Hecla Mining Company (HL) Q2 2019 Earnings Report, Transcript and Summary

Hello and welcome to the Q2 2019 Hecla Mining Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] I would like to introduce your host for today's call Mike Westerlund. You may begin.

Thank you, Operator. Welcome everyone and thank you for joining us for Hecla's second quarter 2019 financial and operations results conference call. Our financial results news release that was issued this morning before market opened along with today's presentation and the exploration release from Tuesday are available on Hecla's Web site. On today's call, we have Phil Baker, President and CEO; Lindsay Hall, Senior Vice President and Chief Financial Officer; Lauren Roberts, Senior Vice President and Chief Operating Officer; Larry Radford, Senior Vice President and Chief Technical Officer and Dean McDonald, Senior Vice President, Exploration. Any forward-looking statements made today by management team come under the Private Securities Litigation Reform Act and constitute forward-looking information under Canadian securities law, as shown on Slide 2 and 3. Such statements include projections and goals, which are likely to involve risks detailed in our Form 10-K, Form 10-Q and in the forward-looking disclaimer included in the earnings and exploration releases and at the beginning of this presentation. These risks could cause results to differ from those projected in the forward-looking statements. In addition, during this call, we may disclose non-GAAP financial measurements. You can find reconciliations of these measurements to their nearest GAAP measurements in the accompanying presentation, which is available on our Web site at www.hecla-mining.com. Finally, in our filings with the SEC, we’re only allowed to disclose mineral deposits that we can reasonably expect to economically and legally extract or produce. Investors are cautioned about our use of terms such as measured, indicated and inferred resources, which are not reserves and we urge you to consider the disclosures that we make in our SEC filings. With that I will pass the call to Phil Baker.

Thanks, Mike and good morning, everyone. The financial performance in the second quarter was poor and impacted by several items and the team is going to be discussing this in a moment. So, I just want to highlight a couple of points and set the stage for the next couple of quarters. You can just follow along some of the main points on I think Slide 4. We called out in the news release's headline the increasing Greens Creek silver production, which is due to realizing higher grades this year of a plan because of newly identified mineralization. As outlined in our 43-101 over the next five years, we expect to continue to see higher than average reserve grade. So, Greens Creek strong cash flows in the first half of the year should be repeated in the second half and into the future. Of course, the amount of cash flow varies by quarter depending on prices, grade of the byproduct metals, volume and timing of concentrate ships and that's part of what happened to us this quarter. For most of the last decade, we have consistently invested in exploration and growing reserves which is the foundation of any mining company. Today, we have among the longest mine lives compared to peers with more than a decade of reserve life at each of Greens Creek, Casa Berardi and Lucky Friday, plus we also have their resources. By having these long reserve lives, we can see how to make these mines better with new technologies that can generate returns for many years to come. An example of that is, the automated haulage at Casa that is at half the cost of non-automated. We also are making discoveries that are immediately going into the mine plan, at Casa, we're seeing that in the east mine and Dean is going to talk a little bit about that. So, we can generate good value from our exploration and other investments. But, with Nevada not working as we had hoped, we are reducing those expenditures and others by $25 million, as we talked about in June. And in fact, we are working to extract $30 million of costs; most of it is capital, exploration and G&A. This reduction coupled with our anticipated higher cash flows from Casa Berardi, San Sebastian and the continued performance from Greens Creek, these are all assets in which we have a proven track record operating should increase substantially our cash flow over the remainder of the year. And we're also seeing improved financial performance in Nevada. So, in this third quarter for the first time since the acquisition of Klondex a year ago, our plan show us generating more cash than we spend. So, we can start deleveraging by reducing the revolver. And then, with the anticipated cash generation really picking up in the fourth quarter, we expect no revolver debt by the end of the year and at spot prices that may be even better. In addition to minimizing spending in Nevada, reducing expenditures company-wide and beginning in the third quarter the planned reduction in our revolver debt, we are taking other steps to increase our cash and EBITDA in anticipation of any debt refinancing. On of those steps is the purchase of put options to set a floor of $15.13 and 1,400 for silver and gold sales respectively going forward. Fortunately, it looks like we're not going to have to rely on these puts and we realize the higher spot prices that we're enjoying today. We are monitoring the market, however to purchase more put options for 2020 should the cost of the puts decline. They're quite expensive at the moment. Another step was amending certain terms of our revolving credit agreement to give us additional headroom on the net debt to EBITDA metric through the second quarter of 2020. We don't expect any constraints on the availability from the revolver covenants, and of course, we don't expect to utilize much if any of it by year-end. Finally, we are looking towards the refinancing of our high yield notes. As part of this, we are considering all of our options if we don't use the high yield market to refinance all the bonds. As I indicated in June, we have a number of possible alternatives we are considering. And since that June release conditions have improved, Gold and silver prices are higher, interest rates are lower. So, we believe the quality of our alternatives has improved since then and we fully expect that within a year, we will refinance the debt. So, that gives you a sense of how we see things, we are implementing our plans in Nevada, recognizing it will take study like we did at Greens Creek early in its life. We are lowering company-wide costs, increasing production in the second half, realizing higher prices that are protected by puts and all of which makes Hecla stronger by year end. Before I turn things over to Lindsay, let me talk about management changes. First, I'm pleased to welcome back to Hecla, Lauren Roberts, who most recently was the Chief Operating Officer at Kinross and is taking the role of COO at Hecla. Many of you will know Lauren from his time at Kinross, but for those of you that don't, he brings 30 years of mining experience mostly underground, 10 of it in Nevada and has good experience working in challenging ground conditions at hot mines and with mechanical mining. So, he has a lot of direct experience with the issues we have in Nevada, at Casa and the Lucky Friday. And I said welcome back because he used to work for Hecla from 1989 to 1997. We're looking forward to his contribution. So, Larry has taken a temporary position, Chief Technical Officer to allow transitions to Lauren, while keeping operating plans on track and having good continuity on our innovations. By the way, Larry has passed off responsibilities to Lauren twice before in their careers. I want to extend my personal thanks to Dean McDonald, who is retiring at the end of September. He has been a strong leader for the company since joining Hecla in 2006 and opening our Vancouver office. He's led the team that established record silver reserves in 10 of the past 11 years almost all from exploration. An impressive achievement when you consider the overall reserves in our industry had been shrinking. And I urge you to read the second quarter results. This is will be Dean's last set of exploration results that he gets to author for Hecla because of the success that we're having finding new high grade underground at Casa and on the El Toro Vein at San Sebastian. Dean's role is being divided between two of our highly skilled people Keith Blair who becomes Chief Geologist and Kurt Allen who becomes Director of Exploration. With that, I'll pass the call to Lindsay.

