Hecla Mining Company

Ladies and gentlemen, thank you for standing by and welcome to the Q1 2020 Heckler Mining Company earnings conference call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mike Westerlund, Vice President of Investor Relations. Thank you. Please go ahead, sir.

Thank you, Operator. Good morning, everyone, and thank you for joining us for HECLA's first quarter 2020 Financial and Operations Results Conference Call. Our financial results news release that was issued this morning before market open, along with today's presentation, are available on HECLA's website. On today's call, we have Phil Baker, President and CEO of Lindsay Hall, Senior Vice President and Chief Financial Officer, Lauren Roberts, Senior Vice President, Chief Operating Officer, Kurt Allen, Director of Exploration, and Keith Blair, Chief Geologist. Any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act and involve risks as shown on slides 2 and 3 in the presentation, in our earnings release, in the 10Q and 10K. Reconciliations of non-GAAP measures and cautions for terms like resources are also found in these documents. With that, I will pass the call to Phil Baker.

Phil Baker Thanks, Mike. Good morning, everyone. Thanks for joining our call. I'm going to start on slide four. I know many calls that you've been on with management have had all their participants calling from home. This call is different. While Lindsay is calling from home, the rest of us are in the office and have been. That's because our office has never closed. Idaho, from the beginning, said mining is an essential business that needed to continue to operate, and we know we can keep people safe if they follow our hygiene and social distancing requirements, which our people have done. We're sitting here in the office with six feet of distance between us. Our mines are also in operation. We currently have four of our five mines operating, representing 95% of our production. On Sunday, it will be two months that we have had our pandemic plans activated and we've not had a case of COVID-19 among our workforce. Greens Creek has, for over a month, not allowed anyone, and I mean anyone, on the island mine that has not been quarantined for two weeks at our separate quarantine facilities. At the other mines, we've taken appropriate measures that protect the workforce and the community. Our financial position, was significantly improved in the first quarter with the refinancing of the bonds to 2028 and an extension and expansion of the revolver to 2023 and a $210 million drawdown. In addition, we bought gold and silver insurance puts that assure us of a minimum price with no limit on the upside and board contracts on our lead and zinc production. So the point of all that is that we're in good shape. And how did we get here? On January 31st, alarm bells went off for HECLA. President Trump closed the U.S. to travel from China due to a novel coronavirus. At that point, we were preparing to refinance the bonds with the maturity of those bonds a little more than a year away. We were debating whether we should do our earnings early and go to market the second week of February or keep our normal schedule and go the last week of February when the BMO and JPMorgan conferences that were in Miami. It would have been a very efficient way to meet investors. When traveling from China was interrupted, we didn't have any idea at that point how bad things would get, but we knew that that would cause a slowdown in China. International travel restrictions just wouldn't be good for the high-yield market. So we issued our financials at the beginning of February, went to the bond market as soon as we could in order to fortify our balance sheet. And you know the results of all that. Now, HECLA has faced pandemics before, and of course, nothing like this one. So the first step we took to protect the workforce was to cancel our participation in PDAC at the beginning of March and restrict travel. I think this is, in part, the reason we were so aware of the virus was because some of our leadership lives in Washington State, where the first known case in the United States occurred. And so by March 10th, we had implemented our pandemic plans across the company. As the virus progressed and the government orders were issued, we increased our response tool, reaching where we are today. We also quickly reviewed our supply chain, confirming that we had a very strong inventory of supplies and where we were at risk, we either got that fixed or figured out how we might work around it if we weren't able to fix it. We also entered into insurance on our silver and gold and so forth, our lead and zinc. Expect us to continue to enter into new protection as we go forward. So we're prepared for the rest of 2020, even if we have a downdraft like we had in 2008. And the chart that you see on slide four shows how HECLA has outperformed since we updated our response April 6th. Heckler has outperformed GDXJ by 11% and 35% outperformance of gold and silver. And I think this outperformance reinforces the importance of the jurisdictions that you operate in. Within the U.S., with the U.S., it declared that mining was a critical industry in mid-March. And U.S. mining industry's excellent record of health and safety allowed states including Alaska, Idaho, and Nevada to be able to declare mining as essential. And in Quebec, after a few weeks, they saw the industry's ability to mine safely and have let us go back to work. But for most companies that we are compared to, they have one or more major operations that are currently shut down. Jurisdictions have challenges in normal times. These are not normal times. the restart of operations in difficult jurisdictions are not going to be straightforward. And as miners go back to work in various corners of the world, I'm confident we'll see the difference of having primary operations in the U.S. with other places in the world. So if we go to slide five, you can see one immediate difference. HECLA is able to give 20-20 estimates since 97% of our operations are in production, and because we have these procedures and processes that limit the risk of the virus at our sites. Lots of mining companies have suspended guidance indefinitely. We are able to update ours. And, of course, we do have a caveat. If circumstances change, we'll respond in ways that protect our workforce and the communities. I'm going to focus first on the silver estimates that are highlighted in silver. We have lowered the production guidance range just slightly and have raised the cost guidance to reflect the change in the cost of smelting, the fact that we have lower lead and zinc prices as byproducts, and some increased costs for COVID-19. We're going to spend a little less capital, about 25%, to manage our cash flow. Gold production is highlighted in gold and estimated to be lower because of Casablanca being idled for almost a month, and then we need about a month to ramp up to full production. The change in production is also due to the virus having a month-and-a-half to two-month impact. With a reduction in capital, we should be able to achieve our original ASIC guidance. So the aggregate capital and exploration spending is 25 percent lower, as you can see in blue, and we've spent about 17% of the capital and 22% of the expiration total so far. With the slowdown in activities in Q2, we are confident we can achieve our new guidance. So a bit like last year, we see cash flows increasing in the second half of the year, and particularly in the fourth quarter with the ramp-up of the Lucky Friday, cash variety reaching full production, and the continued performance from Greens Creek. Finally, we think that we can not only weather the pandemic, but we really see an opportunity to change the way we do business. We see the opportunity for improved G&A through less office costs, travel expenses, and other things that we've learned. We think operations in places like ours will become even more attractive to bring in new talent, and our drive to innovate our minds are going to be enhanced as communication platforms improve. All of this in an environment where the gold price seems to want to break out, and we think silver will follow and possibly close the gap. So it's really a very exciting time. And with that, I'll pass the call on to Lindsey.