Hecla Mining Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 15, 2024

There are 8 speakers on the call.

Operator

Good morning. My name is Jeannie, and I will be your conference operator today. I would like to welcome you to the Q4 2023 Hecla Mining Company Earnings Conference Call. All lines have been placed on mute to prevent any background noise. Thank you.

Operator

I would now like to turn the conference over to Anvita Patel. You may begin your conference.

Speaker 1

Good morning, Jeannie, and thank you all for joining us for HETLA's 4th Quarter 2023 Financial and Operations Results Conference Call. Amanvita Patil, Hecla's Vice President of Investor Relations and Treasurer. Our financial results news release that was issued yesterday Along with today's presentation are available on HETLA's website. On today's call, we have Phil Baker, HETLA's President and Chief Executive Officer Russell Lawler, HETLA's Senior Vice President and Chief Financial Officer and Carlos Agouar, HETLA's Vice President of Operations. Phil and Russell will make most of the presentation.

Speaker 1

Carlos, who is at Keno Hill, will make a couple of comments. All of them will be available to answer questions. Any forward looking statements made today by the management team come under the Private Securities Litigation Reform Act and involve risks As shown on Slide 2, in our earnings release and in our 10 ks and 10 Q filings with the SEC, these and other risks could cause results to differ from those projected in the forward looking statements. Non GAAP measures cited in this call and slides are reconciled in the slides or the news release. I want to remind you, if you would like to have a call with the management, You can do so by using the link under the section Virtual Investor Event in our earnings release that was issued yesterday.

Speaker 1

I will now pass the call to Phil.

Speaker 2

Thanks, indeed, and good morning, everyone. Thanks for joining our call. I'm going to start on Slide 3. 2023 was a year of marked That was marked by wins and face of challenges. Some of the challenges were expected, some not.

Speaker 2

So let me first start with the successes we achieved. We reported the 2nd highest reserves in our history. Our silver reserves have increased almost 40% over the past 10 years, And we've accomplished this by not only replacing 130,000,000 ounces of silver production, but adding 65,000,000 ounces through the drill bit, primarily at the Lucky Friday in Greens Creek and most recently by our acquisition of Keno Hill. We've also had a successful year in with some spectacular results at Keno and Greens Creek. We recorded our 2nd highest revenue in silver production and this was achieved Despite Lucky Friday not being in production for 5 months, both Green Street and Lucky Friday recorded their lowest all injury frequency rate of all time, And we continue to be rewarded for the innovative culture we've created at our long legacy of 133 years.

Speaker 2

We received a patent on the underhand close bench mining method. Now in terms of challenges, this year was really marked by 3 events: The unexpected fire at the Lucky Friday, our decision to pivot to a surface only operation at Casa and to prioritize Safety over production at Keno, which has resulted in slower than expected ramp up of the mine. Now the Lucky Friday is already back in production and we expect to ramp up full production by the end of the Q1. Our decision in late August to transform Casa to a full open pit operation by mid-twenty 24 was a recognition that we needed radical change and we prioritize margin over volume and our execution of this strategy is already yielding results. At Keno Hill, exploration drilling has highlighted the potential and the opportunity at this mine.

Speaker 2

And while our ramp up at Keno Hill has gone slower than expected, We firmly believe that by focusing on safety and the environment and getting the mine to HEPLIS standards is critical. If we're going to be successful and provide that long term value that Keno has the potential to provide. Now we've navigated through the challenges of 2023 and we entered 2024 with 4 operating mines that will give us significant growth over the next 3 years. So I'm going to talk about exploration and operations after Russell talks about the financial and technical reports and Carlos makes a few comments. Russell?

Speaker 2

Thanks, Phil. I'll start on Slide 5. By several measures, 2023 was

Speaker 3

a very good year. We generated $720,000,000 in revenue. Silver contributed 39% of our revenue, which is more than any other metal, demonstrating Hecla as a true silver company. We continue to have very strong margins from our silver operations with a margin of 50% of the average realized price silver for the year. As expected and as we reported in the last quarter in the call, we did see our net leverage ratio tick up from 2.2 times last quarter to 2.6 times this quarter.

