Okay. Good morning, everyone. This morning, we have Hecla Mining for a fireside chat. Good timing for that, I think, given the recent strong performance in the silver price and gold price for that matter. Here this morning, we have Phil Baker, President and CEO. Phil?
Stephen, great to be with you. I'm actually speaking to you from Belize. I am here with my sons, celebrating my son getting married in a month. It's good to be with you. I appreciate being able to do this remotely like this.
Yes, and congratulations.
Thanks.
Phil, let's just kind of dive right into it, with some Q&A. Just to start off, can you kind of run through some key accomplishments at Hecla in the last couple of years, and what your key goals are for kind of the next two-year timeframe?
You know, Stephen, when I think about the last few years at Hecla, and I think about the future, the thing I'm really struck by is the growth that we have had. It wasn't too many years ago, we were at roughly 12 million ounces of silver. This year, we will be at 17 million ounces, and I would expect in the next couple of years for us to be at 20 million ounces of silver. You know, that clearly puts us among the two or three largest silver producers in the world. You really have just Fresnillo and Pan Am that are larger producers than we are. So it's really that growth, and it's growth in really great places, great assets, high quality, high margin growth.
At the same time, we've been able to maintain our gold ex-exposure. We have our mine in Quebec. We're able to grow the silver, maintaining our gold, and I think really provide a unique investment vehicle for investors interested in silver.
Okay. You know, and obviously investors do have a handful of silver stocks to choose from. What do you think differentiates Hecla from those other silver miners?
You know, it's really a lot about being a U.S. and soon to be a Canadian producer. We produce about 40% of all the silver that is mined in the United States. There's not many things in the world that one company produces 40% of something from the U.S. I think we will probably, year after next, maybe produce 40% of all the silver produced in Canada as well. You know, these two countries, you know, when you think about things from an ESG perspective, these two countries really have the best ESG environment of all the places that you can produce silver. You know, you think about where else people mine silver, it's Mexico, it's Peru, and it's China.
That makes up over half of all of the silver production in the world. It's that. It's where we operate. It's the assets that we have. All three of our silver assets and our gold asset are all long-lived assets. They've been around for a long time. Each of them are in areas where there's been multi-generations of activity, mining activity that has gone on. It's really important because you really develop the relationship with the communities. I, you know, mentioned ESG on a sort of a country-wide basis. If you think about it on a community basis, you really build the relationships on the, in the communities, and you really have acceptance and buy-in of the activities of the company.
Most of these places, we are the largest private employer in the community. We really make a big difference. And the assets are of extremely high quality. You know, the most recent asset we've acquired in the Yukon is probably the highest grade silver asset in the world. You know, Greens Creek, Lucky Friday have been around for such a long time because they are such high quality assets, high grade assets, and they're long-lived. You know, as I said, very long-lived, but be more specific, you know, these are 10, 15+ year assets, and these are assets that have been in production, in the case of our mine in Idaho, 80 years. In the case of our mine in Alaska, 30 years. Very long-lived, low cost, great jurisdiction, and growing.
That differentiates us from really our peers.
Okay, great. Let's dive in a little bit into those assets. you know.
Sure.
You mentioned Greens Creek. This has been your cashflow engine over the years, and remains among the lowest cost primary silver mines in the world. You've made a number of kind of incremental improvements to the mine since the 2008 acquisition of the remaining 70% of the project. Can you talk about some of those improvements?
You know, let me just tell people where Greens Creek is. It's actually in Southeastern Alaska. It is in this capital of Alaska, Juneau. It actually is located in that municipality. It was put into production. The development happened in the late eighties. It was a joint venture by Rio, what became Rio and Hecla. You know, to be frank, we struggled with it early in its history. Some of these great assets take a lot of effort in order to make them successful, and Greens Creek is one of those. When you have success at a great asset like that, you have extraordinary success. Since 2008, when we were able to acquire the 70% that Rio owned, the biggest thing we've done has been to drive the throughput up.
