Hecla Mining Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2024

There are 10 speakers on the call.

Operator

Hello, everyone, and welcome to the Second Quarter 20 24 Hecla Mining Company Earnings Conference Call. Please note that this call is being recorded. As of right now, everyone is joined on listen only mode to avoid any background noise. You will have the opportunity to ask questions to our presenter later on in the Q and A session. Thank you.

Operator

I'd now like to hand over to our first speaker for today, Anita Patil. Please go ahead.

Speaker 1

Good morning, Ellie, and thank you all for joining us for Hecla's Q2 2024 results conference call. I am Anvita Patil, Vice President of Investor Relations and Treasurer. Our earnings release that was issued yesterday along with today's presentation are available on our website. On the call is Cassie Boggs, Interim President and Chief Executive Officer Russell Lawler, Senior Vice President and Chief Financial Officer Carlos Agouar, Vice President of Operations and Kurt Allen, Vice President of Exploration. At the conclusion of our prepared remarks, we will all be available to answer your questions.

Speaker 1

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 related slides are reconciled in the slides or the news release. I want to remind you, if you would like to have a call with management, you can do so by using the link under the section Virtual Investor Event in our earnings release that was issued yesterday. I will now pass the call to Cassie.

Speaker 2

Thanks, Envita. Good morning, everyone. The quote goes, there is nothing permanent except change and HEPA has seen its share of change over the years. But not only has HEPA survived these changes, it's also grown and thrived during these changes. This period of change and transition is not new to HEPLIS and we've embraced it and the opportunities it presents.

Speaker 2

Let me begin on Slide 3. HEPLA's origins began all the way back in October 18, 91 in the Silver Valley of Idaho about 50 miles east of where I'm sitting this morning. Since that time, the company has not just withstood but thrived across macroeconomic events such as the Great Depression, the Great Financial Crisis of 2,008 along with 2 world wars, the pandemic and multiple other events over this time. HEPLIS also withstood other more specific events such as the 1910 fires which burned across much of Northern Idaho and Western Montana and the low metal prices of the early 2000s. Our most valuable asset that has allowed Hecla to grow and thrive is our people.

Speaker 2

Hecla would not be the company it is today if it were not for the hard work, determination and commitment to our core values of safety and an environmental stewardship of those who go to work at our operations and elsewhere each and every day. 2nd is the quality of our assets. The solid foundation of long reserve lives, low cost silver operations with great geologic potential in the best mining jurisdictions. While each of our mines has its own specific qualities, there are some characteristics that transcend the portfolio. The first to highlight is the jurisdiction.

Speaker 2

All of our operating mines are in the U. S. Or Canada. 2nd, each of our operating mines has reserved mine life of more than a decade and in the case of Lucky Friday nearly 2 decades. And especially on the silver side of our business, we have a competitive cost advantage with Greens Creek and Lucky Friday and their low cost structures which drive margins and meaningful free cash flow generation.

Speaker 2

I'll pass the call to Russell and Carlo shortly and each will go through the results of the quarter in more detail. But I'd like to take a moment to note that HEPLA had a great 2nd quarter, with strong operational performance delivered record revenues and the highest 2nd highest silver production in our 133 year history. There are 3 key messages we'd like to drive home. First, we're on a path of free cash flow generation especially in this metal price environment with our Lucky Friday and Green Street mines generating strong free cash flow. 2nd, we're deploying our free cash flow by investing in our operations, especially Keno Hill where we have seen remarkable success.

Speaker 2

But more work is needed to daylight the long term value in this highly prospective geologic district. And third, we're committed to deleveraging our balance sheet as we started to pay down our credit facility. I want to take a moment to emphasize the long term value we see at Keno Hill, delivery of which is relying on improving safety, environmental processes, mining practices and investments in infrastructure. Our investment in Keno Hill is not different from our investments at Lucky Friday or Greens Creek in their early years. Both these operations today are cash flow free cash flow engines of HEPA.