Thanks Phil. We recorded a net loss of $46.7 million, which represents an EPS loss of $0.10 for the quarter, which was higher than the market was expecting. Included in the loss was -- gross loss in our Nevada operations of $20 million, which included some $18 million of depreciation expense. Because Nevada has few reserves, the depreciation expense will always be greater than at our other operations. Going forward, we'd expect a run rate of approximately $14 million to $15 million for each of the next two quarters. Also this quarter at Greens Creek, we sold less base metals at lower prices and more silver at lower prices than last year. So, in the case of Greens Creek, the gross profit was lower for the most part because of pricing year-over-year. Also included in the net loss was $5 million related to write-down of [indiscernible] assets, an exploration stage project in Quebec that we are selling. So, it was a tough quarter operationally at three of our mines, but for different reasons, base metal pricing in the case of Greens Creek, Casa some milling issues, and at Nevada just not seeing the gold ore grade we expected. Turning to EBITDA for the quarter, we have calculated adjusted EBITDA of $22.9 million some $30 million less than the prior year's quarter, again, for the reasons consistent with the net income variance. Lower operational results at Casa and Greens Creek are responsible for the lower EBITDA. We also calculated debt to EBITDA ratio for the 12 months ended June 30 to be 3.9x. With the pause in Nevada, our most capital expenditures, additional revenues from higher commodity prices and if we improve the achievements - improvements in the operational performance, we expect this ratio to improve in the coming quarters. We have worked with our syndicate of banks to relax the debt to EBITDA ratio, while we assess our options to refinance the bonds which Phil has spoken about. Our drawn revolver today is some 85 million with 15 million of cash in the bank and we expect to reduce that net number of 70 million draw down to 35 million by the third quarter and reduce it to zero by year end. Lastly, we finalized the purchase price allocation for Nevada this quarter at an accounting value of 485 million; another took a carrying value assessment, given the changes we have currently implemented and concluded that a write down on these assets was not triggered at this time. So overall, it was a tough quarter, but we're taking the necessary actions on a timely basis that we think will improve our financial position. We expect to be cash flow positive over the next couple of quarters, so we should -- so, we are on the right track. With that, I'll pass over to Larry.