Speaker 3

This is primarily due to Lucky Friday not being in production for the last 5 months of the year. Our goal remains to manage the net leverage ratio to be less than 2 times. I'll now turn to Slide 6 to discuss the company's priorities with its free cash flow as well as liquidity. On the previous slide, I mentioned the strong margins we see at our silver operations. These margins equate to significant free cash flows With 12 months of production at Greens Creek and 6 plus months at Lucky Friday, these operations generated $155,000,000 in free cash flow.

Speaker 3

With this cash flow and using our balance sheet, we've made some strategic investments for production growth, the $64,000,000 investment at both Keno Hill and Casa Berardi. In 2024, we anticipate seeing strong free cash flow generation from Lucky Friday and Greens Creek, relatively small investments at Keno and Casa, as well as we expect $50,000,000 from the insurance on the Lucky Friday fire. Our priorities will be continued investment in the long term production growth of our assets, which include development and exploration in all of our mines, but we'll also be prioritizing delevering our revolver debt. We have full access to our revolver and can be according if necessary. We expect to have adequate sources of cash flow to not only finance our production growth, but also reduce the revolver debt.

Speaker 3

Our belief is revolvers are meant to provide liquidity when needed, which ours has, but are best undrawn. As we turn to the next couple of slides, I'll walk through some of the highlights of the technical reports. On Slide 7 is the summary of the technical report for Keno Hill. This report confirms the value which we've had the opportunity to capture at Keno Hill. The mine projects to have 55,000,000 ounces of silver in reserves at a reserve grade of more than 26 ounces per ton, With an expected reserve life of 11 years and an undiscounted cash flow of $420,000,000 after tax cash flows discounted 5% is just over $300,000,000 $22 silver.

Speaker 3

This report demonstrates the value of reserves at Keno Hill, which is only partially why we made the strategic acquisition. Bill will speak to this later in the presentation, but the value that we expect to be added at Keno Hill through the drill bit and our exploration success confirms the significant potential. Turning to Slide 8, we've owned the Casa Berardi mine for more than a decade and it's been a good mine over that time. However, when we it back in 2013, we realized then that there was the potential for significant value in the open pits, which were anticipated to start production later in the mine life. We see that value crystallizing as we work through the 160 pit and move our way toward the West Mine Crown Pillar and Principal pits, where we anticipate seeing this mine generate substantial free cash However, it's not all investment in the property until then.

Speaker 3

Based on this report, we anticipate seeing the cash flow from the property be slightly negative this year, turn positive next and be significant in 2026, which should return a large portion of our investment of the past couple of years. Prior to taking a production pause while accommodating a permitting timeframe for the higher grade pits. In 2027, we expect to process the stock followed by a production gap of 3 years when the higher grade pit start production. The revised technical report anticipates a mine life of 14 years returning an undiscounted cash flow $600,000,000 and a discounted cash flow of almost $350,000,000 which demonstrates the value this mine brings to the Hecla portfolio. Turn to Slide 9 and I'll turn the call to Carlos.

Speaker 4

Thanks, Rosa. I will make only a few comments since I'm outside and remote from Phil and Russell. 1st, on safety, we had a strong overall safety record Half of what the banks expected by Yamcha have gone. Greens Creek's all injury frequency rate was 0.29 and Lockheed Fighting Point 66, above the lowest in their history. Casa Berardi was not where it should be, but had lots of changes.

Speaker 4

EMS safety was unacceptable. For all the operations, we have started a safety program that is focusing more leading indicators like near misses, risk assessment, interactions and inspections. We expect to make all our operations safer from Our 4 operations started this year strong. Last Friday, we started as planning in the 1st week of January, In Kino Hill is safer and therefore is beginning to ramp up faster. Greens Creek got the weather events behind it And Casa Dourades continued the good performance of the last few months.

Speaker 4

What a difference we will have this year by having all 4 properties operational. With that, I will pass it on to Phil starting on Slide 10.

Speaker 2

Thanks, Carlos. We've labeled Greens Creek on the Slide the foundation of Hecla's future. Since as we grow Greens Creek, we'll continue to be the foundation providing stability and consistency in our cash flow and production well into the future. And the mine reported a strong year, which could have been even better without the weather reducing 12 days of production in the Q4. Now we expect the mine to have another consistent year in 2024 with production expected to be about 8,800,000 to 9,200,000 ounces.