Speaker 2

Keno Hill with its exploration potential has parallels to both Lucky Friday and Greens Creek. Back in the 2000, silver was below $5 per ounce, but Lucky Friday's resource potential was significant. We embarked on a drilling program in 2,005 and increased our reserves by more than 300% over a period of 7 years. The geologic potential of the mine drove investments in the number 4 shafts and other infrastructure like the service hoist and the coarse ore bunker. We recall with our innovation of the UCB Mining delivered the best deck of the year.

Speaker 2

It's a pillar of our production growth, our free cash flow generation and the bench strength and experience of the team, our culture and our people. I want to also speak briefly about the recent developments in Yukon. We've offered our assistance to the First Nations of Natchonyakdal and the Yukon government to help with the cleanup activities arising from the heap leach failure at Victoria Gold's Eagle Mine. We're committed to Yukon and continue to be available where possible to assist during this time of crisis. And finally, I just want to bring people up to speed on the status of our executive search for a new CEO.

Speaker 2

The search is going very well and we've had a very robust response. We've identified a number of very qualified candidates who are very interested in the position and we're confident that out of this wide ranging pool, we will find the right person to lead Hecla in the future. I'll now turn the call to Russell.

Speaker 3

Thank you, Cassie. I'll start on Slide 5. A quarter ago, we laid out a scorecard with our capital allocation priorities for 2024. I'm happy to report that we continue to make significant progress against these priorities of paying down our revolver and investing in our operations. While all four of our operations generated free cash flow, the lion's share came from Greens Creek and Lucky Friday.

Speaker 3

During the first half of this year, Greens Creek and Lucky Friday generated $100,000,000 of free cash flow with $67,000,000 in the 2nd quarter, including $18,000,000 of insurance receipts. Continued investment in Keno Hill is a high priority both in the mine as an asset also in our workforce and mining and environmental and infrastructure procedures to ensure the safe and stable operations of Keno Hill over decades to come. Our investments in processes, safety and environmental procedures have started to produce tangible results. However, this is a journey, not a destination, and we plan to continue our investment here. Keno Hill had a record quarter producing over 400 tons per day and over 900,000 ounces, which is incredible progress.

Speaker 3

Although we're encouraged by this progress, we've not yet declared commercial production as we want to ensure these levels are sustainable. Carlos will discuss some of these details later in the presentation. Another priority is deleveraging the balance sheet and reducing our revolver borrowings. In the Q2, we reduced our net debt by $25,000,000 and ended the quarter with a revolver draw of $62,000,000 with cash of nearly $25,000,000 on AIM. Our net leverage ratio improved with record adjusted EBITDA, which increased 25% over the Q1.

Speaker 3

With expected production and current prices along with the remaining $14,800,000 of insurance proceeds from our Lucky Friday claim, we anticipate we'll be able to reduce our net leverage ratio to below 2 times by the end of the year and pay our revolver down over the next 12 months. Our realized price of silver also triggered a higher dividend payment this quarter, adding a penny per share to the minimum dividend component. This larger dividend payment highlights our unique Silverlink dividend policy, which provides additional exposure and leverage to silver prices. Moving to Slide 6, strong operational performance coupled with a favorable metal price translated into free cash flow for the quarter of $28,300,000 which was primarily driven by cash flow from our operations of $61,000,000 but also aided by cash received from our property insurer of nearly $18,000,000 As I highlighted in the prior slide, our priority remains on continued investment in our operations, while also paying down the revolver. The chart on the slide shows the sources and uses of cash during the quarter.

Speaker 3

We invested $50,000,000 in capital out of our operation, of which $26,000,000 related to growth while we also paid $78,000,000 on a revolver and exited an improvement in our net debt of $25,000,000 As we move to slide 7, I'll speak more about some of the financial highlights from the quarter. In the Q2, our revenues were dominated by silver at 46% of our sales, followed by gold at 34 percent and a nice byproduct credit, which equated to 20% of total revenues. And not only did silver dominate our revenue profile, we also achieved a margin of 58% of our all in sustaining cost per ounce of silver, which in turn drove our free cash flow generation and partial pay down of the revolving credit facility. Our net leverage ratio improved to 2.3 times and as noted, we expect we will achieve our target of less than 2 times by the end

Speaker 4

of the year. With that, I'll pass the call to Douglas.