Thanks Lindsay. We've made some changes to our annual estimates by increasing our silver production estimate and we are maintaining our gold production estimate. Going to Slide 8, we have made significant changes to Nevada operations as announced in early June in order to reduce the cash flow impact of the operations, while we work through a number of issues. As described on Slide 8, we have nearly stopped all development, our plan to mine out at Fire Creek by the middle of next year and our exploring options to extend its life further. Among the issues we face in Nevada's water, even mine that we're not overly concerned with the amount of water which is very small by the standards of Nevada mines. We are more focused on ensuring that our permits are sufficient to match the expected water outflow. We are permitted to discharge 100 gallons per minute. We have approval from the Nevada Division of Water Resources to increase this rate to 162 GPM. We expect approval from the Bureau of Land Management for this increase in the near future. Mine is currently discharging about 90 GPM most of which is treated and is discharged or evaporated. Some water is low in contaminants and can be discharged directly without treatment. As the mine expands north and south more inflow is expected. The mine models are in the process of being refined, but we expect inflows of approximately 300 GPM. We're working on getting a non-consumptive water height of 1000 GPM. The process of obtaining this water height is expected to take 12 months. Also in Nevada, we continue to work on a total milling agreement for Fire Creek ore, why is it important, it could mean lower trucking and processing costs. It could mean the ability to process all types of ore all of which could enable a reduction in the cut-off grid, opening up areas of the mine that were considered uneconomic. If this happens, we can turn on the development to these areas quickly and get them back into production. For the full year, as shown on Slide 9, we are raising our forecast to 62,000 ounces. Although there is risk in this estimate principally ground conditions which can be quite variable. I believe it is reasonable estimate due to steps that we're taking at Fire Creek, which include decreasing development and the stope development is expected to be largely complete in September. The all-in sustaining cost after byproduct credits is projected to be under $1000 for the second half of the year. I'm also pleased to report that the Midas mine is receiving the first place safety award for small underground mines from the Nevada Mining Association in September. Moving on, Greens Creek continues to be the main castle driver of the company on Slide 10. Greens Creek silver production is up and several high grade stopes expanded further than we had anticipated. We are increasing our estimate for silver production to 9 million ounces this year and base metals production is down, so the net benefit is positive from a value point of view. But, the cash costs and all-in sustaining costs after byproduct credits have increased because the value of the byproduct metals has declined. This happens once in a while and this is one of those quarters. So, we have increased the cost estimates this year a bit to reflect this. Moving to Slide 11, the production challenges from the first quarter at Casa Berardi spilled over into the second quarter which has kept production from fully recovering. The principal issue has been mill availability. Pre-crushing of ore began in July and is planned to continue until year-end. We expect an additional 400 tons per day and several thousand ounces from this initiative in the second half of the year. We also expect grade to improve by 10% in the second half. Moving to Lucky Friday, we have raised our production estimate for Lucky Friday, which is still a relatively small amount, but is helping to offset some of the costs of the ongoing strike. In addition, the fabrication is Remote Vein Miner is complete as you can see on Slide 12. The unit looks great as you can see in the photo. The focus now turns to operating in Iraq test mines and Sweden in the third quarter. Pending successful testing the plant is for the unit to be disassembled and sent to Lucky Friday and is expected to arrive in the second quarter of 2020. Moving to Slide 13, San Sebastian is on track. The huge zone bulk sample shown on this slide is on target and the contractor should begin the long-haul mining trial soon. Exploration drilling at El Toro is encouraging, as El Toro permitting is on the critical path to a continued operation we're beginning the baseline work now to minimize any production hiatus. Hecla has an option on Golden Minerals Velardeña mill where we reprocess the oxide material through 2020. Although, Golden Minerals has announced the potential sale of its subsidiary that owns the mill to Outland, a Mexican mining company, our option remains valid. Although, we are only beginning our budgetary planning for 2020 there are three new developments at Hecla that give me optimism. First, the plan to move high-grade forward in the mine plan at Greens Creek kicks full throttle in 2020. Second, the Casa Berardi drilling success in the 148 and 152 zones that Dean will cover has potential to be brought in as additional production in 2020. And third, the El Toro exploration that Dan will also cover has the potential to extend San Sebastian production. Finally, a personal note, I welcome Lauren to Hecla. We worked together in both Barrick and Kinross and I'm gratified to be handing off to a seasoned professional. This is my 8th year with Hecla not counting when I worked at [indiscernible] mine, I was a miner in 1981. Since joining Hecla, we've added mines, increased consistency and performance and introduced many innovations that have improved safety and productivity. As I handoff to Lauren and begin to contemplating retirement after 36 years in the business, I look back with satisfaction on the work that Hecla team has done. I will now pass it to Dean.