Speaker 2

So a little less silver and also produced a little less gold due to mine sequencing, where we're mining lower grades, but we will produce a bit higher zinc, the zinc grades are a bit higher. So the cost per ounce will be higher. We also are increasing the capital, replacing some mobile and mill equipment as risk mitigation of Operating at around 2,600 tons per day becomes particularly important. At this higher throughput, we really need everything to be more reliable, because there's not really an opportunity to catch up if we have an upset. And like we've done at Green Street for 30 years, we still see opportunities to have lower costs, these investments to allow us to have lower costs and also increase recoveries with some of the investments.

Speaker 2

Slide 11 shows our planned 24 surface and underground exploration programs, which will be testing multiple targets with significant potential to add resources. When Green Creek started, the mine had a mine plan of 7 years and now 37 years later, the mine plan is 14 years. This past year's underground exploration had good success and 7 of the 8 zones drilled with 4 of those zones in the Q4. So we're very excited about this year's program that coordinates the drilling underground with the surface drilling in the East Ore, the upper plate in Gallagher. We will also drill in the land package we recently acquired.

Speaker 2

That's The mammoth claims, we've had an interest in acquiring these claims for at least 20 years. And then at Cliff Creek, which has been known to be a very prospective area, but it's as it's called Cliff Creek, it's almost inaccessible. We started mapping this past year, but have logistical issues, but we know what we need to do and we have a contractor who we think is going to be able to do it. So our focus is not just on expanding high grade mineralization, but it's also in making new discoveries, new discoveries at Cliff Creek potentially and then named claims. Now Greens Creek is a premier silver mine.

Speaker 2

It's actually the 11th largest in the world. And I just want to congratulate the team on delivering excellent and consistent results and getting it a great future, because this is truly a world class asset. So let's turn to Slide 12. And if Green Creek is the foundation of HEPLIS future, Lucky Friday is the pillar of near term growth. The value, consistency, culture and leadership that Lucky Friday brings makes it our 2nd cornerstone asset.

Speaker 2

Yes, if you put this together with Greens Creek, these two mines make us the largest silver producer in the United States. The mine restarted in early January as Carlos mentioned, production should be about 5,000,000 ounces, cost per ounce be similar to Greens Creek. Capital will be about $15,000,000 less this year than last year, and that's about the same as what we had in 2022. Despite a 19 year mine plan, we are focusing on the potential to expand the mine to the east at the current elevation. So we're doing Drilling and exploration to the east.

Speaker 2

Now there's lots of unknowns, but success could mean more production and lower costs. And with the mine already stabilized, we're starting to work on small improvements to allow higher throughput like the 5 new cyclones that we're putting in at the mill, which will be installed in June. Now I'm going to move to Slide 13. At Keno Hill, we're struck by 2 things. First, the order body is growing with A similar or better quality.

Speaker 2

And I'm going to take a minute to talk about exploration that makes me say that. I'll do that in a couple of minutes. First though, I want to talk about the second thing we're struck by, which is the safety and environmental performance that's not met our standard. Fixing them is not an overnight exercise. And given the long life that we see, we are laser focused but patient on improving it.

Speaker 2

On safety, it means changing people's attitudes and habits and where we can engineering out risks. So we've taken many of our single Senior people from our corporate technical team and also at the Lucky Friday and have them rotating site. Basically, what they're doing is mentoring the Kino team. And then an example of engineering out the risk, we budgeted a cemented tailings backfill plant for Birmingham to enable it to mine in Yes, underhand mining, which we build, be safer than the way we're mining it out. For the environmental issues we had at Kino, we're doing studies to make the site meet our One of the things that's come out of these studies is putting in a new water filtration plant at Birmingham, which we'll build this year.

Speaker 2

That will cost maybe $3,000,000 to $5,000,000 Now at this point, we're not giving guidance as to when we'll be in production and reporting unit costs. We want to make sure that we have the safety and environmental issues right without the pressure of having the combined production targets with costs. What I can say is though that we think we're going to produce about 3,000,000 ounces of silver. We expect to spend about $15,000,000 to $17,000,000 a quarter, and then there'll be $30,000,000 to $34,000,000 of capital. So 2024 at current prices should be a small investment year that we make at Keno.