It is, it has been just a continual incremental improvement in the amount of throughput. On top of that, even with more tons going through the mill, we've been able to increase the recoveries and increase them substantially. We've taken this mine from being a sort of a $6 million-$7 million ounce producer to an $8 million-$9 million ounce producer, and now we're at sort of a $9 million-$10 million ounce producer. As a result of that, we've had extraordinary amount of free cash flow generation from the mine. I think since we have operated it, I wanna say it's produced about $1.2 billion of free cash flow. It has been, it has been extraordinary asset for Hecla. It's not over.
It's the future of the mine is continued to drive incremental improvements in the mine. I wouldn't anticipate large increases in the production of the mine, but I would expect to see better costs, better margins as we implement lots of new technologies, as we continue to improve the recovery. Just, you know, over the last couple of months, or I guess it'd be about six months, we've made some changes to our gravity circuit, where the amount of gold that's being reported from gravity has increased about 35%. That's huge in terms of the sorts of recoveries that we get from gold. Which by the way, let me just say, in addition to silver, we do produce about 45,000 ounces-50,000 ounces of gold. We produce lead and zinc.
We are the third, as a company, we're the third largest producer of zinc in the United States, primarily as a result of Greens Creek. We're also the third largest producer of lead. That's really more due to the Lucky Friday, but Greens Creek does produce some lead as well. Really exciting what has happened at Greens Creek, and we're still on a path of continuing to improve that operation. Looking at how to implement autonomous activities in the operation as we get deeper into, you know, further away from the portal.
Okay, great. What do you see as kind of an ultimate upside in production there at Greens Creek?
Look, I, again, continue to think of it as an, again, a sort of 8, 9, 10 million ounce producer for the next, you know, 15+ years. You know, continue to think of it as having the same sort of strong underlying cash flow. As, you know, maybe we'll talk about later, we expect silver prices to do extraordinarily well. You know, Greens Creek will not just generate the sort of cash flows that we've seen in the last few years, but you could see doubles and tripling of that sort of cash flow 'cause every incremental dollar goes right to the bottom line.
Okay. You know, whereas Greens Creek has been kind of the steady producer, Lucky Friday has.
It's been a growing producer.
Yeah. Contrast to that, I guess, is Lucky Friday, which is has really seen some improvement over.
Yeah
... three, four years. you know, you've gone from 3.6 million ounces in 2021, 4.4 million in 2022, and now you're projecting just under 5 million in 2023. Can you talk about how this increase in production has come about? Talk a little bit about the new mining method that you've pioneered for this asset.
Well, you know, Stephen, the new production, the increased production really becomes a function of a change in the work rules that we've had at the Lucky Friday. You know, we had a period of time where there was a strike with the union and, you know, the union went on strike and what it was all about was work rules, was how do you operate? We went from really a minor, sort of managed mine to a management managed mine. It was quite a struggle to get there, but we got there.
What it allowed us to do is to continue to implement a solution to a problem that we identified, oh, well, frankly, it's been around for the existence of the mine, and that is this mine is quite deep, and the seismicity is pretty, you know, it's as seismic as you get in a mine. Over the years, Hecla has developed new technologies that has made this mine better. Last time we had a major change in the way we mined was in the late 1980s. For the last 40 years, that has been a relatively successful way of mining at the Lucky Friday.
In 2015, we had an aha moment where we said, "Geez, this is getting more difficult, and so what do we do?" We started down a path of doing a continuous miner where we were taking out small bits of rock at a time so that you didn't have the energy going into the rock that could create these seismic events. In that process, we actually came up with a drill and blast mining method that we call the UCB mining method. That's Underhand Closed Bench. Essentially, what we do is we have an top cut that is under engineered fill that we then drill what you might consider long holes, and we do it over a distance of about 300 ft.
