Q4 2022 Hecla Mining Co Earnings Call

Participants

Anvita Mishra Patil; VP of IR and Treasurer of Hecla Limited; Hecla Mining Company

Lauren Martin Roberts; Senior VP & COO; Hecla Mining Company

Phillips S. Baker; President, CEO & Director; Hecla Mining Company

Russell D. Lawlar; Senior VP & CFO; Hecla Mining Company

Dalton Baretto; Analyst; Canaccord Genuity Corp., Research Division

John Charles Tumazos; President and CEO; John Tumazos Very Independent Research, LLC

Joseph George Reagor; MD & Senior Research Analyst; ROTH MKM Partners, LLC, Research Division

Unidentified Analyst

Presentation

Operator

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hecla Mining Company Fourth Quarter 2022 Earnings Conference Call. (Operator Instructions)

Anvita Mishra Patil

Good morning, Regina, and thank you all for joining us for Hecla's Fourth Quarter 2022 Financial and Operations Results Conference Call. I'm Anvita Patil, Hecla's Vice President of Investor Relations and Treasurer. Our financial results news release that was issued this morning, along with today's presentation, are available on Hecla's website.

Phillips S. Baker

Thanks, Anvita. Good morning, everyone. Thanks for joining our call. Hecla is the world's fastest-growing established silver miner, surprising for a 130-year-old company. And I'm on Slide 4. There are 4 reasons that this is happening. First, Hecla's commitment to silver. Since our founding, Hecla has always been a silver producer even when other metals and activities provided more margin.

Russell D. Lawlar

Thanks, Phil. I'll start on Slide 6. The double-digit production growth we see -- we expect to see is being funded by our industry-leading silver margins, which have averaged more than 50% of the realized price of silver over the past few years. The direct result of these margins is the significant free cash flow generation we have seen over the past 3 years where our mines have generated more than $0.5 billion of free cash flow, including Casa Berardi's contribution of about $85 million from 2020 to 2022.

Lauren Martin Roberts

Thanks, Russell. I will start on Slide 9. Greens Creek had another remarkable year. The mine produced 9.7 million ounces of silver seeing our guidance. Record throughput of 2,500 tons per day was achieved in the fourth quarter. In the time since we acquired full ownership of Greens Creek in 2008, and the mine's throughput has increased 20% from 2,000 tons per day to 2,415 tons per day. Equally impressive is that the recovery rate for each metal also increased during this period. Looking forward, we will continue our production ramp-up during the year and expect to achieve 2,600 tons per day in the fourth quarter.

Phillips S. Baker

Thanks, Lauren. Just to comment on the exploration at Keno. When we announced the Alexco acquisition, Alexco asks if they should continue to explore, which they had a requirement to do so in either '22 or '23 because of (inaudible) funding. And so while, as Lauren said, our first priority was given the mine into full and consistent production, we allowed them to go ahead and continue that exploration program. And then, of course, we continued it once we closed the acquisition. We're really glad that they went forward with the program because this clearly shows that Keno has the potential to grow dramatically.

Question and Answer Session

Operator

(Operator Instructions)

Unidentified Analyst

Yes. Thank you, operator. This is Nick Joe asking a question on behalf of Lucas. Can you speak to the cadence of cost throughout the year that it could be baked into your guidance and if you're assuming any level of either cost deflation or inflation at any of the 3 primary operations and then specifically, is the lower cost guidance on Lucky Friday, is this fully attributable to the higher production?

Phillips S. Baker

You can almost every year at Hecla say that we're going to spend more capital, more exploration in Q2 and Q3 when our operations are in the more favorable weather, that's not going to change this year. And then with respect to the Lucky Friday ad, it is all about the higher production. Lauren, anything to add on the Lucky Friday?

Lauren Martin Roberts

I think it is the higher production and higher grades that are coming with (inaudible) that's driving the (inaudible).

Unidentified Analyst

Got it. Got it. Okay. That's very helpful. And then just secondly, I wanted to ask about capital returns. You noted in the release that dividends were around 14% of cash flow in 2022. Do you have a target level in mind for 2023?

Phillips S. Baker

We just have our dividend policy, which we've had in place. There's been a few adjustments to it in terms of the levels since 2011, '12, I think, is when we first put it in place. And so we have the base dividend that we pay and then we have a dividend that's tied to the silver price. And I'm not anticipating any changes in that in the near-term. But clearly, as we produce more silver relative to other metals. We clearly will have the ability to raise the dividend over time. But that's not on the agenda at the moment.