Speaker 5

Thank you, Russell. I will start on Slide 9. Greens Creek flagship mine consistent performance. Greens Creek delivered another strong and consistent quarter producing 2,200,000 ounces. Mint throughput for the quarter was 2,481 tons per day and was lower due to the completion of multiple major maintenance projects, including installation of the new primary screen, realigning of the grinding circuit, raw magnet installation among others.

Speaker 5

Paper grades were lower in the quarter as mine grades revert to mine plan. Cash costs and all in sustaining costs for the quarter declined to $0.19 per ounce and $5.40 respectively, driven by lower treatment and refining charges, higher base product credit and lower sustaining capital due to delays in equipment purchases. The mine generated CAD34 1,000,000 in free cash flow from the quarter and has generated CAD72 1,000,000 during the first half of the year. We expect the mine to continue its strong performance in the second half and are lowering its cash cost and all in sustaining cost guidance to reflect its strong performance year to date and expected higher byproduct credits. Capital guidance is also reduced due to timing of equipment purchases and some capital projects.

Speaker 5

Grains Creek is a premier silver mine, the 11 largest in the world and the team continues to do an excellent job in delivering consistent results safely every quarter. Lucky Friday on track to achieve 5,000,000 ounces in 2024. Turning to Slide 10, Lucky Friday's operational performance established new records in the mine's 80 year history. The mine produced a record 1,300,000 ounces of silver, achieved a record mill throughput of 11.81 tons per day and delivered record sales. Cash costs for the quarter were $5.32 per ounce.

Speaker 5

All in sustaining costs for the quarter were $12.74 per ounce, both lower than the Q1 of 2024. Cost per ounce have exceeded our guidance for the first half of twenty twenty four because of higher labor and contractor costs, additional costs related to mitigation work done in the number 2 shop, which is the secondary gateway and higher profit sharing under our collective bargaining agreement due to a strong financial performance. Capital investment at the mine was $11,000,000 in significant sustaining capital projects in the quarter, including repairs to the number 2 shaft, engineering, design and initial reconstruction of the surface cooling project and equipment purchases. These record operational performance with strong metal prices dropped free cash flow generation of $33,700,000 in the 2nd quarter, including insurance proceeds of 17,800,000 dollars The mine is on track to be a 5,000,000 ounce producer this year. We are increasing cost guidance for the mine to reflect higher cost incurred in the Q1 and expected higher profit sharing costs given the strong performance and mineral prices.

Speaker 5

The UCB mining method and our capital investments in the mine like the service hoist which debottlenecked our hoisting capacity and the ore bunker, which added capacity to stockpile ore for multiple days and the Copelinda Mine and Mill are instrumental in Lucky Friday's stronger provisional performance, and we expect this to continue. Most importantly, this quarter performance was a testament to the excellent team we have at Lucky Pride. Casa Berardi, executing a surface transition plan. On Slide 11, Casa Berardi produced 23,000 ounces in the 2nd quarter at cash cost of $1701 per ounce and all in sustaining cost of $18.25 both within the guidance range. The mine generated positive free cash flow held by strong ore prices.

Speaker 5

The team has been carefully reviewing stop by stop analysis for underground operations and given the favorable gold prices, the mine has extended the West mine operations to the end of 2024. Thus, we are increasing the production guidance to 80,000 to 80,000 ounces. Thus, in capital guidance, it's unchanged for the mine. We have more work to do at Casa Berardi as we continue on the surface transition and evaluation of underground exchange. Keno Hill, largest silver producer in Canada.

Speaker 5

Moving to Slide 12, Eno Hill produced 0.9000000 ounces and throughput surpassed 400 tons per day. The mine has produced 1,500,000 ounces in the first half of the year, already exceeding 2023 full years of production. Our call injury frequency rate at the mine declined by 12% to 1.89 and we have continued to make significant improvements in ZEPI and environmental procedures at the mine. Despite the some production, we are not declaring commercial production at the mine because our work is not done. But first, let me talk about the improvement we have seen.