Thanks Larry. Although exploration budgets have become more constrained, we continue to have good success in the second quarter with drill programs at or near our mines where we are confirming and expanding resources with the potential for increasing reserves in the near future. A list of important drill intersections is provided in the appendix of the exploration release which was issued on Tuesday. At Casa Berardi, we had considerable drilling success along the main trends as shown in Slide 15. Three areas of note are the cluster of high grade underground resources at depth in the 113 through 123 zones in the West mine on the left side of the image. In the central part of the slide, high grade lenses defined closer to surface in the 124 and 128 zones are below and east of the principal hit. And in the east mine, the expansion of the high grade 148, 152 and 160 zones. A notable success is the quick evolution of the east mine, access to this part of the mine was only re-established about six months ago and already drill results as shown in Slide 16 have defined and expanded a series of high grade lenses, extending from the 148 zone along a strike length of 2000 feet to the 160 zone. High grade lenses in the 148 zone average over 10-feet in width and appear to persist further east to the 160 zone. But also, present in the 160 zone are drill intervals up to 30-feet wide with good grade that may be amenable to more bulk mining methods. At San Sebastian as shown in Slide 17, surface drilling is pushing hard to extend near surface, oxide mineralization along the El Toro Vein, which is about a mile and a half south-southwest of the current mine. Longitudinal shows the vein has a mineralized strike length of 5000-feet and localized high grade pods are located between the surface in the 450 and 450 feet of depth. There is a substantial increase in the width and grade of the vein where a strong hanging wall vein intersects the main El Toro vein. Both veins remain open for expansion. Significantly, as shown in the cross-section in Slide 18, this hanging wall vein appears high grade and merges with the main El Toro Vein at depth as well as along strike. Although, both veins have additional exploration potential, the current combination and configuration of veins look attractive and are being evaluated for a number of mining scenarios. The El Toro area may provide an extension of oxide mine production past 2020. It's sometimes easy to forget about Greens Creek because it's so robust and dependable. But drilling continues stuff grade resources in the upper and central part of the mine as seen in Slide 19. Recently exploration drilling has begun to evaluate extensions to the south. The opportunity to continue to extend mine life at Greens Creek is readily apparent. In some of the stronger trends are defined with the red arrows in the slide. Surface drilling is begun south of the Fire Creek mine in the South Notice area to evaluate a series of strong geophysical targets that resemble the geophysical features of the veins already being mined. At the Hollister mine important surface drilling is about to start as we begin drilling east of the current Hatter Graben Resource. We are confident we can make the Hatter Graben substantially larger. This was recently reinforced by the discovery of outcrop a long trend over a mile east of the current Hatter resource as seen in slide 20 of a very prominent silicified dike with veins that are reminiscent of Hatter mineralization. Over the last, 13 years I've worked with a great exploration team that has been very effective at leveraging our budget to sustain and grow the reserves and resources throughout that period regardless of commodity prices and fluctuating budgets. I am retiring, but our succession plan has been in place for a number of years and I believe that with Kurt and Keith and the rest of the exploration team, the successes will continue. And with that, I'd like to pass it back to Phil.

Thanks, Dean. Why don't we go ahead and open the line for questions Operator?

[Operator Instructions] The first question comes from the line of John Bridges with JPMorgan. Your line is open.

Morning, Phil and everybody. I guess the elephant in the room is still the -- is the refi. You mention that your options have become high quality as a result of the higher metal prices. Could you give us a bit more color as to the extent to which things are improved and to which avenues you're most focused on?

John at this point, we're still considering all options. We're not at the moment focusing on any one. The initial thing to do was to make the changes that we've made in Nevada and start to generate the free cash flow. And so, you'll see that over the course of the next couple of quarters. And then, on the back of that we would expect to do something. But, all options as to how we might handle the refinancing are on the table. Lindsay anything to add?

No. I'd say John a little bit is just -- high yield markets a little bit more positive today than it was maybe a few months ago. So, we see that as a positive for -- as an avenue to refinance the bond.

Yes. Our bonds are trading at a yield that's maybe four percentage points better than it was 2 months ago. So we're going to give things a little bit of time I expect. But having said that, you will wake up and be conscious of what the market's doing and be prepared to move quickly if it makes sense.

Okay. Okay. And then, just as a follow-up, the water situation. What's a non-consumptive water rights, is that you're buying a ranch that you can put water on to like some of the others in Nevada?

No. It's not. Larry?

No. It's basically because as it is described you're not consuming anything, it's government awarded water [indiscernible].

Okay. And if I may sneak in one, the toll treatment, do you have refractory material you can see that would go into a toll treatment or is this positioning ahead of what you're going to find with current drilling.

Yes. We're aware that we have material that would be great feed for an autoclave or roaster and so we would just see it as an opportunity. Larry?

Yes. There is one heading that's in north end of Spiral 3, so far north of the mine that is in high material with the high sulfide content. In fact, we've sent some of it out for testing and to third parties for their evaluation.

Okay. Thanks. And Dean, best of luck in your new endeavors. Thank you.

Thanks John.

Thank you. Our next question comes from the line of Matthew Fields with Bank of America Merrill Lynch. Your line is open.

Hi, Matt.

Hey, Phil. Hey, Lindsay and everybody. And congratulations Dean on your career and good luck. I just wanted to -- I don't know if I heard it correctly, Lindsay, did you say early on the call that there was 70 million drawn on the revolver as of today?

Yes. That's correct, Matt.

Okay.

Net, 85 less 15 cash on balance sheet.