Unidentified Analyst

Okay. Great. Well, appreciate the comments and congrats on the progress so far and continue best of luck. .

Operator

Your next question comes from the line of Joseph Reagor with ROTH MKM.

Joseph George Reagor

A couple of things. I guess first thing, just on the income statement. It seems like there was some elevated costs kind of across a couple of categories, G&A, ramp-up costs, and also your closed operations costs. Was there anything in particular that drove that? Or is that just quarterly fluctuation?

Phillips S. Baker

I think the biggest thing to realize is that with the acquisition of Alexco, we saw an increase in costs associated with that. We brought people into our G&A costs, great group of people to add to the company. And it's -- we'll see a somewhat higher cost.

Russell D. Lawlar

In G&A, certainly, that's it. Ramp-up costs you mentioned, which is just the fact that Keno Hill as we spend money up there developing the capital, there is some ramp-up costs that run through the P&L. And then closed operations, there's just a true-up of an accrual that we made in the fourth quarter on one of our closed operations, et cetera, noncash (inaudible).

Joseph George Reagor

Okay. Fair enough. And then at Keno Hill, I'm having difficulty kind of getting to the guide on the production compared to the start-up of Q3. Is this suggesting that there's some high-grade material that's been stockpiled that's well above Birmingham's average or what's the delta between -- if I take, let's say, 300 tons per day over the last 2 quarters at [1,100 grams], I don't get to your guide or even into a ballpark.

Phillips S. Baker

So Joe, we don't have anything stockpiled, but yes, there is higher grade material that is going to be going through the mill first. And it's just the way the mine plan is. It's just where (inaudible) Is essentially. We're hitting that first. And so you will see over time the rate decline. Lauren, anything to add?

Lauren Martin Roberts

That's the explanation, exactly that.

Joseph George Reagor

Okay. And that 2.5 billion is -- just to confirm, is silver, not silver equivalent, right?

Phillips S. Baker

Correct. Just silver. This is -- (inaudible) is amazing with the grades that we have and the exploration is finding more of it. So we're very, very excited with what we've got in hand. It is what we thought it would be.

Joseph George Reagor

Okay. And then what's like a normalized expectation for capital spend across the 4 mines once you're done with some of these extra things you're doing this year and with the Keno Hill ramp up?

Phillips S. Baker

Look, I would say order of magnitude, $150 million to $170 million would be sort of normalized. Hopefully, it would be closer to the $150 million, but we'll certainly have things that we look at and say, "Geez, we can get a better return if we make that investment. So sort of that range. .

Operator

Your next question will come from the line of Jeff Brevik with [Wilco].

Unidentified Analyst

So one of my questions about Keno Hill has already been answered, but I had one about Casa Berardi. So this year, you will have higher all-in sustaining costs? But what's the plan? Because in your last technical report, you had -- you plan to had a transition to open pit mining -- only in open pit mining in 2017, how has that changed? (inaudible) [27], I mean.

Phillips S. Baker

Yes. I'm not sure of the year that we had in the plan, but whether it's exactly that year or it's a year before a year after, I don't remember, but that is the plan unless we find more underground high-grade material. We are very encouraged by the exploration that we have, but it's an ongoing process and it's hard to get more than 3 or 4 or 5 years of underground reserves in front of us because you just don't have the development available to be able to put the drill platforms in place. So it's more of a just-in-time process with respect to the underground.

Unidentified Analyst

I understand. Then do you have any other initiatives because the most part of your all-in sustaining costs are the cash cost. And you said that you will try to find higher-grade materials so that you can increase the production in -- well, not this year, but the coming years after that. Have -- do you have any other initiatives to decrease operating costs?

Phillips S. Baker

The biggest initiative is getting to the pits, the higher-grade pits. So the Principal pit and the West Mine Crown Pillar pits are both significantly higher grade than the 160 pit. And so with that, will come more production. And you could see that in the technical report that increased grade that we'll be buying from those pits. Lauren, anything to add?

Lauren Martin Roberts

So I think that, that captures it, Phil. It's a timing question. We're mining the underground material now and the 160 pit, which are developed and ahead of us, we will transition into the 2 larger higher-grade pits as soon as they're ready.