Speaker 5

In the Q4 of 2023, we initiated a 10 step action plan to implement best practices, in safety training, reporting and supervision. The program has increased the focus on hazard identification and control, improving reporting of safety metrics and institute several safety standards such as traffic management and fall protection just to name a couple. We have also started mining the Flame and Mott deposit to supplement the feed from Birmingham. As we approach the colder winter months to manage the clay from Birmingham, the feed from Flame and Mott even so relatively lower in grade should help improve crushing rates with the remaining ore. There are also key infrastructure projects remaining to complete.

Speaker 5

The cemented sales batch plant will commence construction in the Q4 and will change the mining method to underground at Birmingham in the second half of 2025. We expect this will make ground conditions safer and more productive. With increased mining rates, we also have work to do on water treatment upgrades and construction of dry stack tails. We are increasing our capital guidance for the year to $45,000,000 to $50,000,000 as we work through key capital initiatives, increased underground development, cemented tails batch plant, water treatment average and work on dry stack tailings. With the operation also achieving higher throughput of 400 tons per day, production costs excluding depreciation are expected to be in the range of $25,000,000 to $27,000,000 as seen in the second quarter.

Speaker 5

With Kena Hills 11 year reserve mine life, the strong geological potential of the operation in the district and the jurisdiction, we are optimistic that our investment in Kiena Hill will bear high returns in the long term. And with the exploration success we are seeing, we are excited and expect that Kino's reserve life should grow beyond its current 11 years. With that, I will pass the call to Kurt to speak about Kiena's exploration successes.

Speaker 6

Thank you, Carlos. Slide 13 shows planned maps of our underground and surface diamond drilling target areas at Kino Hill. Underground drilling is focused on extending mineralization and resource conversion in both the Birmingham Bear Zone and the Flame and Moss Zone veins and continues to intersect high grade silver mineralization over significant widths, which highlights the potential for strong silver mineralization within the district. High grade intercepts in both zones, including 35.4 ounce per tonne silver over 20.2 feet in the Bear zone and 28.6 ounce per tonne silver over 22.3 feet in the Flame and Moss zone should positively impact resource models and are providing more geologic information and confidence to our resource base. Three surface drills are also active on the property testing multiple targets including the Birmingham Deep, the Birmingham Town Site, Elsa 17 Dixie and Silver Spoon target areas that have potential for the discovery of additional large high grade silver deposits.

Speaker 6

New exploration intercepts continue to add to our understanding of the structural geology of the target areas and demonstrate the mineral potential of this highly prospective district. With that, I'll pass the call back to Cassie.

Speaker 2

Thanks, Kurt. I'll speak to our guidance on Slide 14. Our silver production and consolidated cost guidance is affirmed. With Casa Berardi's underground being extended to the end of the year, we increasing our gold production guidance. Capital guidance is higher because of Keno Hill as Carlos described.

Speaker 2

I'd like to wrap up our prepared remarks with a few thoughts on silver. The International Energy Agency released its mid year electricity update in July. Global electricity demand is expected to grow 4% in 2024, that's the highest since 2007. Renewable energy sources are expected to set a new record with their share of electricity generation increasing to 35%. And solar is expected to meet half of the demand of renewable sources.

Speaker 2

Silver is a key component in solar technology and as such silver demand in solar is expected to increase by 40,000,000 ounces this year. That's the equivalent of 4 new Greens Creek's and 8 new Lucky Fridays. Before we open the call to questions, I just want to congratulate all the Hecla employees for their commitment to our values of safety and environmental stewardship. Their dedication to Hecla every day makes Hecla the company it is. And with that, Ellie, I'd like to open the call to questions.

Operator

Thank you so much. We are now opening the floor for question and answer session. Our first question comes from Lucas Pipes from B. Riley Securities. Your line is now open.

Speaker 7

Thank you very much, operator. Good morning, everyone. This is Nick Giles on for Lucas. Guys, congrats on the quarter. Really nice to see such strong cash flow.

Speaker 7

Russell, maybe my first question is for you. Strong progress on the net leverage. What's your appetite for further pay down beyond the targets that you outlined? I believe you said below 2x by the end of the year. Is there a target beyond that or will that be strong enough for now?

Speaker 7

Thanks very much.