85 drawn less 15 of cash?

Yes.

Okay. As of quarter end, there was 52 net meaning there was more drawn less 9.5 million of cash, is it? I don't understand the net drawn?

Matt, all we do is pick the cash -- draw less the cash is what we call the net. So, if you use 52 to 70 that's the increase in the net draw.

Okay.

If you printed a financial statement today, it would say 70 or 85?

85 on the drawn, 15 million of cash.

Okay. Thank you. So, just I'm trying to work through the second half because if you're going to have nothing on the revolver drawn that means free cash flow generation of -- at least 52 million. And even at 1500 gold and 17 silver and with the higher production at Greens Creek, I still don't even get you close. Is there an asset sale baked into your expectation?

No. There's no asset sales. There's no financing. It's all free cash flow generation from the mines.

So, then let's just work backwards because if we're at 52 of cash flow, if your guidance for CapEx is 138 that means you have 67 of CapEx to go, about 20 million of interest. That means you need 139 million of EBITDA over the second half roughly to get 50 million of free cash flow. Am I missing something?

I think those numbers are right. Sorry about the background noise.

Great. Is the message about the CapEx guide of 138 is too high and you're going to cut that significantly?

No.

Is there no big working capital release baked in here?

No. There is just normal sort of working capital changes.

Okay. All right. That's it from me. Good luck.

Okay. Thanks Matt.

Thank you. Our next question comes from the line of Jake Sekelsky with ROTH Capital. Your line is open.

Hey, guys. Thanks for taking my questions. Just looking at Greens Creek and with the mine sensitivity to base metal prices, have you put in place or have you put much thought into putting some hedges back in place on those base metals to sort of smooth out, some of that out especially given the recent run in precious prices?

To put additional hedges in -- we periodically put in hedges. And typically they're in higher prices than where we are now. Are you able to hear me?

Yes. Yes.

Okay. There's some background noise. So, if you look at -- if you look at the hedges that we've put in place for the most part the zinc hedges have been roughly hundred - dollar twenty five per pound. And lead hedges have been roughly $0.95 per pound or higher. So, when we think about, when to put in new positions generally speaking we are not putting in positions when we think the exposure to the downside is less than the opportunities to the upside. So, I guess Jake I think it's unlikely that you'll see us put in many new positions.

Okay, [indiscernible] keep prices a little bit higher before…

Yes. We just don't -- while we see prices could go down some we're not inclined to lock in these levels.

Fair enough. And then, just on the exploration front, I mean Del Toro vein at San Sebastian sounds like it might be a source of some more oxide material there. And I know it's early but maybe just provide some color on what you're hoping to see regarding timing and maybe even cost in developing that?

Dean?

Yes. Well, we're certainly still working on costs and evaluating both open pit and underground scenarios. When we look at in terms of permitting and acquiring the land, it's probably about a one year timeframe. And so, we're looking at that one year and slightly beyond for, be it open pit or underground.

Got it. Okay. That's all from me. Thanks guys.

Thanks Jake.

Thank you. Our next question comes from the line of Cosmos Chiu with CIBC. Your line is open.

Hi, Phil and Lindsay and thanks and good luck to Larry and Dean. Maybe first-off on Casa Berardi here. Looking at your production in the first half, as you mentioned you'll need a better second half to hit guidance. Could you give us a bit more color in terms of higher grades coming out, historically I guess as you go deeper into the mine, there would be higher grade, which zones are you -- is in the mine plan for the second half, is it 118, 123 and what is it?

I believe it's 123. I'll look it up right now.

So, we'll look that up Cosmos…

Okay. It was pretty much…

Just to be clear, depth does not seem to suggest higher grade or lower grade right, Dean?

No. Really what happens I think in general, Cosmos is, as you get into these zones -- specific zones and as you know they have fairly short strike lengths, but the down plunge direction is what's critical. And so with the 128 and we've been mining that off and on for the last few years that is -- tends to be a high grade zone with good recoveries not unlike what we're seeing now with the 148 and 152 zones.

So, Larry, in the first half which zones did you mine and again where you're mining in the second half?

Well, it doesn't really change first to second half. It's just -- there are just basically stopes that are taken in sequence that come out higher. We could mine them earlier, we chose to but we'd end up sterilizing something.

So, it was a lower grade in the first half more or less planned? Is that what you're telling me Larry?

It was absolutely planned. And it's also worth noting Cosmos that the open pit has higher grade in the second half as well. So, yes, the plan has always been higher grade over -- during the course of the year. The thing that was not planned was lower tonnage that we had in the first half of the year. That was where we had the shortfall and as we talked about previous calls. It started as a problem that came as a result of the new crusher that we put in and as we head to them, modify the mill. And so those modifications have been completed and we now have an input crusher and try to catch it up. Larry, anything to add to that?