Speaker 2

Given the exploration potential and the long mine plan, now is the time to get it right, similar to what happened at Greens Creek Almost 40 years ago. And so speaking of Greens Creek, what we've decided to do is to try to create more value by Having Greens Creek and Keno, try to implement as many synergies as possible. They're actually only 2 hours apart, And it's a 7 hour drive between the two sites once you get to Skagway, which is a short 40 minute flight. Now many of the supplies for Keno actually go by Greens Creek to Skagway and then they get trucked to Keno. So what we're going to do is we're going to promote Brian Erickson, who's our VP and GM at Greens Creek and Kim Campbell, our Greens Creek Controller to provide leadership to both operations.

Speaker 2

Brian, in addition to having had The job as Greens Creek's GM over the last 2 decades has led various departments. He's headed up mining, he's done surface ops, he's done maintenance, And Tim has led purchasing, warehousing, accounting and a number of other functions. So we don't know exactly what the synergies will be or what their value will be and we'll try to outline that over time. But given the maturity of the systems that we have at Greens Creek, this really should accelerate Keno and becoming a strong cash flow generating mine. So now let me go to the exploration at Keno, and this is on Slide 14.

Speaker 2

Our drilling programs continue to provide quite remarkable mineralized drill hole intercepts from both underground definition and surface exploration Drilling. And I'm only going to talk about Burning Man this morning, but realize that there are a series of other targets at Keno that some of which we will drill this next year that will actually get more drilling than or as much drilling as Birmingham will get from surface. If you look at the plan view that's in the middle of the slide and it's marked BB prime in the upper corners, you'll see that the Birmingham deposit has a number of zones, the Etta, Arctic, Bear, Northeast and Deep Northeast. And then there's the small image to the right shows B, B prime going through those zones and then you can see A, A prime is a cross section that actually goes through the bear Three veins, the main vein, the footwall vein and the bare vein. And what I want to draw your attention to is the 54 ounce over 39.5 feet That is the transverse vein between the main and the footwall vein.

Speaker 2

This is the widest, highest grade intercept that we're aware. We had a similar grade intercepts a quarter earlier, just not quite as wide. Looking back at The BB Prime image that's in the middle, there's a red star that is the high grade mineralization That's more than 1,000 feet deeper than in previous drilling. The long standing view is that Kiena's potential was only In the top 3 400 feet from the surface, we now have evidence that the high grade mineralization can be hosted the full depth of the 1 kilometer favorable basal quartzite host rock unit. And so these Two holes, I really think, are emblematic of the potential of Keno.

Speaker 2

Now turning to Slide 15. Last year, we concluded that we cannot generate enough margin mining 2 separate underground deposits and open pit, like I said at the beginning For our remarks, we just had too many people. We actually had 1100 people between employees and contractors. And there just wasn't enough value in the rock to operate the mine that way. So we made the decision to simplify the operations by shutting down the underground.

Speaker 2

And so our team has really very successfully implemented the change. 2024, we'll have About a half year of underground operations as we mine out the already developed stopes and then we'll have only surface tons coming out of the 160 pit. Then go to Slide 16. And what this shows is our production costs and capital guidance. Our 2024 silver production guidance shows an increase of about 15% to 20% this year, 30% by 2026.

Speaker 2

Silver cost guidance is slightly higher than 23. Cash costs are at $3 to $3.75 AISC between $13 $14.50 So we still have substantial margin at current and even lower prices and proves that we're really the low cost leader in the industry. Gold cost guidance is lower, Capital guidance is lower as well as we've completed and seen the benefits of the major projects such as the service hoist and the ore bunker at the Lucky Friday. Before I open the call to questions, I want to leave you with the increasing role that Silver is playing in solar and the energy transition. And on Slide 17, you'll see some of the key numbers that highlights this.

Speaker 2

2023 was the 22nd year in a row that renewable capacity set a new record. So it's just continued to grow year after year. And 75% of this renewable capacity in 2023, the additions were solar. Just in the United States, solar capacity has expanded by 44% a year on average since 2,009. Now it takes about 500,000 ounces of silver per gigawatt of solar that's installed.

