Hecla Mining Company (HL) Q3 2019 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Alexco Resource Corp. 2019 Third Quarter Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Alexco’s Director of Investor Relations, Kettina Cordero. Please go ahead.

Good morning. Today is Friday, November 15, 2019 and I welcome you to the Alexco Resource 2019 third quarter conference call. This call is being webcast live and can be accessed through our website at alexcoresource.com. An archive of the call will be available later today on our website in the Events and Webcast section. Our website also contains our most recent new releases and our financial statements for the quarter ended September 30, 2019. Today, our Chairman and CEO, Clynt Nauman will discuss our most recent quarterly results. Our President, Brad Thrall and CFO, Mike Clark will join him for the question-and-answer period. Before we start, I remind everyone that some statements made today may constitute forward-looking information within the meaning of applicable securities laws. Past performance discussed today is not indicative of future results and our business involves a number of risks that could cause results to differ from projections. Investors are encouraged to review the disclosures pertaining to risks that can be found in our most recent regulatory filings available on our website and on SEDAR and EDGAR. I will now turn the call over to Clynt Nauman.

Thank you, Kettina. Well, we continue to make steady progress towards restarting operations in Keno Hill. Our focus in the third quarter was on firstly completing several surface capital construction projects in the vicinity of the Bermingham deposit mine entrance or portal and secondly on completing another successful surface exploration, result of which may change our perspective on longer term future at Keno Hill. From the financial perspective, the highlights for the third quarter include firstly, we reported a total net loss of $2.3 million or $0.02 per share. Secondly, we finished the third quarter with $10.5 million on cash and working capital of $13.9 million. And thirdly, with respect to the $15 million U.S. Sprott credit facility, we agreed with Sprott to led the un-drawn credit facility expire and they provided us with an indicative term sheet for a new $15 million credit facility on similar terms of the original that we can trigger when we are ready to make a production decision. On the exploration front, our successful 2019 surface exploration program was expanded into mid October and completed a total of 8,333 meters and 29 holes. The program was broke up into a couple of different phases. The first phase was in the vicinity of Bermingham where we had two drills working and completed more than 5,000 meters in 10 holes with two primary targets, the first being extensions of the shallower Northeast Zone and secondly a brief campaign to test the continuity of the Bermingham mineralization at depth. We were successful on both accounts. In September, we announced the initial results including indications that the shallower Northeast Zone preserve resource may expand to the south and more interestingly with reference to the deeper target, an intersection of 8.1 meters true width with a composite grade of 1,414 grams per ton silver or 45.5 ounces per ton silver, approximately 200 meters below the Northeast Zone and in rocks which host the adjacent Hector Calumet deposit, which as you know historically produced about 90 million ounces of silver at comparable silver grades. Interestingly enough, this deeper intersection was a higher grade portion of an approximate 15 meter true thickness structural zone that was variably mineralized throughout. This result, along with other holes in the vicinity will cause us to reevaluate the size and style of the Bermingham deposit as well as try to figure out how to follow-up this deeper mineralization, which sits within a completely untested structural panel that’s about 400 meters by 400 meters in a down depth structural plane in areas actually which is larger than that currently occupied by the existing known Bermingham deposit. Importantly, we believe this deeper success will not alter the first 2 or 3 years of our mine plan which targets the shallower very high grade areas of this deposit as outlined in our March 2019 PFS. In the meantime, we will use this one to develop a strategy to get a better definition of the Bermingham deposit and FE’s deeper stratigraphic levels. The second phase of the exploration program was satellitic to Bermingham still on Galena Hill, where we drilled about 3,200 meters in 19 holes in 4 or 5 new target areas, the second phase of work targeted zones where we can now identify areas with a structural and stratigraphic framework similar to Bermingham. Most of these have been enhanced and identified from last year’s aerial geophysical survey. Assay results for the balance of the drilling program will be released likely in early December. A capital construction program focused on key surface infrastructure and also progressed more or less as planned during 2019. Importantly, we completed construction and installation of a production-ready portal and infrastructure at Bermingham as well as align treatment ponds, we completed the initial discussion that construction of a coarse ore storage pad where Bermingham ore will be re-handled for haulage to the mill, and along with that, we completed extensive upgrades to the haul road from Bermingham to Duncan Creek adjacent to which our mill sits. On the permitting front, I will remind you where we are at. We have all the permits and authorizations required for development and future ore production from Bellekeno, Flame & Moth, Lucky Queen and also the Onek deposit which is not in the current mine plan. We have applied for an amendment to our Quartz Mining License to include the Bermingham deposit in this group and we would the amended QML in the very near future. We are also taking the final steps of renewing the existing Water Use License for Bellekeno, Flame & Moth, Lucky Queen and Onek deposits, while simultaneously adding the Bermingham deposit to this group. We have been working closely with the Water Board officials and the Secretariat to advance this permit as quickly as possible. We have a technical pre-hearing conference scheduled for the first week of December 2019. Following this process step, the final issuance of the Water Use License renewal will be subject to consideration by the Yukon Water Board and could extend into the first quarter 2020. However, you need to keep in mind that once the Quartz Mining License is issued to the company that almost certainly before the end of this year will be fully authorized to reserve all development necessary at Bellekeno, Flame & Moth as well as Bermingham. And finally, our environmental business, AEG continues to grow and generate positive gross profit margins. During the quarter, AEG recognized $7.2 million in revenues and $1.4 million in gross profit for a gross margin of 20%. On the whole, 2019 has been a year of investment for AEG specifically in two long-term high return projects that have required AEG to incur a front-end cost that will be recovered via milestone payments over the next year or so. As we have said before, we continue to evaluate options to unlock value from AEG. With that, I would now ask the operator to open the question-and-answer period.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Mike Kozak with Cantor Fitzgerald. Please go ahead.