Yes. I just took a quick scan through the web, I call double digits stopes where about 10 grams and if it's not one particular area, there is 123, there's Principal of 124 area. So, it's just -- they're just in sequence that they come out later in there. But, it sustains on where you were mining through all year.

And could you remind me right now, is there anything coming out of the East mine at this time?

No. There is no production. We just reopened that six months ago.

Yes. Okay. And then, if I remember correctly from -- I've covered Casa for a long time. The East mine in the past, they've had issues in terms of ground conditions especially with graphite, during your exploration and what your exploration program at this point in time, is that still sort of an issue?

Well, that was an issue for East and West and it's really what Horizon solved, that was sort of the big success that they had and we've just furthered that and improved upon what they've done. And so, now we're going to apply it to the East mine. Larry?

Yes. I mean the graphite fall extends to full length of the operation and we have a very disciplined approach to going through it. It's short round and spiraling and shock creating and that very, very procedure oriented. And we've changed our approach to how we access the stopes now. The stopes used to terminate up against graphite fall, but now we're mining the other side. So, we don't have to go through it once and that's not the development. So it's been managed through the years very well.

And then, I guess, I'll take a step back here in terms of the overall cost guidance for the year in 2019, as you touched on it, I just want to confirm. So, I guess the silver all-in sustaining cost guidance increased due to byproducts? And then, how about the cost increase for the gold segment?

So, with respect to the silver, you're absolutely, right, it is the fact that we have lower volumes, lower prices for the base metals that has caused that to increase. For the gold in aggregate, I thought we were just slightly higher and it's a result of the higher Casa Berardi for the course of the year. We just are not able to maintain that guidance for Casa.

And then, I guess going back to a previous question in terms of, did the hedges, I guess, I have two questions on the hedges. Number one, you talk about the gold and silver hedges. I just want to make sure, Lindsay, is it so substantially all of the production for the rest of 2019 into the early parts of 2020 now there's a floor of $1400 an ounce and 1513, I believe is that the case like substantially...

Yes. That's correct.

Okay. And how much of that cost, was it expensive?

Well, it always seems expensive, particularly when the prices are $100 higher than that, Lindsay?

I think they all doing everything [indiscernible] something like that.

That was my understanding as well.

And you didn't -- they just considered like a collar or you don't want that cap to the upside?

Correct. We didn't want the cap. I mean the way we look at it is that cost or at least the way I look at it, is that cost is well worth paying you can afford to pay when you have higher than those prices, right? So I would rather lose that cash and realize what's turned out to be significantly higher prices than we could have gotten in a collar with the same put strike. So, I have no issue with the fact that that we've had to pay that price and retain the upside.

And then, I guess moving to the base model hedges, someone else asked the question, but right now, it's about 13%, I believe if your base metal that's hedged, clearly base metal prices have been a lot more volatile than precious metal prices. And Phil as you mentioned, at this point in time, you wouldn't consider putting on more base metal hedges. But at what point would you consider it because that was part of the reason why you've had to increase your all-in sustaining cost guidance as well at Greens Creek and overall for silver?

At what point would we put new hedges in?

It's not like a target right now, it's about 13%, would you want it to be higher than 13% of your production being hedged?

I'll let Lindsay answer as well, but my view is, the likelihood of significantly lower lead and zinc prices for a significantly longer period of time is pretty low. I do expect that they're going to go down some over the course of the quarter, but we're more -- we're not trading the base metals hedges. This is really just to protect ourselves. And so, I don't see it putting in a lot of positions at these prices, but…

No. I'd say because I'd just go back to '18 what we did. You [indiscernible] prices anything at '18 and if you like the prices with hedge more but I think prices kind of addressing to us as Phil alluded to like downward pressure is probably not that great so we're fine with where we're at. But, we would like to hedge things but not at these prices and go back to '18 and see what we did.

And certainly should prices decline you could see us unwind the hedges, you've seen us do that before as well.

Yes, for sure. And maybe one last question from me in terms of the line of credit you drew about $50 million on our line of credit. I believe 85 at the end of the -- as of right now. In the past my understanding was that you need a dial on your credit for working capital purposes at Greens Creek between production and shipment and payment. I guess clearly that was not 100% of the case in Q2. I'm just wondering, do you still need that line of credit for that purpose as we look into the second half of 2019.

Well, what our expectation is, you'll see it decline during the course of the third quarter. And then, by the end of the year that will be unutilized at least close to it -- if you net it against the cash. So do we need to have some level of either cash or a line of credit to deal with the lumpiness of Greens Creek, absolutely. And what we would expect is toward the end of the year starting next year they will be cash that will be relying on rather than the revolver.

Great. Thank you. That's all I have.

Thank you. Our next question comes from the line of Heiko Ihle with H.C. Wainwright. Your line is open.