Speaker 2

So in 2023, silver demand in solar increased by about 50,000,000 ounces to 190,000,000 ounces, And that's a 12% growth rate in the last 10 years. So to put this 50,000,000 ounces in context, That's the equivalent of 5 new greenscreens or 10 new lucky Fridays. So not likely to happen, that we're going to have production that's going to increase at same pace that this demand for silver for solar is growing at. So that means we're going to have to rely upon above ground silver. And in order to get that, I think you're going to need higher prices to meet that demand.

Speaker 2

So with that, Jamie, I'd like to open the call to questions. So, Jimmy, I'd like to open the call to questions.

Operator

Your first question comes from the line of Lucas Pipes with B. Riley Securities. Your line is open.

Speaker 5

Thank you, operator. Good morning, everyone. This is Nick Giles asking a question on behalf of Lucas. Really appreciate the update on Keno here. It sounds like you've already made some nice progress.

Speaker 5

Is there still any ongoing assessment or Is it now down to purely implementation?

Speaker 2

Yes, it's really execution. We're In just working through getting people where they need to be, when they need to be there, we're Certainly one of the things that we've seen is that we have a lot of young relatively inexperienced people that come from all over Canada. And so that's why having this mentoring, we think it's so important. And It's had real effect. It's been remarkable, the improvements that we've seen over the course of the last few months.

Speaker 2

But having said that, we want to be cautious that we're not pushing the organization faster than it's really capable moving safely.

Speaker 5

Okay. Thanks for that. Nice to hear the synergies with Greens Creek as well. Can appreciate your not

Speaker 2

Yes. I'm really excited about the potential for the synergies. I One of the things is some back office things that Kamlo is responsible for. Brian certainly brings A load of experience in the mining methods are similar. Equipment It's a bit different because it's larger at Greens Creek.

Speaker 2

But I mean one of the things we're even thinking about is doing rebuilds. We do them in June for Greens Creek, maybe we'll also do them for Keno in June

Speaker 6

Got it.

Speaker 2

Got it.

Speaker 5

That's great to hear. I can appreciate you're not ready to give guidance like you outlined, but safe to say it's kind of a second half event before we see anything or Any color you could give around timing, just rough estimates?

Speaker 2

Look, I'm not going It will be as fast as we think we can do it safely and have a stabilized organization there. As we indicated, when we made the change, we had fortunately no incidents that resulted in injury, in a major significant injury, but we had the potential for that and that we're not going to we're just not going to take a risk.

Speaker 5

Got it. Well, I appreciate the color here. I'll go ahead and jump back in the queue, but continue. Best of luck.

Speaker 2

Thank you.

Operator

And your next question comes from the line of Joseph Reagor with ROTH MKM. Your line is open.

Speaker 7

On Keno Hill,

Speaker 3

as you look

Speaker 7

at the guide you gave this year versus the guide that was given at the beginning of last year, What do you think is the biggest delta for why there isn't as big of an increase as we might have anticipated for the mine this year? Is it Not getting enough workers aside, is it still underground development, being behind schedule? Is it mine sequencing? How do you think about that? And then What do you guys think is the biggest things you need to do in the future to kind of get it to where you want it to be?

Speaker 2

Yes. I mean, look, I think there's an element of caution here, Joe, That we want to make sure, as I said, that we're not pushing the organization too fast. I think what we didn't appreciate was the ability of the organization to deal in a systematic way with issues that arose. And we're getting those systems in place to be able to do that. I think it will take a little bit of time, but I'm highly confident that over the course of the coming year that we'll get there.

Speaker 2

Number 1, we've Taking our most senior experienced people in our organization and they're spending time, hence why Carlos Is there a site with this reorganization with Brian Heading up the activities at both of these operations, Greens Creek and Kena, that will have that leadership and the leadership will be close by. And so I think it puts us on a good path to see the improvements. Technically, it's not Yes, there's challenges, but technically, it's they're all manageable sorts of challenges. Carlos, is there anything you would like to add?

Speaker 4

Well, it's just the mentoring and the training and trying to hire the most adequate people, retain, train, promote and build the team in the proper way.

Speaker 7

Okay. And then shifting over to Casa, looking at the long term plan, do you guys have off top of your head the after tax IRR for that expansion project?