Yes, good morning guys. Just one question or maybe a point of clarification for me, the Water Use License at Bermingham if it is delayed into Q1 2020 from Q4 from this quarter, I just wanted – like that doesn’t impact the mining restart sequence, does it? I mean I look at the pre-fease and it looks like once the restart decision is made, its Bellekeno first for a few months and then like 6 months or so Bellekeno plus Flame & Moth and then in like 11 months the year end of next year that’s when Bermingham ore production begins, is that correct or is that changed?

Hi, Mike. Yes, it’s Brad, you are correct the mine plan for restart redevelopment includes Flame & Moth and Bellekeno together for the first 6 months. And then once Bellekeno is complete, the plan will be to take those development crews within the miners and go over to Bermingham and resume development there. Yes, so from a timing standpoint, it’s really 5 or 6 months after we have pulled the trigger at site when we would need the water license for Bermingham in order to actually mill the ore. As Clint alluded to, the Quartz Mining License, we do have a draft in hand now, so it is just I would say a matter of just weeks now where we have that Quartz Mining License and that license does allow us to go to Bermingham and finish all the development as well.

Okay, that’s good to hear. That’s the only question I had. Thanks guys.

[Operator Instructions] And our next question is from Mike Niehueser of Scarsdale Equities. Please go ahead.

Good morning. Just a follow-up on the last call, so I think Brad what you are saying is once you get the Quartz Mining License, you are going to be able to complete the other remaining underground work that needs to be done, the surface works done for Bermingham, so pretty much all you will be waiting on at that point after you get some of the underground work completed is a goal from the water license board to process ore through the mill probably around the end of the year? Is that correct?

Yes, you are right, Mike. Again, it’s once we reserve development in the district, so there is always being a ramp up period, so it would still be a 6 to 8 month period from a time we start development until we would have ore going through the mill and as you said, the Quartz Mining License allows development and we just need the water license to actually mill the ore from Bermingham.

And you have got ore already at Bellekeno just to start putting that through the mill almost right away then?

That’s right. The plan at Bellekeno is kind of a salvage remit mining plan. There is a number of blocks of ore that are already there that are developed. So it’s essentially salvage plan.