Hey, guys. Thanks for taking my questions.

Sure, thing, Heiko.

Most of them have been answered because some people decided to ask five questions in the queue here. But just I apologize for bringing up the hedges again, I'm the third person in the Q&A to do so, but you guys called it a short-term floor for silver and gold prices on your release. I was going to ask you, if you wanted to continue doing it, but you prefix that in your prepared remarks. But, I mean your current hedge goes through Q1 '20, so something likely gets done, I will call it next quarter or maybe even this quarter. We crossed 1500 goal today silvers at 17. At what point in time, if ever, would you ever be looking into a costless collar, or I mean the thought being you say you get yourself $150 an upside and $150 downside, it costs you more or less nothing and you're still pooling in the money to keep your balance sheet safe.

Look at -- you'd never would say that never to that but I'm very reluctant to sell upside because if I can buy it and lock it in and I can do it at the highest price possible, then I would prefer to do that because you just see the precious metals prices move dramatically and nobody can predict that, you're going to have that increase. I think probably two weeks ago three weeks ago there weren't very many people thinking the price of silver would be $17. And so, I think we would be shortchanging our shareholders, if we were to sell that upside. So I'd be reluctant to do it, but Lindsay and others convince me.

I align with my boss Mr. Baker on this, consider better.

Fair enough. In Nevada, any estimate how many people are currently actually working at the sites? And if you can break this down between Fire Creek and Hollister that might be useful as well. And then following up on it any idea how many people are going to be there call it, December 31?

Well, we really don't have people working at Hollister to speak of. So, Larry where are we with Fire Creek?

The total headcount is 163, in Nevada right now. There is a handful of miners at Midas doing some remnant mining there, but nearly all of the efforts of Fire Creek right now. And we do expect -- well, actually we've brought in a few temp employees because we're still selling at Fire Creek and we will be selling for another two months. Ad we have had attrition, but once we finish that selling then we should be pretty, pretty well right sized. As far as attrition and concern about it we have -- we still have enough electricians on site but that's kind of the area that we just need to keep an eye on and make sure we have enough.

Okay. And then, just, sorry to bring this up again. She said there is essentially no one at Hollister, but, 5 people, 10 people, 20 people.

At Hollister? Because remember we're at -- we've stopped development, so we're drilling from surface and treading water. I mean but it's just basically care taken. And remember this is, Heiko, we're just pausing as we talked about in June, we're fully committed to Nevada. But what we thought we could do we were not able to do. So, we're taking a step back and we're making sure we thought through how to proceed with Nevada. Nothing has changed in terms of our view of the value there. So, don't misinterpret the fact that we're not actively mining there that there's any lack of commitment. The important thing at the moment is to make sure we have our balance sheet in place, the reserves, the resources, the exploration potential is going to still be there. We're just having to delay the time that we're realizing that.

Excellent. I will get back in queue. Thank you.

Thanks Heiko.

Thank you. Our next question comes from the line of Anthony Sorrentino with Sorrentino Metals. Your line is open.

Good morning, everyone. With regard to Nevada, you had mentioned that you looked at the asset values over there at Nevada and decided not to write them down. Was that just your decision or did accounting rules and regulations prohibit you from writing down the value?

That's absolutely right. You've got to follow the procedures provided for in GAAP and that's what we've done and this is the outcome that we've come to. Lindsay?

No. I would follow the regulations under U.S. GAAP in assessing it.

Okay. Very good. My other questions have already been answered. Thank you and best of luck to Dean.

Thank you.

Thank you. Our next question comes from the line of Adam Graf with B. Riley. Your line is open.

Thank you. Hey, Phil, Lindsay, Dean and Larry. Thanks for taking my question. Most of my questions been asked. Just a quick confirmation so the access in Nevada from Hollister over to Hatter that the progress on that access has been halted?

That's right. So we've halted that where we set it up for being able to go back in and complete it, but we're going to manage our cash flow to make sure that we hit the numbers that I talked about earlier in the call.

All right. And then the exploration slide that you guys showed over at Hatter with the with the outcrop, am I understanding correctly, you guys think you can extend the known veins Hatter over to the east, or you think you found something separate -- a parallel or fault it off system there that has some surface expression?

I'm not sure we know exactly what we found. We just know that's an exciting thing to see as far away from Hatter as it is. Dean give it.

Yes. What we do know there has been a few historic drill holes between the Hatter Graben Resource and the outcrop that's in the presentation. And so, we have a bit of information. It's certainly a long trend that it's a fault offset of one of the Hatter veins or if it's something parallel and completely new. We really don't have the information to say that categorically. But it's certainly part of what I would suggest is the Hatter system.

Is the thought there on the exploration strategy to start on the east side of what you know at Hatter and sort of just start working your way over towards that outcrop with widely spaced drill holes?

