 and 2022 for the new instrument?
I think the best thing I can do is just tell you to look at where the bonds are trading and maybe look at some of the other precious metals companies. It appears to me at the moment, you're talking about something with an eight handle. Of course, interest rates seem to be declining, and the outlook seems to be pretty good to see further declines. I'll let you add to it. Then as far as the banks go, to the extent it's floating rate debt, it could be quite low. Certainly that 6% or less. Lindsay?
Yeah, I would agree, John. There's other bond bids like ours trading out there, that gives you an idea what we could enter into the market today. To some extent, like I say, below a nine handle. Tenor is getting more interesting than it was maybe two months ago, too, as well. The tenor of what we can raise.
There was a financing that printed earlier this morning. Pure Gold did $90 million with Sprott lending to restart the Madsen mine in Red Lake. I think the financing had more tentacles than I have fingers. The main part was about 6% over LIBOR, and part of it was $25 million of the $90 million was a stream. You're saying you're not going to have more tentacles than fingers, and there's not going to be a stream, and it's not going to be six points over LIBOR.
Simplicity is a great thing, John.
Yeah, I believe that, too. Thank you and good luck.
Okay, appreciate it.
Thank you. At this time, I would like to turn the call back over to Phil Baker for closing remarks.
Well, thanks very much for participating in the call. The thing I'm struck by probably more than anything is that about two months ago when we talked last, we had a plan that we needed to execute. We're well on our way of executing that plan. In the meantime, we've seen precious metals prices rise dramatically, and we've seen interest rates decline. The outlook for Hecla, I thought it was okay, good two months ago. I think it has improved dramatically over the course of those last two months. We appreciate you following the company, and we would encourage you, if you have any other questions, to give Mike or I a call, and be happy to walk through that. Thanks for taking the time. Talk to you again soon. Thanks.
Ladies and gentlemen, that concludes today's call. Thank you for participating. You may now disconnect. Everyone, have a wonderful day.