Because of the blasting technology, we're able to be assured of the blast, and we're able to be assured that we're getting the fragmentation that we need. What happens is when we do this blast, which is 10,000 tons at one time, this material swells up into that open cut, and then we're now emptying that open cut. We go and empty the next cut after we have backfilled with a paste. We have an engineered paste above our head. I was at NIOSH, which is the old Bureau of Mines at their laboratory in Spokane, Washington. We were looking at the fill and how do we improve the fill. We're constantly looking at how to improve.
In any case, we then will mine that second cut and backfill it, and then we will have a, we'll repeat the process. The result of all this is that the mine is able to operate now at, we should be at 1,200 tons a day compared to 800 tons a day with the old mining method. I think we're gonna be on a path which allows us to get to 5 million ounces. I think we're on a path to be able to further increase that throughput, you know, maybe 200 or 300 tons more. If you get that, you're talking about almost double. All of this causes more ounces.
We think incremental costs will decline because it's task-based mining where we have better utilization of our workforce, you're gonna see even better margins come out of this mine in the future. really excited about the potential of this being as much of a cash flow driver with fewer ounces as Greens Creek.
And if-
I hope that explanation it was somewhat clear as to how the new mining method works. It's a little hard to think about it in just space, but I hope that was helpful.
Yeah. No, I mean, I guess the proof is in the, is in the pudding, and that's been a big improvement over the last couple of years. just to remind us,
It's continuing, and it's continuing to improve. That was my point on looking at the backfill. We're continuing to look at incremental technological improvements. I mean, we're looking at what is the material that you put into that backfill that will allow it to set up, set up faster, set up with less less steel. We actually put in rebar in the, in that material. Is there a way to put even less in there? It's a lot of fun being able to make these incremental improvements.
If memory serves, you still have a bit of capacity in the plant. Is that correct?
Yeah.
Can you get above 5 million ounces?
We can certainly do the 5 million ounces. Probably the biggest issue is on the filter and the load-out facility in the short term. Longer term, it's probably about grinding to do more. We are in the process of doing two major changes at the Lucky Friday. One is we are putting in a service hoist. Realize that the Lucky Friday, which I forgot to mention, is in Idaho, and it's really in the place where Hecla started. We've operated it for 80 years. It is at the very bottom of the mine. We are almost 2 mi below the surface. We have a shaft that is a 1 mi long deep shaft that we go down.
We have a tunnel that takes us 1 mi into the mountain. Then we have another shaft that takes us the rest of the way to the bottom of the mine, which we're probably 20 years-30 years before we reach the bottom of the mine. The two projects that we're doing that are quite important, one is putting in a service hoist, which is a hoist that's for men and materials, men and women and materials. So that the main hoist can just muck the material to the surface. That will allow us to consistently do this sort of 1,200 tons or more in that shaft. The second thing that we're doing is we're disconnecting the mine from the mill.
The way things have been set up in the past is there's a very small set of ore bins that allows you to have basically a day's worth of material from the mine to the surface before it goes in the mill. Well, at these new rates that we're running at, we need more capacity. We're building a bunker that will actually give us, you know, multi-days and, you know, conceivably even more than that, depending on ultimate, as we expand the size of the bunker, we could really give ourselves quite a bit of flexibility. That's those are important things that we're doing at the moment. All low capital.
You know, one of the things to remember about our assets, because they have been around for such a long time, we have lots of capital that's been invested over the course of their lives.
Right. Phil, you mentioned earlier labor relations. You know, I think this is important, you know, for this operation, you know, to run continuously. You recently signed a longer six-year contract...
Right.
With the union, agreement with the union. That obviously suggests much better relations, with the workers. What has driven these improved relations?
Well, you know, the biggest thing has been the realization that the new method of mining is safer. It allows and the way the contract is set up, it allows employees to have more control over their future. The way the old method worked, the most senior miners determined where they worked and who worked with them, so they had a lot of control over things. Now, it is based upon the individual saying, "I want to improve my skills, and I can move up on a tech level and get more money, get paid more." That has been one of the reasons. The other is this new mining method has really created a great deal of excitement at the Lucky Friday.