Speaker 3

Yes. Thanks for the question, Nick. As it relates to deleveraging from the revolver, our plan will be to the first priority is going to make sure that we invest in our operations and put the capital in then it's necessary, as well as the exploration programs, some of which Curt just highlighted at Keno Hill. But we do anticipate we would generate free cash flow on top of that and we'll allocate that capital to the revolver. Clearly, once it gets to 0, then we'll look to build the cash position back to levels that we've seen in the past, right?

Speaker 3

If you go back and you look in the past 3, 5 years, we've had cash balances between $100,000,000 $200,000,000 We wouldn't be clearly, we wouldn't be concerned if we had a cash balance of that and then we would talk further about further allocation of capital at that point.

Speaker 5

Makes sense.

Speaker 7

You guys have made some real progress on the cost front as well. I know some higher labor costs at Lucky Friday. Can you just add some additional color on where you may still be seeing some inflation? Where are you seeing the most relief? Any color would be appreciated.

Speaker 3

I would suggest, I'll let Carlos speak as well. But from the cost inflation standpoint, yes, I don't think that we've seen anything specific to speak to. What we have seen and we did note it both in the comments we made, but also in the earnings release. As lucky you've seen the performance of Lucky Friday and the performance of Lucky Friday has been very, very strong. As we see the performance of Lucky Friday, there's a profit sharing component within the collective bargaining agreement.

Speaker 3

And so as we make more money at Lucky Friday, clearly, we allocate some of that to the profit sharing. Maybe Carlos, you have some details of those underlying costs that you want to highlight? Well, it's

Speaker 5

the rates are normal from the previous year. I can say 5%, 7% in most of the mining supplies. And of course, there's still execution of projects. Every time that we have some updates, we are starting those decrements. So also the number of contractors that are executing projects, of course, is there's always that additional cost associated.

Speaker 3

And additionally, I think as has been the case since I've been in the industry, finding good electricians, mechanics and miners are hard. And so in certain cases, we do have to supplement our workforce with contractors for some of those skills. And we continually work to build out our workforce such that those are employees on a role versus you know, contractors and we'll continue to do that.

Speaker 7

Got it. Got it. Well, guys, I appreciate all the comments. Keep up the good work.

Speaker 3

Thank you.

Operator

Our next question comes from Heiko Ihle from H. C. Wainwright. Your line is now open.

Speaker 8

Hey there. Thank you guys for taking my questions and congratulations on a pretty strong quarter there.

Speaker 3

Thanks, Heiko.

Speaker 8

There was a sentence in the report related to Keno Hill and I'll quote you there that you expect cost investment at the mine will remain at current levels as more work is required to deliver long term value. Any thought process on longer term cost development for the site? I mean, earlier on this call, you had mentioned that you've seen, in your words, tremendous success at the site. When should we see meaningful cost to produce? Is it the second half of next year kind of thing, especially since you just increased capital investment guidance for the site?

Speaker 3

Yes, Heiko. The way that we see it, you can look at it and we lay out in our earnings release those kind of 5 quarters of progress, right? And so you can see clearly that the investment that we've made has been able to increase the production, the tons milled, all of that. With that increase in production, we actually see the cost going up as well. That's what we're trying to make clear.

Speaker 3

Once we get to a sustainable level of production, which some of that comes with the capital that we will we're putting in now, but we'll continue to put in and Carlos can speak to some of those specific projects. We would anticipate those costs coming down. But first order of business is instilling a safe operating culture at the mine and environmental excellence. Then we go on to production. We've really made a lot of progress in those areas.

Speaker 3

And then now we're going to go on to in addition to all of those things, we're going to go to a cost optimization mode. But we do clearly need to make sure that the mine is sustainable versus before we go on to that. Carlos, is there anything you'd like to add?

Speaker 5

Well, it's the second half of the year is when as we say during the presentation, we started the Flame and Mod deposit back to production again. So we are going to supplement the production from Birmingham having 2 mines running. The execution or the construction of the batch plant for tailings, which is going to make a huge impact next year once we modify the mining method to underhand. And then the dry stack tailings, which is the next stage, which we are going to add additional capacity. So the three pieces of investment in the second half of the year, of course, are going to be significant, but are going to make a huge impact in the near future of the light side.

