Hecla Mining Company

Ladies and gentlemen, thank you for standing by and welcome to the Q2 2020 Hekla Mining Company earnings conference call. At this time, all participants 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 time, you will need to press star then one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to Mr. Mike Westerlund. Please go ahead.

Thank you, Operator. This is Mike Weschel and Hekla's Vice President of Investor Relations. Good morning and welcome, everyone, and thank you for joining us for Hekla's second 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 our website. 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, Chief Operating Officer, Kurt Allen, Director of Exploration, and Keith Blair, Chief Geologist. Any forward-looking information made today by the management team come under the Private Securities Litigation Reform Act and involve risks shown on slide 2 and 3 in our earnings release and in our 10Q and 10K filings with the SEC. These risks could cause results to differ from those projected in the forward-looking statements. Reconciliations of non-GAAP measures cited in this call and related slides and cautionary language for our use of the term resource instead of reserves are also found in these documents. With that, I will pass the call to Phil Baker.

Thanks, Mike. Good morning, everyone, and thanks for joining the call. I'm going to speak to slide four. What's become clear is that we will be operating in a new normal, which is in reaction to this pandemic, and we're prepared for it. We have plans and practices that help protect the workers, the communities, and our operations. As you see from the second quarter results, we've been able to adjust quickly, and my thanks go out to all of my colleagues at the mines and in our offices who have made the quarter what it is. So despite COVID-19, we're producing more silver at higher prices than we did last year or in the first quarter this year, enabling us to generate 24% higher revenues, 27 million of free cash flow, and combined with being declared an essential business, we were able to repay $160 million of our revolver. Now, I'm gonna let Lindsay and Lauren focus on the quarter, and I'm just gonna really focus on two things. First, on the silver price, and second, on the uniqueness of HECLA as an investment. So first on price is gold, and especially silver prices are markedly higher, and we think the higher prices are inevitable given the backdrop of the continued monetary stimulus from negative real rates, the trillions of dollars of physical stimulus, the weakness of the US dollar and growing political uncertainty. And so we haven't seen the gold prices at these levels, but we have seen silver, and I think that's important to remember. What is clear is that when the gold prices go up significantly, silver goes up even more. And we saw this a number of times. In 1979, 80, 2005 to 2008, 2009 to 2011, and then again, 2015, 16. And of course, we're starting to see it again in 2020. And generally, the bigger the moves are in the gold price, the gold-silver ratio declines by at least half. And the ratio had a high of 124, so seeing the gold-silver ratio of 60 would be consistent with past experience, suggesting that silver price approaching $35 with the gold price where it is, is reasonable. And remember, $35 is a price that we saw in 2010, 2011, 2012, when the price of gold was $1,500 to $1,800. If the gold price goes higher, expect the silver price to move even more relative to gold. So while the silver price has gone parabolic, this reaction is not unreasonable as it tries to catch up to gold like it has in the past. There's lots of reasons to expect silver to have gone up and to go up even more relative to gold. On to the second thing I want to cover, and I think that everyone will agree that most governments are not going to go back to pre-pandemic normal. Their policies are going to change as a result of the pandemic. They're going to seek additional revenues, which will be a negative. Labor relations are going to be more regulated, which is a negative. And the supply chain in the U.S. will likely be shortened, which for us will be a positive. So where a company mines will never be more important. And so in making these comments about HECLA, what I'm trying to emphasize is the forward-looking that we're doing. We're not just thinking about the coming year. few quarters, we're thinking about the course of the next few years when we think we're going to continue to see this strong silver price. And I think it's not recognized that Heckler produces about a third of all the silver mined in the U.S. There are only five companies that are relevant silver producers in the U.S., and no one buys two of them for their silver production. They're big, diversified miners. The remaining, well, we produce almost three times as much silver from our US mines as the next largest primary silver producer does. When the Lucky Friday reaches full capacity, we should produce more than 40% of all US production. It's also not well known that the United States is the 10th largest producer of silver in the world, producing about 4% of the world's total. The US is one of seven countries that produce roughly this 4% to 5%. It's such a small percentage because more than 50% of all silver production comes from three countries, Mexico, Peru, and China. And Mexico dominates with 40% more silver mine than Peru and two-thirds more than China. But all but one of our 10 primary silver peers operate in either Mexico and or Peru. And so HECLA is a unique investment because of its scarcity. It's scarce because... Not very much of the world's silver is mined in the U.S., only 4%. Scarce because if an investor wants exposure to U.S. mined silver, there's really only one relevant option. The option's not tenuous. We have a third of the U.S. production that's growing. The mine lives that we have are low cost, that are competitive. In fact, they're among the best even when the U.S. dollar's strong. So should the dollar continue to weaken as we've recently seen, the relative cost structure will improve. The capital for our mines have largely been invested over the course of the last 30 to 75 years. They've been in operation. So future capital requirements are modest. There's scarcity of an investment. HECLA is a scarce investment because we have by far the largest silver reserve and resource in the U.S., some of which are new projects that will allow us to grow our silver production in the future. And finally, with the company's long life, 130 years old next year, we're scarce because we have tax losses that assure our cash flow in the future is not going to be diverted into government coffers. The combination of all this makes HECLA a unique opportunity for silver investors. Over the years, I've talked about the brand value of HECLA as an investment vehicle. I think I may have mentioned to many of you of running into people who say the silver price runs of 2009 or 1979 that they invest in Hecla. I would say that was the brand value, but I realized that that was not the whole story. It was really about the fact that the position that Hecla has is the dominant producer of silver in the US. So with those two things, I'll pass the call on to Lindsay and Lauren for them to talk about the quarter.