Hecla Mining Company (HL) Earnings Call Transcript & Summary

Yes, Phil, maybe I can get started. Probably a few more people come in, but we can get the ball rolling. We only have 20 minutes after all. So we've got a lot of ground to cover here. So I'd like to, first of all, well, I'll introduce you. This is the CEO and actually, Phil, you are, I think, the longest-serving CEO in the gold side in the conference this year. This is a remarkable achievement. So Phil Baker is the President and COO of Hecla Mining. And I'd like to welcome you to Miami. I realize you just got in last night. And I'd like to you the opportunity just to start off with an update of the company, your outlook for this year and any highlights that you'd like to have the audience understand of what you're doing.

Well, it's great to be here. I've been off and on coming to this conference, I guess, for the better part of 2 decades. So it's great to be here. And it's also great to be here with the pandemic largely behind us, at least in most ways. And over the last 3 years, I think I'm just really proud of the way we were able to handle the pandemic. We were able to grow our production. We were able to increase our, not just production of silver, but also all the metals that we produce, including zinc. I'll just mention that, I see some of my colleagues from the Zinc Institute or the International Zinc Association. And we were able to do it in a safe way. We were able to manage that. We were very early in setting up our operations to handle the pandemic. And as a result of that, over the last 2 years, we generated free cash flow of $200 million. We have now had 8 consecutive quarters of positive cash flow for the company. And it's pretty remarkable, when you look at companies in our space at how rare that is, and that's been one of our real focuses is to have a business that is able to generate cash flow at each of our operations, have an overhead that matches that, have an exploration program that matches that. And it's really a function of the assets that we have. These are super high-quality assets in the case of our 2 silver mines, very, very low cost, very long-lived assets and they're getting better. That's the thing that's remarkable. And it really goes to our philosophy that I was insistent upon when I joined the company that, we focus on large land positions, assets that have the potential to grow, that have the potential to learn the geology, to learn how we can improve the operations. And so that's what we're really seeing is huge improvements at the Lucky Friday now with a new mining method and huge improvements at Greens Creek.

Okay. I think that's a great place to start off now. You always are very generous with sharing your views on the silver price. So I'd love to get your latest views on where you think the silver price is going. What might be contributing to some of the weakness? And what about the gold price also?

Yes. I'll focus on silver. You got lots of guys who can talk about gold. So it's interesting. I actually joined Hecla at the 30-year low of the silver price. Price of silver was just below $4. And what I didn't appreciate at that time was that photographic demand for silver was going to fall off a cliff. 1999 was actually the all-time high demand for silver for photographic purposes, and it's gone down, I don't know, roughly 90% since then. What I didn't appreciate was this digitization that was happening. And the fact that the demand for silver would increase so dramatically in what's called industrial applications, and that the investor would be interested in owning silver coins and bars. That has grown just dramatically. It has been remarkable that growth that we've had. And then, of course, you've had the ETFs that have also added to the demand. So when I think about silver, I think, wow, what a great base it comes from. But then you add on to it, and you talked about this in your key themes note that you put out this morning, the decarbonization metals, and you missed 2 metals. You missed silver and you miss zinc. And that's probably because you didn't talk about those yesterday, but maybe today, you can add those to your decarbonization notes, because they are fundamental in this decarbonization. And if you think about photovoltaic demand, we're now at roughly 12% of the world demand for silver is used for solar. And the -- and you think about how you decarbonize energy, it really is on the back of solar. And the Energy Information Agency -- the U.S. Energy Information Agency suggesting that we're going to get to 0.5 billion ounces of annual demand for silver, and realize that the silver market is only 1 billion ounces today. So they're saying, it's going to grow about 3.5x. And where is that silver going to come from. There's not a lot of silver mines. And just like you said about these other metals, the only thing that can solve that problem is going to be higher prices, so that new silver mines can be developed. You're not going to see it in recycling. Recycling interestingly, has not moved any in the last 20 years. It's roughly 150 million to 200 million ounces of recycling ounces. So where does silver go? It's going to go up. When does it go up? I don't know. We're not so concerned about that because we have such long mine lives that we will mine through whatever the cycles are that we have.

I think that's a very fair perspective. So another theme yesterday that wasn't discussed in detail in that report that you looked at, was the potential for gold producers to increase the reserve price assumption. So you're the first silver producer to present. There's a couple more to come at the conference, but what are your thoughts on that in terms of the need to replace reserves and then the silver gold price assumptions used in those.

Look, we have the lowest silver price assumption in the industry. We'll continue to have that. There's no need for us to raise the assumption. It -- our ore bodies are pretty fixed. Even if you raise the price, you're not going to actually increase the size of the ore body. So we'll just maintain these high-margin ore bodies.