I've never seen the morale as high as it has been at the Lucky Friday, you know, ever since these guys came back from the strike. It's been a three-year positive atmosphere there. The outlook looks really good. People, you know, what they've said is, "We want to be assured that we can work. So let's enter into a six-year deal that gives us the assurance." When that was proposed to me, I was concerned that it was gonna be a big increase. We were in an inflationary environment. Fortunately, the average increase is about 2.5% over the six years. It's well within what we were prepared to do.
Okay. That's interesting. Obviously, this is a key topic in the, you know, in the mining industry right now, just given the cost pressures and lately the wage inflation cost pressure we've been seeing. It's about 2.5% over the life of the six years.
Each year. On the average per year is 2.5%. You know, we certainly experienced quite a bit of wage pressure a year ago. Not as much now. There's, you know, there's no doubt there's inflationary pressure on wages, and there's no doubt that there's inflationary pressure across the board, but it's all has certainly moderated from where it was a year ago.
Okay. You're seeing that at your other assets as well?
Yeah. Yeah. It's certainly the Abitibi where Casa Berardi is. That's certainly more pressure than what we have in other places. No, it certainly has come down.
Okay. Let's shift gears and talk about Keno Hill. Excuse me. Obviously, this is your new acquisition. It's expected to restart in mid 2023. I think this is a key catalyst for Hecla. Can you give us an update on how that's progressing?
Yeah. It's going very well. you know, we became the owner of it in September of last year. you know, we're very new on the, on the, in the portfolio. As you said, we will be in production in the third quarter of next year. you know, the expectation is that we'll produce 2.5 million ounces of silver. We'll put lower grade material in first. That lower grade material will come from Flame and Moth, which is, it's almost double the grade of Greens Creek and Lucky Friday, to give you a sense. Then we'll put in the higher grade material from Bermingham, and that's how we get to the 2.5 million ounces.
Notwithstanding, it's we don't get to full production, so this sort of 400 tons a day till the end of the year. It's going well. I'm actually on my way up there next week to do another visit. It's, you know, we're just in the development phase of trying to get enough advance in front of the stopes to where we have flexibility. You know, at the end of the day, for these mines, as I mentioned at the Lucky Friday, you know, we've created flexibility, or we're creating flexibility. Same thing at Keno. We'll have material that we can come from six different working areas in both the Bermingham and the Flame and Moth. Which, by the way, the Keno, it sits in the Yukon.
It is in a historic mining area. The relationship that we have with the First Nations is good. There is other mining that they have in their territory. I'm very optimistic for sort of a long future. At this point, we've got about eight years in front of us, so it is shorter-lived, but we're just at the start of the exploration. If there's anything that people should have taken note of about Keno at the in the our most recent earnings release, it is the drill results at Keno. Really quite remarkable. Three places that we drilled and success at all three with extraordinarily high-grade material.
Timing-wise, when can we expect, that first production?
In the third quarter. I'm not gonna give it any more specific than that. You know, we will, we'll certainly try to run the mill to sort of work through the kinks, 'cause yes, this mill has operated in the past. We've made modifications to it. We wanna make sure that it's, you know, running consistently. As I said, it will take the better part of the, you know... It will probably be as late as November or December before we're up to full production.
Okay.
We're gonna produce 2.5 million ounces, so it's gonna produce half as much as the Lucky Friday in its first year of being a Hecla asset. Next year it should produce, you know, sort of 4 or 5 million ounces.
Is this where you see kind of your strong reserve upside in terms of your assets? Reserve.
Look, I think there's lots of potential. Sorry, I've. I think there's lots of potential at all of the assets, but certainly this is the one that has had the least work done on it. You know, it is an 80 sq km or sq mi , I don't remember, land position that is really people in Canada in the mining business, they all know Keno Hill. It's a historic, well-known district that has not had really any work done on it, modern work done on it in the last 30, 40 years.
