Hecla Mining Company

Thank you for standing by. Welcome to the Helka Mining Company Q1 2021 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 the 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, Anvita Patel. You may begin.

Thank you, operator, and welcome, everyone, and thank you for joining us for HECLA's first quarter 2021 financial and operations results conference call. This is Anvita Patil, HECLA's assistant treasurer. Our financial results news release that was issued this morning along with today's presentation are available on HECLA's website. On today's call, we have Phil Baker, Hetler's President and CEO, Lauren Roberts, Hetler's Senior Vice President and Chief Operating Officer, and Russell Lawler, Hetler's Senior Vice President and Chief Financial Officer. 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 our earnings release and in our 10-Q and 10-K filings with the SEC. These and other risks could cause results to differ from those projected in the forward-looking statement. Reconciliations of non-GAAP measures cited in this call and related slides are also found in those documents. With that, I will pass the call to Phil Baker.

Thanks, Anvita. Good morning, everyone. Thank you for joining our call. Referring to slide four, we had a very strong first quarter, very good operational financial performance. We recorded... Quarterly adjusted EBITDA, that was a record for the company. It was $12 million higher than our previous record. We had the highest cash gross margin, and we had the second highest revenues in our 130-year history. And all of this was driven primarily by the strong production results and cost performance at all of our operations. At Green's Creek, we're lowering our cash cost and all in sustaining cash cost guidance for the year. And Lauren's going to speak more about that in a minute. The fundamentals of our balance sheet reflect the success of quarters that we've had of improving performance by HECLA. So our balance sheet is in very good shape. One of the things I want to point out is that typically our first quarter is one of our smallest cash flow quarters. I went back and looked at the last 30 years, and about 20 of the 30 were the lowest. There were about 10 where the first quarter wasn't the lowest cash flow for the year. And when it wasn't the lowest, it was always the second lowest. So when we consider our operating plans, when we consider the reversal that we'll have of the working capital buildup, We're anticipating significant free cash flow generation over the rest of the year. So as good as the first quarter was, we think the rest of the year will be stronger. And as a result of that, the board has announced an increase to our dividend policy. Our silver link dividend payment that occurs at $25 will be increased by 50% to $0.03 per share annually. And Russell is going to speak more about that. We're returning about 28% of our free cash flow in the first quarter to shareholders, and as silver prices increase, shareholders will have the ability to participate in the incremental free cash flow generation that we'll have. We also had a very strong operating performance. And despite that, despite the good performance, we were able to maintain our low all-in frequency rate about 1.71 for the first quarter. In addition, our sustainability report, which we're going to release in May with the annual meeting, highlights our ESG performance that we've had. The report focuses, in fact, the title of the report is something like Small Footprint, Big Benefit, because we have these underground mines that have an extraordinarily small footprint and they're largely energized by alternative power making our greenhouse gas emissions per ounce probably the lowest or among the lowest in the industry. And we've also focused on policies and activities that really make HECLA a uniquely positive ESG investment. So we're going to focus a lot of attention on that at the annual meeting. And also at the annual meeting, we're going to update expiration. So we're going to wait for now. We'll wait until the annual meeting. But let me just say that we've had some of the best drilling results in the history of the company. And as you're going to see in a few weeks, we're in the early days of some of these programs today. but they have the potential to be extraordinarily accretive. Really look forward to the rest of the year, and with that, I'm going to pass the call to Russell. Thanks, Bill.

Turning to slide six, Heckler continues to strengthen its balance sheet as we ended the first quarter with $140 million in cash, aided by record margins from higher prices and strong operating performance. With cash almost doubled since the second quarter 2020 from consecutive quarters of strong free cash flow, we delivered a net debt to adjusted EBITDA ratio of 1.4 times, well below our target of two times while providing a liquidity position of $390 million. Looking to slide seven, our realized silver margins have continued to increase as costs stay low and silver prices increase with every dollar in margin, translating to free cash flow. If you look at the gold portion of the bar, you see that our margin this quarter was about double the second and fourth quarter of last year and about 50% more than the third quarter. And it gets only partially reflected in our free cash flow because of working capital changes. First quarter free cash flow was $16.5 million after negative working capital changes of $29.3 million due to interest payments of $18.4 million and the timing of incentive compensation payments related to 2020 performance and higher accounts receivable from timing of concentrations. But maybe more important is the trailing 12 months free cash flow of $121 million. We see the future 12 months of having the same or better free cash flow at current prices. Moving to slide eight, with the growth anticipated in our free cash flow over the remainder of the year, the Board has approved an increase to our SilverLink dividends of one cent per share. This equates to a 50% increase to the dividend rate at the $25 per ounce threshold to three cents per year. This increase to the SilverLink dividend reflects our confidence in HECLA's free cash flow generation. At $25 per ounce realized price, the enhanced dividend policy has an implied yield of 7.4% to the silver price. The return from this dividend policy, which is tied to the price of silver, distinguishes Hecla from investing in an ETF or the physical metal and is unique to the industry. Continued strong operational performance and highest silver prices drive our 2021 pre-cash flow expectations, which should continue to grow from our first quarter performance. With that, I'll turn the call to Lorne to go through our operations.