It's a nice thing about the geology at Lucky Friday and Greens Creek is right. And maybe your thoughts on industry consolidation. It definitely is clear to me anyway that there's a need for a lot more production to meet supply. Obviously, price will have to come first. But it tends to help these things when there is larger companies producing these metals. What do you see for the potential of industry consolidation when you look around the space, particularly in silver? There's not been a lot of that.

And part of the reason is, there's not a lot of players in silver. I mean you think about it, you've got really just -- you can fit them on 2 hands, the number of investable silver names. So while I think there will be some consolidation, it's really more on acquiring exploration and development assets, I think, more likely than producers, but you never know. Those producers can come together. In our case, we have the good fortune of being in the United States and Canada. And so when we think about acquisitions, we have to be very mindful that we're in a unique position, having this jurisdictions that we have. And there is no place better in the world to mine than in the U.S. and in Canada. And in fact, I think it's troubling what's happening in other parts of the world. And so it makes the hurdle that much higher to be able to do a transaction to go into those jurisdictions.

No, that's very fair. So the industry has been plagued by cost inflation, but not at Hecla. I mean on the call, you cited the zinc prices do help, but actually, your cost per ton has been relatively under control as well. To what do you contribute that?

Well, look, we've got great operating teams, and I don't know if we're going to see more inflation during the course of the year. I anticipate we will. We certainly believe that we're going to have to increase compensation to people. And that's appropriate when you look at the cost that people are faced and just living their lives. So we'll see some cost inflation, I have no doubt about it, but I also know that with particularly the new mining method that we have at the Lucky Friday that as we optimize that, you should see the cost per ton decline. And as we increase the level of lead and zinc production, we think those byproduct credits will at least offset, if not more than offset the inflationary pressure.

Back to zinc. So...

We are the third largest zinc producer in the United States, right? People might not realize.

And by the way, zinc is more of a theme today than it was yesterday. So Teck Resources started the day of this morning, they are the largest producer in the United States as you all know. I wanted to ask about your longer-term growth outlook. So obviously, when Lucky Friday is going to ramp up to 5 million ounces, I think that's well understood, possibly priced in the shares. I won't comment on that. But beyond that 5 million ounces, where do you see is the drivers of silver production growth?

Well, first, our expectation is that the Lucky Friday is going to go from 5 to 6 million ounces. I mean, remember where we started, we were 2 million ounces 2 years ago. So we're going to go from 2 million ounces, we went to about 3.5 million ounces. We go to about 4.3 million ounces this year. We're going to go to over 5 million ounces next year, and then we would anticipate, if you look at our technical report, we would anticipate being over 6 million ounces, about 2 years following. So we're going to continue to have that growth within the Lucky Friday. And that growth will directly translate into cash flow, because remember, the amount of capital that we need to put into the mine is, it's additional loaders and additional trucks. It's not any additional new infrastructure that we have to build. So you're going to see that growth. You're going to see, we think, at Greens Creek with some of the improvements that we're making, it's funny you put your attention on your best quality asset and you realize there is the opportunity to do even more. We ran that mill at a rate that is almost 70% higher than what it's ever been run at before, and we actually had better recoveries. So we're looking at, okay, how do we increase that throughput through Greens Creek. So I think you'll see Greens Creek continue to improve. Casa, we've taken the first step of improving the mill. And if you look at the availability of the mill and you look at the throughput of the mill, it's never been better. And now the focus is really on the mine to get the mine to catch up to the mill. So I think you'll see growth happen there. And then we have 13 exploration projects across the company. And some of them are like in Nevada, where we have existing infrastructure. And so if we have success there, we can move those into production very quickly. We have a tailings facility there that's fully permitted, fully constructed, ready to go. So we have a lot to jump-start growth in production. And then beyond that, and looking out a few years, is we have the third largest undeveloped copper asset in the United States in Rock Creek and Montanore. It's about 3 billion pounds of copper and over 300 million ounces of silver. We have changed the strategy as to how we're permitting that mine. And we think that will advance it more quickly than what we inherited when we acquired that. So stay tuned for that. I think you'll start to see visibility on that over the course of the next 3 to 4 years, and potentially see that in production in the next decade.

Yes, that would be really exciting. Maybe could you talk to the updated permitting strategy.

So in the past, what was attempted to be permitted were 2 properties with full authority to go into production. What we have said is, we're going to put 1 of those properties on hold, and we're going to only permit the exploration portion on the other property. By doing that, it allows us really to get the visibility of our -- of the hydrology to sort of answer some environmental questions, as well as to do the infill drilling necessary to really develop a truly modern mine. Because the old plan was really based on technology of 15, almost 20 years ago. So we think this will allow us to put it in a better position to get the final operating permit.