I mean, that makes sense given the, your, the predecessor company that ran it was a bit cash strapped, they probably.
Yep, yep.
Didn't go with some.
That's right. In fairness to them, they did two things that were great. One was they solved the environmental issues. They worked out an arrangement with the federal government, and we're implementing that, and it is a fair arrangement for both the, you know, the taxpayers of Canada as well as for Hecla. What happens is, we get paid to clean things up. If we decide to have an area that's for mining, we have to reimburse the government for what they, you know, for the cost, plus interest for what's been done. That works out, you know, quite well. Then it is this just really untouched, but 200 million ounce district.
Just switching gears, I wanna touch on Casa Berardi. This is your only primary gold mine. The near-term outlook shows relatively high all-in sustaining costs, expectations close to $2,000. You know, clearly this higher gold price is going to help keep this operation, you know, free cash flow neutral. Can you talk about how Hecla will look to improve this going forward?
Sure. I was actually there about three weeks ago, I guess the thing I was struck by is we were primarily underground, then we've been sort of underground and open pit, small open pit, where we're gonna be primarily open pit. There's a transformation that needs to happen at the property. I was just struck by the size of the equipment, struck by the number of pieces of equipment that were having to be operated. We are very focused on how do you make this transition. Just expect that. Expect the transition. You know, we'll continue to explore underground, but there's no doubt that we will have more of our production come from the surface.
Unfortunately, with the permitting, we're having to go to the next pit that we go to will be the lower grade West Mine Crown Pillar pit, which, by the way, Casa sits in the Abitibi. It is north of Elsa, north of Rouyn-Noranda , you know, to the east, northeast of Val d'Or. It's on the Casa Berardi Break. We have 37 square strike. We have 37 km of strike on the Casa Berardi Break. We think there's lots of exploration potential and particularly underground exploration potential, and that's where we're focusing our exploration. There is no doubt that we are in a transition to the open pit. You know, stay tuned.
We're gonna continue to try to modify things in order to make this operation better than what it has been. It's been a good cash flow producer for us, but I think we're gonna have to make some investment in it.
Yeah. Okay. Great. Just, I just wanna talk a little bit about jurisdiction. You operate obviously in high quality jurisdictions, Canada and the U.S., basically only right now. You do have a strong silver growth profile. What are your thoughts on maintaining this jurisdictional profile? Would you look elsewhere or kinda maintain this?
With respect to gold assets, if we were to develop or grow or acquire gold assets, we have a number of them within our portfolio. That's only in the U.S. and Canada. We are not prepared to go outside the U.S. and Canada for gold. For silver, it's a, it's different. Where we are, you know, silver deposits are so rare. You know, notwithstanding gold is the, considered the rare element, it is really difficult to have silver assets of size. We are certainly prepared to go outside the United States and Canada. Obviously, if we can do something in Canada or the U.S. like we did with Alexco and acquiring Keno Hill, that's gonna be our first choice. We're certainly prepared to go to these other places.
We think we have the scale in the U.S. and Canada to be able to take on a little bit of political risk in other places. Having said that, we're not in any hurry to go to these other jurisdictions. We're just prepared to.
Okay. You know, obviously, this is interesting topic because M&A has been heating up. We just saw Friday, the Pan American buying most of Yamana's assets. That closed on Friday. What are your thoughts in general on M&A and consolidation in the silver space?
The silver space is already small. I mean, you look at the number of choices of companies you'd invest in. There's not a lot of room to do a whole lot of M&A. Certainly, we're looking at assets that we can acquire, add to our portfolio. But we don't have to do anything. I mean, we have, within the portfolio, growth. We, you know, as I said, we should get to 20 million ounces over the next couple of years. I would anticipate that we have projects that will, you know, finally reach a point that we can advance them to the development stage from the exploration or permitting stage. We'll have those assets.
You know, we're certainly on the lookout for other things to bring into the, into the mix.
Okay. You do also own those, the Montana assets.
Yep.
I think are the.