That's exactly it. And at this point, we don't have a plan with respect to the outcrop that we've seen we're still getting assays and still trying to evaluate what it is. And then, we'd have to find the budget to spend.

Yes. But, certainly at this point, the intention is go from known to less known.

And just sticking with Nevada for a moment. You guys have any guidance or expectations roughly for the mining costs per ton at Fire Creek and in the second half ballpark?

That's roughly $300 a ton, pretty rough.

And where do you guys, is at -- is there any future thought there when you guys have operations back to where you'd like them to be, where that mining cost would be?

That's really the question that we have to answer. Certainly toll milling is something that could have a big impact given that we've got that large Midas Mill and so the cost per ton is quite high to mill it. So, that's -- and of course Lauren's going to -- has joined us, so, Lauren has quite a bit of experience in Nevada. So, maybe he will have some ideas as to how to improve the cost picture at the Nevada operations.

And just to be clear that $300 per ton that's just the mining costs at Fire Creek not the treating milling or anything else?

Milling and transportation in the second quarter was about a hundred dollars a ton.

Do you have something in mind?

And any effort to or any thoughts about getting outside or to toll mill through Midas?

Yes. That's something that we've contemplated and certainly as prices rise, there's probably going to be more opportunity to do that. And we also have mill -- another mill in Nevada and the Aurora mill and we've had people that have approached us to toll mill through that facility. So, we're working through some of those things as well.

Really those near-term opportunities; are those all longer term?

No. Look, I wouldn't put value in it. Other than just optionality and it just shows the sort of options that we have, it's a lot more than maybe people realize.

And then, just -- if you guys permit me, just one more question on El Toro in Mexico are you guys -- does that look -- I know in the past -- recent past, since about you guys have been happy to have San Sebastian kind of be free cash flow neutral. Does El Toro give you the potential to throw out some significant cash flows there like San Sebastian in the earlier days?

Yes. First, I'll just say our expectation for San Sebastian, it's going to be -- generate a fair amount of free cash flow in the second half of the year particularly the fourth quarter. As far as longer term with El Toro, it's still early days to be able to say what that's going to look like, we're doing the mine planning now. Clearly, we're excited about its potential to maintain oxide production, but we're not going to do it just to maintain it. We're going to do it because it generates returns. So, we see the potential for that. Now, can it be as good as San Sebastian was in 2016? That's probably unlikely. That's that year San Sebastian generated 80 million of free cash flow, so we're not expecting that but you never know, right, Dean.

All right. Perfect. Thank you so much for answering my questions.

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

Hi, John.

Thank you for taking my question. Kind of phrase this in a way that you can answer and maybe I'm not clever enough to do that, but if you refinanced with a public bond, would the guess be that it might be 9% or if you refinanced with a bank might it cost 6%, or what can you guide us for our spreadsheets for the financing cost in 2021 and 2022 the new estimate?

I think the best thing I can do is, just tell you to look at where the bonds are trading in and maybe look at some of the other precious metals companies and it appears to me at the moment, you're talking about something with an eight handle. And as far as -- and of course interest rates seem to be declining and the outlook seems to be pretty good to see further declines. I'll let you add to it. And then, as far as the banks go -- to the extend its floating rate debt, it could be quite low, again, certainly that 6% or less. Lindsay?

Yes. I would agree to it. These other bonds [indiscernible] because you have no idea what we could enter into the market today. So, many said like I said below 9 handle, Tenor is getting more interesting than it was maybe two months ago, two as well, the tenor [indiscernible].

Where was the financing earlier this morning, pure gold did 90 million was straw lending to restart the Madison mine and Red Lake. And I think the financing had more tentacles than I have fingers. But, main part was about 6% over LIBOR and part of it was 25 of the 90 million was a stream. So, you guys saying you can -- you are not going to have more tentacles than fingers and there is not going to be a stream and it's not going to be 6 points over LIBOR.

Simplicity is a great thing, John.

I believe that too. Thank you and good luck.

Okay. Appreciate it.

Thank you. At this time, I would like to turn the call back over to Phil Baker for closing remarks.

Well, thanks very much for participating in the call. The thing I'm struck by probably more than anything is that -- about two months ago, when we talked last -- we had a plan that we need to execute, we are well on our way of executing that plan. And, in the meantime, we have seen precious metals prices raise dramatically and we have seen the interest rates decline. So, the outlook for Hecla, I thought it was okay, good, two months ago, I think it has improved dramatically over the course of those last months. And so, we appreciate you following the company and we would encourage you if you have any other questions to give, Mike or I, call and be happy to walk through that. So, thanks for taking the time. Talk to you again soon. Thanks.

Ladies and gentlemen, that concludes today's call. Thank you for participating. You may now disconnect. Everyone have a wonderful day.