Phillips S. Baker

One of the things that we've had to deal with is the need for permits for those pits. And as we do the work, we uncover things that we've got to get all of the technical data in front of us in order to be able to get the permits for that. That work has been done. And so we're in the process of getting those permits and that will allow us to open the Principal pit, which is the highest grade of the 2 remaining pits. But remember, we have in front of us more than a decade from those pits once they become operational.

Operator

Your next question will come from the line of John Tumazos with John Tumazos Very Independent Research.

John Charles Tumazos

Congratulations on all the progress, especially in the Yukon. So my question is when will Hecla have the manpower capacity to digest more acquisitions. It's an unusual time 5% short-term money. A lot of the small preproduction companies can't raise money at all. And just looking at the last week, Osisko Mining, which has a beautiful 7.4 million ounce deposit [10 grams] is languishing because they issued equity. MAG Silver, which participates in a 20 million-ounce silver mine sold equity and sold down. And the companies that aren't as big or good as those deposits, there's just no market for their stock. So you could go on a buying spree and warehouse some deposits for whenever your engineers, your board needed a new project to build.

Phillips S. Baker

Well, John, I guess I'd make 2 comments. One is as far as the capacity with employees, it depends on what it is you're acquiring. Something that you're inventorying does not require much, much support. So those things are relatively easy to do. Things that we would need to develop, obviously, we have to have it compete with things that we already have as well as just acquisitions in general. Remember, we have a half dozen silver projects, plus we have another half dozen gold projects to explore and develop. So we don't need to add to our inventory.

Operator

(Operator Instructions)

Dalton Baretto

I hate to beat the cash [horse] to death here, but I do have a couple of questions. I just want to make sure I fully understand here. So it sounds like you're just waiting on permits for the Principal pit. When do you expect to get them? And then once you get them, how soon can you be in there?

Phillips S. Baker

Lauren, do you want to answer the question?

Lauren Martin Roberts

Sure. So we're in the process of permitting WMC, the West Mine Crown Pillar pit. It's the next one in sequence. And over the course of this year, we will -- the process is not submitting a single permit application. It's a group of permit applications, some of which are already in and the balance of which will be in by August. Then it takes a little bit of time for that to process, and then we have a reasonable amount of pre-strip and strip that needs to happen. And so this should start delivering ore into the system in about 2027, 2028. And the underground resource on [F160], the current pit we're mining carry us to that point in time.

Dalton Baretto

So it sounds like it's reasonably long-dated here. So maybe this one is for you, Phil. Is there a set of conditions under which you would look at putting cash on care and maintenance until you make these investments that you get the permits?

Phillips S. Baker

With the plan that we have, there's no need to do that. We're able to have it with a modest amount of capital injection to put it in a position to continue to operate. That's part of the reason why we've gone to this plan, which slows down the production so that we don't have to put on care and maintenance. That would be a pretty costly exercise and very disruptive to the workforce.

Lauren Martin Roberts

There's an incredible amount of activity in Quebec and Ontario and there is a material risk of going into care and maintenance of those people going elsewhere.

Phillips S. Baker

Absolutely.

Dalton Baretto

That makes sense. And then maybe if I could just ask 1 last one. Can we give an update on what's going on in Nevada, whether you're actually making some investments there, whether you're kind of approaching the how to grab it now. Just anything that's going on there?

Phillips S. Baker

Sure. So the (inaudible) was the primary reason for the acquisition in Nevada. And what we have encountered is an influx of water, and we're having to -- that was not anticipated, was not identified. We're having to do hydrogeology to figure out how much water we have and then a plan for how to deal with that water. So until that happens, and we have to have permits to be able to deal with the water. So until that happens, we're going slow in Nevada. And we also have lots of opportunities elsewhere to put our exploration dollars. So we're doing that.

Anvita Mishra Patil

The [lekking] season.

Phillips S. Baker

The [lekking] season. Until that's done, which is, I think, in June, and so you'll see us do some drilling there. But otherwise, we're evaluating at Midas, we're evaluating the expiration that we've done. We had some great initial results and then we've not seen the follow-through. So we're not going to push things until we are convinced that we have a good plan for the exploration on Midas Fire Creek. So you're not going to see much expenditures there in 2023.

Operator

We have no further questions at this time. I'll hand the conference back over to management.

Phillips S. Baker

Okay. Well, we appreciate you being on the call. I just want to remind you that we have sometimes available with management. If you'd like to have a one-on-one call, you'll find the information for that on the press release.

Operator

Ladies and gentlemen, that will conclude today's meeting. We thank you all for joining. You may now disconnect.