That's exactly what I was thinking about.
Right. Those are, like, the third largest undeveloped copper deposits in the U.S. Can you give us an update on that and where you stand on that?
Sure. It's got the equivalent amount of silver to in addition to the copper. Yes, those sit in Montana. They, as the crow flies, they're, I don't know, 50 mi, 80 mi from the Lucky Friday. Quite close. They're in our backyard. We actually have lots of employees who are from Montana that would love to work at those properties. What we have done, you know, we've been on a permitting path in our predecessor companies, because we acquired these assets six, seven years ago, and we continued down the permitting path they were on because they had been on it for such a long time. We eventually concluded that the path they were on was to get a permit to mine.
We finally concluded, look, we're having a continuous do-loop. Is there another way to do this? We concluded there was, and that is to actually ask for a permit that is only exploration, only the infill drilling to develop the mine plan. That's the path that we're on. We have been on that for the better part of a year. Give us another, you know, we have to work with the Forest Service. Give us another, you know, maybe later this year, early next year to see this thing submitted. The threshold requirements for going forward are substantially lower. We think we can get underground. We'll be developing the drift. We'll be putting the drill stations in and doing the infill drilling.
You know, could be as soon as two or three years from now.
Okay. Is it fair to say that Montana is a more difficult jurisdiction to permit in than Idaho?
No, it's really, you know, to the extent you're talking about states, it's not as, you know, the issue is federally. It is, you have to deal with the Forest Service, and you have all of the requirements.
Right.
No, it's pretty similar.
Okay. You know, just, you know, we're almost at our time here. I wanna get your thoughts on the outlook for silver since that's very topical right now.
Oh, it's, you know, look, this is, in my view, the greatest place silver has been in, you know, certainly the last few hundred years and maybe longer. The reason I say that is you have all of the elements that have caused interest for gold and for silver to, as a monetary metal, to be in place. I won't talk about that because what you have in addition to that for silver is a metal that is part of this energy transition. Silver is a fundamental metal. It should be mentioned with cobalt. It should be mentioned with, you know, copper, lithium, all these other metals, nickel. It should be mentioned.
Because in order to have the photovoltaic power generation, which is clearly viewed as the most, as the key renewable, you need silver, and you need silver in those photovoltaic cells. It takes half a million ounces of silver to, for every gigawatt of photovoltaic energy that you install. Half a million ounces. The growth has been extraordinary for silver, for photovoltaic, and it looks like it's gonna go even, you know, even stronger. We're very excited about where silver is as this transitional metal.
Right. Just as a reminder, anyone on the lines who wants to ask a question, you know, can type it into the chat room, and I can bring it up. Just checking now. Looks like there are no questions right now. I guess we covered it all.
Well, you never cover it all, but what I will suggest is that if people do have questions, certainly reach out to Hecla, you know, at our website. Anvita is on the call, one of my colleagues. She's our VP of Investor Relations and our Treasurer. She and her team would be happy to answer questions. I'm happy to answer questions. Maybe not this week, but I'm happy to answer anything. You know, particularly if people wanna delve into silver, because there is a lot to say about where silver is, not just for photovoltaics, but also for EVs.
It's, you know, like these other metals, the need of silver in an electric vehicle is, I don't know, 50% more than it is in internal combustion. There's a lot more to say.
Just wanna touch on that a bit. Is that just a function of the fact that EVs require a lot more circuitry and there's a lot of silver in the circuitry?
Yep. Yep.
Okay.
What people don't realize is that silver is the most conductive metal. More conductive than gold, more conductive than copper. As a result, silver is in your washing machine. 'Cause on those electric contacts, they have just a little bit of silver.
Yeah. Okay, great. Well, I really appreciate you taking time out of your holiday to join us today. I think that we covered everything off really well, and that was really good. Thanks so much.
All right. Well, I appreciate it, Steven. Thanks for the opportunity. Thanks for the coverage.
Yes, no problem. Okay.
Thanks, everyone.