As far as the water license goes, I know that with neighbors it’s got pretty busy in Yukon, but we keep hearing and it’s evident that the concentrate that you ship to smelters is clean or as clean as it comes. And so it makes me think that the tailings that you have are basically the same unless you have some special way of processing the ore that eliminates that, but I was just kind of wondering what’s taking so long with the water board or with the permitting process, because Evo Morales is out of Bolivia now and we still don’t have the water permit. So from a timing point of view, I can’t think of anything taking as long as it’s taken and I don’t think it’s the ore. Is this – are you pretty confident that you are going to be able to move forward at least by the first quarter?

Yes, you are right. It has been I guess frustratingly slow process. I mean, I can assure you there is nothing unique about Bermingham or this deposit that is causing guess any technical issues. But I guess the one comment is not only on them as it renewable. So, all of the other deposits that are currently licensed, those all went through a review process. So what we are going to have coming out of the back end of this from amended water license, renewed water license is a 15-year license now that includes all of the deposits. So, it is more than just bringing Bermingham into the plan. It has removed all of the other deposits within this.

Okay. A question on exploration, the prior release, I am sensing that, that released all the surface drilling for the Bermingham deposits and then what will come out in the next couple of weeks or months will be related to the step out drilling outside of Bermingham? I mean, that’s one question. And the other one is that on your November corporate presentation, you saw the longitudinal of the Bermingham deposits and there was a new addition to that. There was a big dash redline around the Northeast Zone and it was equal to size of the layout stands Northeast Zone, Bermingham deposit so it’s infers that there is a potential to double the size of the Bermingham deposit and I just wondered it’s the drilling at – if there is any more drill results to be released there within that dash redline that shows I think potential expansion?

Yes, very good questions, Mike. So firstly on the information to be released, yes, all of the drilling that was after the Bermingham drilling is still at the lab. We would expect most of that stuff back here pretty quickly. I think that I was just trying to remember there might be 1 hole that was lagging at Bermingham, I just said I need to check and make sure. But I know that the significant intersections we talked about in that prior news release. So the dotted area that you are talking about that was – that’s on that slide to demonstrate that there is a sort of structurally clean untested panel there. That’s in it. That’s about 400 meters in vertical extent down depth and about 400 meters long strike and the metric system is between 15 and 16 hectors of area there. It is larger than the area currently occupied by the existing mill in Bermingham deposit. And because it’s untested, the point is that there has to be a significant commitment to exploration to infill if you like that large untested area at the north end of the deposit and at depth. So you are exactly right, we will have to – we did not have a strategy put together yet as to how we are going to attack that particular area. If the Bermingham deposit is much larger as you were speculating, then the question is at what point that we want to know about that. I will stress that whatever we find down there is knocking the whole through the mine plan. The mine plan is always going to extract the higher grade shallower ore first and the real question with that panel that’s outlined on that slide is whether or not we try to drill it off from surface or from underground when we drill it off and when we need the information to know whether or not that Bermingham deposit much larger, so I am not sure that’s clear, but that’s what we try to figure it out here.

No, I guess that’s precisely what I was thinking is that it’s going to take a couple of years and some investment head scratching to figure out what’s insight that red dash area, but it’s only going to take a couple of years and it’s moves faster, it took you a couple of years at Bermingham to do what you did there and 2 years is nothing in the span of exploration. So to me, it’s going to take a while, but it’s right there in front of you and one more question about exploration, on that slide it shows the earnings was down below, but also in the prior release you said that you were able to get into the Hector-Calumet stratigraphy. So it’s different rock similar to what’s a long trend of the Hector-Calumet mine, but what’s the difference between the Hector-Calumet stratigraphy and the Earn Group, is that a distinctly different group of rocks and shows the bottom of the Hector-Calumet potential?

Yes, the Earn Group is an older sequence of grey-wacke grid type rocks, upon which the Keno Hill Quartz side sits above it. So it is true though that these intersections that we have, these deeper intersections that we have and the panel is untested would be sort of the first phase of a deeper exploration program. There is another panel actually that sits below the one that I have on that slide that stretches down to the Earn deposit, but I mean, that stuff, from our perspective, that stuff is getting down there at 700, 800, 900 meters for Keno Hill, that’s extremely deep. It also represents the heck of an opportunity, but I mean that’s something for the far future. Yes, there is a lot of area down there and it’s going to take a while to drill it off. And we will just have to see what kind of a strategy we could put in place to sort of give some visibility to what the upside might be.