Speaker 8

Perfect. You prefaced my follow-up questions. I'm going to put a different one out there. Given the progress on the issue discussed earlier this call, is it fair to say that you expect to announce the new CEO by the end of this quarter?

Speaker 2

This is Cassie. Our progress is we are really making good progress on finding a new CEO. I can't really commit to a time on that, but we're moving very expeditiously. And as these things sometimes as you know sometimes they take longer than you expect, sometimes it happens very quickly. We've had tremendous response in terms of people interested in it.

Speaker 2

So I'm confident that we will find the right person as soon as possible.

Speaker 8

Splendid. And with that, I'll get back in queue.

Speaker 3

Thanks, Heiko.

Operator

Our next question comes from Joseph Reagor from Roth MKM. Your line is now open.

Speaker 9

Hi, guys. Thanks for taking the questions. Kind of following a little bit on the Keno Hill questions. It sounds like your guys' view is invest today, the mine will repay you in the future. But under what scenarios would you guys kind of cut the losses and move on from the mine?

Speaker 3

I would say in that as we think about the operations and in Cassie's opening remarks, she made this comment as Lucky Friday is a good example of a mine that in the early 2000s had great geological potential. Silver prices were low. The mine was not making money back then. And if we had cut our losses and we had walked away at that point, you could see our portfolio would have been cut by a third at least from or a fourth I guess from operating assets, free cash flow this quarter, free cash flow at Lucky Friday rival Greens Creek. So the geologic potential at Keno Hill is significant.

Speaker 3

We have 11 years of reserves. We believe that the mine has a bright future ahead of it. We also believe that it's going to take a lot of work. So we do believe in the mine. And I wouldn't speculate about what specific actions would cause us to do that.

Speaker 2

Yes. And I would just add that as Russell said, both Lucky Friday and Greens Creek have shown us that these are long term commitments. We're planning on being in the Yukon for a long time. So we're committed to making this project work and we're confident that we can get there.

Speaker 9

Okay. Fair enough. And then kind of big picture question in the post fill error, is there any large philosophical changes we should expect? I know you guys mentioned about how you're a North American focused company and within the last 18 months, still had made some comments about potentially investing in South America. Has that changed?

Speaker 9

Any other big picture changes in the way you guys think about things?

Speaker 2

Sure. This transition has allowed us to sort of reset, review where we are. And for the time being, we're executing on our strategy to maximize the value of our North American assets. We've got some great assets and we believe there's more value in all of them. That said, that doesn't mean we won't ever look at opportunities outside of North America, but we are not going to be doing that at least in the

Speaker 4

near term. Okay. Thanks for

Speaker 9

the color. I'll turn it over.

Speaker 3

Thanks, Joe.

Operator

Our next question comes from Kevin O'Halloran from BMO Capital Markets. Your line is now open.

Speaker 4

Open. Hi, thanks for taking my question. Maybe just sticking with the Keno Hill theme, can you remind us what are the main criteria you're looking for before declaring commercial production and maybe what that timing looks like?

Speaker 3

As it relates to what the specific criteria are, it would be a sustainable rate of production that would be somewhere in the range of 75% of our permitted production, which you'd look at our earnings release now and say we're there. In addition to that, getting the capital in place that allows that to go on a sustainable basis. What we're looking what we're not looking to do is have a production quarter like we did this quarter, which was actually very, very positive. And then but not be able to sustain it. We want to be able to ensure that we are able to sustain this over time.

Speaker 7

And in

Speaker 3

terms of timing, again, I'd like not to speculate on that. What we've tried to do in the release is put out what the expectations are from an economic basis of the Keno Hill Mine. So that's why we guide those operational costs. We guide the capital both sustaining and non sustaining and the production. So I think that we try to give the market all of the metrics that's needed to calculate those things if someone finds that necessary.

Speaker 3

But what we don't want to do is put on any unnecessary burden or pressure on our operators. Those guys are right now working to instill the safety culture as we've talked about environmental excellence. So we don't want to add another another metric, but we also want to give the market what's needed for the markets who understand what the economics that might look like.

Speaker 4

Okay, that makes sense. Thanks for that. On the cost guidance increase at Keno, can you give a bit more color on whether that's driven mostly by the higher activity and the higher production? Or are there some CapEx items or other stuff that wasn't included previously into that cost guidance?