Speaker 3

Yes. When we put the technical report together, it will be filed with our 10 ks. We actually didn't calculate an IRR just because we're kind of mid project here In terms of Casa, Casa is interesting because we're going to put a little bit of investment in this year. We should see some nice cash flows Over the next few years, then a pause and then an investment. So we actually didn't calculate the IRR.

Speaker 3

But what we did do is calculate the discounted cash flows of

Speaker 2

it. We're laughing, Joe, because one of our directors has Same question.

Speaker 7

Well, the reason I ask is general rule of thumb, like if it was not No operating asset, a CapEx that exceeds the NPV after tax would suggest the IRR is in the 25% or lower range. And I was just wondering if there's any risk at all that you guys side that there's a better use of capital than that?

Speaker 2

Yes, I guess the first thing I'd say is that The investment that's going to end up happening there is really just the stripping from the pits that will happen in 20 $829,000,000 And so it's a relative way and we'll have Much of the equipment are already in hand. So there is very little equipment that needs to be purchased Relative to the just the cost of moving the rock, where we have a place to store that waste rock. So I think certainly, we can do the math to figure out what that Yes. We have very good cash flow between now and that pause time when we're doing that stripping.

Speaker 3

The other thing, you'll see this in the technical report, but the payback on those pits, the principal and the West Pine Cram Pillar It comes very, very quickly in the early 2030s. So that investment period of 20,28, 20 9 and then a little bit into 2,030 gets paid back quickly in 'thirty one, 'thirty two, etcetera. So, yes, and that speaks to what Phil just said in terms of us already Today, we're investing in the service fleet, etcetera, setting ourselves up for this mine for the long run.

Speaker 7

Okay. And one final thing, if

Speaker 6

I could. I saw an article a couple

Speaker 7

of weeks ago, Phil, I believe you made the comments that you guys are looking at South America as an opportunity To maybe expand the company and the production profile, is this something that's like a long term thought or is there any potential to do M and A in the next year or 2?

Speaker 2

Well, there's always the potential, Joe, to do it. And what we have said consistently is we are prepared to go outside the United States and Canada for silver assets. We United States and Canada for silver assets, we won't do that for gold or any other metal, But we will consider it for silver. Having said that, the ability to do those transactions are difficult. And so we're not going to we don't have to push it.

Speaker 2

We're fortunate in that we have growth in the near term. We should get to close to 20,000,000 ounces by 2026. We have in our portfolio, we actually have to include the operating properties, we have 20 properties in our portfolio, Half of which are silver assets, half of which are gold assets. And we'd like to advance those. Some of them are sort of In the permitting process, some we need to do more exploration on.

Speaker 2

But we do have the ability to do things within our portfolio. But having said that, our long term objective is

Speaker 6

to be

Speaker 2

Really the premier silver company, which means more production as well as become And this is a super long term goal, but as well as become an S and P 500 company. And we think with More production and higher prices, which we're, as I indicated, why we think we'll see higher prices, we think that that's something that could be achieved in the long term. Okay. Thanks for the color. I'll turn it over.

Speaker 2

Sure, Steve.

Operator

Your next question comes from the line of Don DeMarco with National Bank Financial. Your line is open.

Speaker 6

Thank you, operator, and good morning, Phil. My first question, maybe just building on the last caller's question about M and A. We've seen with regard to pursuing silver assets, we've seen some of your peers challenged to add silver assets to diversifying into gold. I think I heard from you that you're still your priority silver. You wouldn't certainly go for gold outside of North America.

Speaker 6

But would you consider gold assets or are you still firmly focused in any M and A if it met all your hurdles primarily focused on silver?

Speaker 2

We're absolutely primarily focused on silver. We will, however, consider gold and maybe even other metals that Are in the jurisdictions, in the places that we operate. So we're In Alaska, we're in Yukon, we're in Idaho, we're in the Abitibi in Quebec. And I would characterize Just across the border and geologically has been the same. So would we consider things other than silver in those places?

Speaker 2

The answer is yes. Is it our first priority? No. But we certainly think we saw the ATAC transaction that we did In the Yukon, we think that it was a strategic acquisition that really sets up Hecla for very long term potential of The things that could be very, very meaningful. So we're prepared to consider those things.