Well, that’s what I was thinking that your red dash line resembles what you would think a target would be based on existing current drilling, but if you know that there is the potential to extend deeper down to the Earn Group you could actually call those lower levels of that red dash line as it targets all the way down to the Earn Group?

Yes. So I just point out that even within that untested panel that we have been talking about and if you were referring to with that dash line, even if we drill it off at 50 or 60 meter centers, which barely gets it into third category for us. It’s still 35,000 to 40,000 meters of drilling. So it’s a lot of work. And that’s why we are sort of taking our time trying to sort of contemplate what we might have here and how best to understand it not only in terms of the geometry and the tenor, but also the timeline on which we would be advantageous to have that information.

Well, it’s a lot of work, but it’s a great target. So, one more question if I could about the environmental group, you mentioned that your gross margins were a little slimmer, because that you were some front end investment on a couple of projects in Yukon and you also mentioned the Wolverine, which I was not familiar with, is the Wolverine one of those two or could you expand upon within your ability to talk about plans, the type and the scale of the work that you are embarking on in Yukon or elsewhere?

Sure, Mike. Brad, I can probably take that. Yes, I can go into a little of detail on some of the projects, but there are two major water treatment remediation projects at AED house under contract, one is Wolverine mine in the Yukon and the other is as we have talked about the BYG Mt. Nansen. These are both water treatment remediation type of projects and both of which require an upfront investment by AEG to build facilities and do engineering work. And then the revenue payment comes afterwards once you reach certain milestone. So that’s the reference to these larger upfront projects.

And I guess lastly with the legacy cleanup of Keno Hill, I have mentioned that you still have to go through I think the process, I am assuming there is Water Use License required. I don’t think are those the same things?

No, they are separate. I am not sure we have specifically mentioned it, but we have – we are near completion of the environmental assessment or [indiscernible] for that Keno Hill close plan. We have just been notified that they were in the final steps there. So we will receive what we call an evaluation report near the end of the year and then we do have to amend a type C license to implement the work and so we will start that process early in the first quarter of next year.

If you are doing that work now, can I assume that the government of Canada is now opening the coffers to sort of aim for the cleanup of the district?

Yes, I mean, again the money is always set aside into a cleanup fund, but the government of Canada has set aside $2 billion for remediation of number of sites across the country and Keno Hill being one of them. So we would expect certainly by 2021 to be full scheme ahead in implementing all of this work.

Great. Well, hey, thanks for entertaining all my questions. I appreciate it.

Thanks Mike.

This concludes the question-and-answer session. I will now turn the conference back over to Clynt Nauman for closing remarks.

Thank you, operator. We have made significant progress towards our goal of returning Keno Hill to production and creating further value for our shareholders. The permitting process is in its final stages and we feel comfortable with all licenses will be issued in time to ramp up the full production in the near term assuming that we make a positive production decision. At the same time, we are working to update our PFS, capital estimates with [indiscernible] contractor estimates and off-take selection etcetera. Finally, we believe that the current environment is ballooning fiscal deficit and worldwide trade tensions, in that environment, precious metals should do fairly well. This bodes well for Alexco, where we offer the highest exposure to silver and the highest beta to the silver price in a stable geopolitical jurisdiction and with significant exploration and operations upside. I look forward to updating you on our progress as we look to become Canada’s only primary silver producer and deliver on our goals of maximizing value for our shareholders. As always, thank you for your continued and I will now turn it back to Kettina to close the call.

Thank you, Clynt. We remind our listeners that our news releases and regulatory filings are available on our website at alexcoresource.com. And a replay of this call will be available in the Events section later today. If you would like to sign up to receive updates on Alexco, please visit the contact section of our website and if you have further questions, please contact me at kcordero@alexcoresource.com. Thank you for joining us and have a good day.

This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.