Speaker 5

Well, it's both. As we say, we are building our team, we are building safety culture, we are doing environmental upgrades and we are executing capital projects. We are expanding the camp too. So we had a really significant group of people working around to improve the place. And that's why we are estimating those costs.

Speaker 4

Okay. Thanks for that. Last one for me just quickly. Can you give us a sense of roughly the percentage of ore from flame and moth that we should be expecting over the coming quarters?

Speaker 5

Yes. For the second house, Flame and Moth is going to supplement the production with around 200,000 ounces, which is 18% of the total ounces of the second half of the year.

Speaker 4

Okay, that's helpful. Thanks a lot. And I'll pass it on to the next caller.

Operator

Our next question comes from Mike Parkin from National Bank. Your line is now open.

Speaker 4

Thanks guys. Just following up on the cost questions. We've seen quite an improvement in the income statement ramp up and suspension costs coming down nicely. Is that where we're kind of seeing the transition of some of that flowing now through the operating cost line, specifically at Keno Hill as that's ramping up? And if that is the case, can you give us a sense of how we should be thinking about that ramp up in suspension cost expense on a go forward basis?

Speaker 4

Should we expect that to be stabilizing around $5,000,000 or will we actually be getting into the 0 territory in the not too distant future?

Speaker 3

Thanks, Mike. Yes, so the way that the ramp up in suspension costs that line item on the income statement works for an operation that's in ramp up like Keno Hill, what we'll do is we'll allocate we expend a certain amount of costs during the quarter and we'll allocate the amount that equals revenue to the cost of sales. So if you look Page 6 of our earnings release, you can see that our revenue in Q2 2024 was $29,000,000 We allocated $29,000,000 of cost to cost of sales for Keno Hill. That's both cash and non cash. So you end up with a 0 gross profit and then the remainder goes to the ramp up and suspension costs.

Speaker 3

So as you see the improvement at Keno Hill, you see the ramp up and suspension costs come down. The other thing you'll see is in Q1, we had a bit of Lucky Friday costs in there for January. So that's come off in Q2 and caused that improvement. Then once at some point, I expect we will that line item will go away for Keno Hill. We don't know when that'll be.

Speaker 3

That'll be when we declare commercial production or it makes it a total gross profit. But what you will see is suspension costs related to Nevada and Mexico will remain in that line item. And those are roughly say $3,000,000 or so, for Nevada a quarter. And so those will continue. We continue to try to work those costs down though as we are transitioning more from Nevada just being an exploration project.

Speaker 4

All right. That's great color. Thanks, guys.

Operator

This concludes our question and answer session. I'd now like to hand back over to Cassie Boggs for final remarks.

Speaker 2

Thanks, everyone. We appreciate you calling in and we very much appreciate you listening to us. We look forward to this next quarter and having another great quarter. Thanks.

Operator

Thank you everyone for attending today's call. You may now disconnect. Have a wonderful day.

Powered by Quartr

Key Takeaways

  • Cassie Boggs highlighted a record Q2 with the second-highest silver production in Hecla’s 133-year history and strong operational performance that drove free cash flow generation, notably $100 million from Greens Creek and Lucky Friday in H1.
  • Financial priorities remain clear: invest free cash flow in growth projects—particularly Keno Hill—while deleveraging the balance sheet, having reduced net debt by $25 million in Q2 and targeting a net leverage ratio below 2× by year-end.
  • Keno Hill achieved a record ramp-up, surpassing 400 tons per day and producing 0.9 million ounces of silver in Q2, with ongoing safety, environmental and infrastructure investments and increased 2024 capital guidance to $45–$50 million as it nears sustainable commercial production.
  • Greens Creek produced 2.2 million ounces of silver and generated CAD 34.1 million in Q2 free cash flow (CAD 72 million in H1), lowering cost and capex guidance, while Lucky Friday set new records with 1.3 million ounces and $33.7 million in Q2 free cash flow (including insurance proceeds), and remains on track for 5 million ounces in 2024.
AI Generated. May Contain Errors.
Earnings Conference Call
Hecla Mining Q2 2024
00:00 / 00:00