Maybe a comment on Nevada. What is your latest thoughts in terms of how that might evolve and especially the timing on that?

Yes. Look, nothing has changed there. When we acquired this asset, we had the belief that we could have 1 of the properties generate the cash flow to do the exploration on the rest of the property. So that part, we got wrong. But what we got right was the exploration on the other properties. So we're continuing to have success at Midas. At Hollister, we've had to deal with an influx of water, and we just don't have the right permits to deal with the water. So we're having to pause the drilling there until we can dewater that with new permits, which we would expect to get by the end of the year. And we're highly confident that, that could go into production in the next couple of years, because of that infrastructure that's already built. The only permits we would need would be for access -- underground access.

Interesting to see how that evolves. Look, if there's anybody that would like to ask a question, please just shoot your hand up, and we'll make sure it gets addressed, but I'll continue, but keep an eye on the audience for any questions. I wanted to come back to some of the exploration comments you made. Last year, obviously, was a very successful year. You more than replaced reserves. Do you have a sense of how things are looking for this year?

It's early, but...

It is.

Really, the true drilling season didn't start until now. So I don't have a huge amount of visibility. What I can just suggest to you is, that when you look at the drill results that we have, and I'll just use Greens Creek as an example. We're continuing to see results that are consistent with what we've had in the past. And that mine is now 35 years old. It now -- when it started, it had 7 years of reserves. And today, we have 14 years of reserves, and we have another 14 years of M&I and then there's inferred on top of that. So there's the potential to move material, particularly if we can improve productivity, move material from the resource category into reserves is likely to happen there. So I think over time, you're going to see these sort of continued big jumps in our reserves.

On taxes. I think Hecla has a pretty large tax loss carryforward. Are you guys paying significant tax in the U.S. right now?

No, we're not. That was one of the real differentiators of us to other companies is, we're in the U.S. And the U.S., frankly, has the best mining tax regime in the world. It is the most attractive place to have a mine from a tax perspective. That's where I started my career, was doing taxes. And so, as a result of that, we do not have any significant taxes that we pay. What taxes we pay are specific mine taxes at each of the mines, but there's no real income tax that we're having to pay. And we wouldn't project that we would see anything for the next decade or so.

Nice position to be in. And you mentioned U.S. and we've talked a lot about jurisdictions and the focus on U.S. and Canada. Periodically, you've had production in Mexico. That seems to be a jurisdiction you're comfortable with. Are there any other jurisdictions that sort of fit the comfort level of Hecla?

So when I joined Hecla, we were actually the largest gold producer in Venezuela, which some people don't remember. And we made a strategic decision to get out of Venezuela. And so I can just suggest to you that we're going to be limited in what jurisdictions we'll go back into. We experienced the difficulties of operating in that sort of jurisdiction and the -- just the distractions that it created, relative to actually running the business. So are we going to go outside the U.S. and Canada and Mexico? It's possible, but it's not likely.

Got you. Now we have about a minute left. I haven't seen any questions from the audience, which is fine. I really wanted to touch on ESG. So maybe just walk us through the existing ESG program. How are you seeing that evolve? And how is the electric fleet at Casa Berardi going to play in this?

It's not an electric fleet at Casa Berardi. What we have there is automated. We have automated equipment, where we have machines that move material a kilometer and half with no human intervention. And it is going extraordinarily well. And we will likely apply that to the Lucky Friday operation over time, where we have a 1-mile haulage from one shaft to another shaft. But as far as ESG goes, it's really quite remarkable. I've been in the mining business for a long time. And I would suggest to you that we have been ESG focused for the whole time I've been in the industry and particularly at Hecla. Hecla has operated in these communities and this idea that a mining company goes into a place and they just sort of rape and pillage, and they're out. Nothing could be further from the truth. It's where -- we've been -- where we are in Idaho, we've been there all 130 years. So we take care of the communities that we're in. We've done that in a variety of ways. The #1 way, though, is we provide high-quality jobs for people that are generational. And we're going to celebrate at our annual meeting this year, an employee's family that is now the fourth generation. So they have actually worked at Hecla for over 100 years, someone in their family. So when we think of ESG, we think of taking care of our people we have. We still have a pension plan in Hecla. We give not only someone a job, that is a more than a livable wage, we also take care of them after they retire. So it's -- ESG is something we're proud of what we do. And the main thing is to let people know what's happening.

I think that's a really nice note to end on.

Okay.

So thank you for being here, Phil. I appreciate you supporting the conference, and thank you those who are in the audience.