Speaker 6

Okay. Yes, it makes sense looking at potential jurisdiction synergies. Okay, looking at the production outlook, We see that silver production is increasing over the next 3 years. We see 20,000,000 ounces at the high end of the range in a few years. Costs weren't included, we get that.

Speaker 6

But how should we think about costs over this time frame? Should we think about costs as increasing or flat? Or is there any Just kind of for the sake of modeling, what trends we should think about?

Speaker 2

I would generally say that You'll have some inflationary pressures, so you'll see costs increase as a result of that. It's some of them I'm going to talk about it first in terms of the So quantum of costs rather than on a unit basis, you'll see some slight increases, but nothing At Greens Creek and the Lucky Friday, I'm not anticipating any sort of significant sort of cost increase. And at Keno, it's in a transitional it will be in a transitional period. I think Keno will The objective we will probably have long term given the exploration results we have is to see that Property increase its throughput. We, in fact, in the technical report, have an assumption that we get to, I think 5.50 tons or 600 short tons per day and sort of 3 or 4 years from now.

Speaker 2

So as a result, you'll see more dollars needing to be spent at that Location, yes. But then when you look at it on a unit basis, for Greens Creek and the Lucky Friday, it's really going to be a Function of the byproducts and the prices of those byproducts, to the extent we're at the similar sort of price levels that we are now. I wouldn't anticipate much of a change for I think over time, we will be able to drive the costs down pretty substantially, but it's going to take more tons. And I think trying to get some of these synergies with Greens Creek, I think could be a benefit to both properties. Okay.

Speaker 2

Anything to add, Russell? I agree with

Speaker 3

what you said. There's really nothing that we have coming at us that we would say we could point to that would say this is going to change our cost profile dramatically, especially at the Lucky Friday and the Greens Creek. And I'm thinking about it from the kind of just as produced production costs, the cost we're going on a monthly or yearly basis. Keno Hill's cost structure is quite has quite a bit of fixed costs within it. And so as we are able to scale that up and see more throughput, there will be additional variable costs, But we should see on a per unit basis, those should come off.

Speaker 3

And then Phil mentioned the treatment or The byproduct credits, but we also have the treatment charges in there as well. And right now, I think the outlook for the treatment charges should be relatively stable, but We'll see those things can fluctuate and actually have

Speaker 2

an impact on our cost profile as well. Pretty dramatic treatment charges over time.

Speaker 6

Okay. And just as a final question, Phil, you mentioned Keno Hill there ramping up to a throughput rate of around 5.50 short tons Per year and it's

Speaker 2

well, should

Speaker 6

we think about it? See 2024 production at 2 to 3000000 ounces of silver. And what should we pair up in terms of throughput rate for that? Rather that's 5.50 tonnes per day, I would imagine. So what should we think about in terms of tonnes per day in 2024?

Speaker 2

That's Certainly, what we're still working through, because we do have higher grade areas, but generally speaking, somewhere between 300 and 400 tons per day. But again, we're not going to push it. But if we're at The lower end of the range of ounces, then we're at the lower end of the tons per day. If we're at the higher end of the range, then it's just more tons that we've been able to process. So, it's 23400 tons.

Speaker 6

Okay. Thank you very much for your answers. That's all for me and good luck with the rest of the quarter.

Speaker 3

Thank

Operator

Your next question comes from the line of John Tumazos with John Tumazos Very Independent Research. Your line is open.

Speaker 2

Thank you.

Speaker 3

Was the $21,000,000 inventory adjustment solely related to falling zinc prices and zinc concentrates in transit?

Speaker 2

I think John, I think the short answer to that is, it's the Lucky Friday. So John, you're looking at

Speaker 3

the cash flow statement, correct? The non cash, the add back on the cash flow? Correct. Yes, that's a couple of things. First, that's Related to Casa Berardi, I would say is the largest part of it, where the cost per ounce, especially when you take into account the On cash charges, the depreciation that goes into the inventory, there was a net realizable value right down there.

Speaker 3

And that was accelerated because we when we stopped development of See new resources and new reserves at the West Mine Underground. We accelerated depreciation because we anticipate that will mine out mid-twenty 24. So we see the non cash charges at Casa Berardi have gone up. And I think that detail, if you go into the 10 You'll see that detail as the non cash charges have gone up. So that's the biggest driver of that.

Speaker 3

There is then some Changes as well at Greens Creek where you ship, concentrate and you get you have to true up estimates of what The inventory is that you have in the concentrate barn, so those will flow through there as well, but it's primarily Casa. What I would say is, as you mentioned, The change in the price of zinc, and we have seen a big change in the price of zinc has come off. A couple of things though, if you look at the realized Zinc, it's actually pretty healthy because we had hedges in place that caused us to not have to take that lower price, right? So it's above $1.30 for the quarter. But also even at $1 or $1.10 zinc, both Greens Creek and Lucky Friday have strong positive margin.

Speaker 3

So there's really no NRV write downs at either of those mines. 2nd question, if I may. The $76,000,000 in idle facilities cost, does that largely disappear after the January restart at Lucky Friday and then say mid year when Keno Hill starts to produce revenue?

Speaker 2

Short answer is yes. Yes, that's correct.

Speaker 3

In 2023, it was primarily driven by Lucky Friday. And then also there's a chunk of it that was Keno Hill as well, right? This ramp up at Keno Hill where we essentially have our cost of goods sold match our revenue And then the rest of the costs go through that. So as we see Keno Hill produce more, that should shrink as well. And a little bit of Casa and some of Nevada is in there as well.

Speaker 2

Remember, Casa, we had the fire in Quebec that caused this stuff to be shut down.

Speaker 3

Thank you very much.

Speaker 2

Thanks, John.

Operator

Your next question comes from the line of Lucas Pipes with B. Riley Securities. Your line is open.

Speaker 5

Hey, thanks operator. This is Nick Giles again on behalf of Lucas. Could you provide any color around the cadence of insurance payments throughout the year. I know first proceeds were here in February. And then How should we think about timing as far as paying down the revolver?

Speaker 5

Is paying that down contingent upon receiving these payments?

Speaker 2

Well, Nick, this is an insurance company, so I'm not going to bring you a guess as to when they'll actually Yes, but we did they have actually been very good and they did make a payment just a couple of days ago. But what they have said is that they would anticipate during the course of the year, so just sometime over the course. As far as paying down the revolver, it will be a function of both that and the cash flow from our operations. So it's Ideally, we will as we build up cash position, we'll pay it down.

Speaker 5

Got it. Got it. Okay, well, fair enough. I appreciate the color. Best of luck.

Speaker 2

Thanks. Thanks, Nick.

Operator

There are no further questions at this time. I will now turn the call back over to Phil Baker, CEO, for closing remarks.

Speaker 2

Okay. Well, thanks everyone for participating in the call. I'll remind you that we have the opportunity if you'd like to have a 1 on 1 meeting with us, you can schedule 1 with us in the next hour or 2. And if that doesn't work, And please feel free to reach out to Invita and we'll be happy to schedule you at a different time. Just appreciate the interest and I definitely think that we're in a place with silver that we've not been before And we're going to keep banging that drum to try to get people to realize what's happening in the silver space with the growth in silver.

Speaker 2

So thanks so much and I'll talk soon.

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Key Takeaways

  • Hecla reported its second highest silver reserves ever, growing nearly 40% over the past decade by adding 65 Moz through exploration and the Keno Hill acquisition.
  • In 2023, Hecla generated $720 million in revenue, with silver accounting for 39% and delivering a 50% gross margin, resulting in $155 million of free cash flow from its core silver operations.
  • The year’s challenges included a fire at Lucky Friday (now fully back online by Q1 2024), a strategic pivot to open-pit mining at Casa Berardi to improve margins, and a safety-first ramp-up pace at Keno Hill.
  • Updated technical reports highlight 55 Moz of silver reserves at Keno Hill with an 11-year life and ~$300 million NPV (5%), and a 14-year open-pit plan at Casa Berardi projecting ~$600 million undiscounted cash flow.
  • For 2024, Hecla forecasts a 15–20% increase in silver output, cash costs of $3–$3.75/oz, AISC of $13–$14.50/oz, lower capital needs, and priority use of free cash flow and insurance proceeds to reduce debt.
AI Generated. May Contain Errors.
Earnings Conference Call
Hecla Mining Q4 2023
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