Thanks, Russell. I'll start on slide 10. First and foremost is our focus on safety. Our teams continue their exemplary safety performance, and our all-injury frequency rate in the first quarter was 1.71, which is a reduction of 72% since implementing our revised safety and health management system in 2012. Our operations teams have done an outstanding job of improving this aspect of the business. While we are a little higher than our 2020 full-year results, we are focused on reducing it further. On slide 11, at the Greens Creek mine, we produced 2.6 million ounces of silver and 13.2 thousand ounces of gold at an all-in sustaining cost of $1.59 per ounce for the quarter. We are lowering the cash cost and all-in sustaining cost guidance due to higher byproduct credits, more favorable smelter terms, and lower treatment charges, and the reclassification of mine license tax to income tax. While smelter terms will be better for all of 2021, in the first quarter we realized another benefit due to a customer meeting prior purchase obligations. This benefit will not recur later in the year. With these changes, updated cash cost guidance for Greens Creek is lowered to $1.50 to $2.25 per ounce and all in sustaining cash costs are lowered to $6.50 to $7.25 per ounce. Greens Creek's consistent delivery and low cost combined with high silver prices generates very strong free cash flow. Going to slide 12, the Lucky Friday achieved full production in the fourth quarter of 2020 and produced 0.9 million ounces of silver in the first quarter of 2021. Production at the mine is expected to exceed 3.4 million ounces this year. We anticipate the grades to improve as we mine deeper, increasing the projected production to around 5 million ounces annually by 2023. No significant planned outlay of capital is required to achieve these goals. In addition, we are testing and optimizing various mining method changes and other initiatives to improve safety while increasing productivity of the mine. We've made no change to our outlook at the Lucky Friday. Unlike Greenscrete, the Lucky Friday produces a relatively small amount of zinc. The dramatic improvement in zinc concentrate treatment charges as compared to last year therefore has less impact. At the Casabarati mine, shown on slide 13, we had a strong first quarter with production of 36.2 thousand ounces of gold at an all-in sustaining cost of $1,272 per ounce. Our investments in the mill to improve reliability and recovery are yielding great results, and the mill has maintained greater than 90% availability since October of 2020. Our business improvement activities will continue in 2021 and are expected to reduce costs further and to increase cash flow generation from the mine. Our ongoing focus to improve productivity and to reduce costs are underpinned by multiple factors, and we are starting to see a downward trend in ASIC. All these efforts, together with others in the pipeline, are positioning Castle Variety to deliver consistent production at lower costs. Our 2021 guidance for Castle Variety remains unchanged and production is expected to exceed 125,000 ounces at all in sustaining costs of $11.85 to $12.75 per ounce. Moving to slide 14, at the Nevada operations, we produced about 2,500 ounces of gold from a stockpiled bulk sample of refractory ore that was processed at a third-party roaster. For the rest of the year, production is expected to be in the range of 17,000 to 19,000 ounces of gold from the processing of oxide ore at the Midas Mill and an additional 22,000 tons of refractory ore through third-party facilities. Roughly 12,000 tons will be sent to a roaster and about 10,000 tons to an autoclave. We expect the Fire Creek Mine and the Midas Mill will be placed on care and maintenance by the end of the second quarter. We remain very excited about our Nevada properties, and in addition to the exploration spend in Nevada, we will be investing another $5 million in pre-development activities this year at Hollister to access the Hatter-Grobin. With that, I will return the call to Bill.

Thanks, Lauren. Let's go to slide 16. And this shows our consolidated production guidance for 2021 through 2023. And at this point, nothing has changed in that guidance. So let's focus on where the slide shows our cost outlook. And you can see there that we've significantly lowered our silver cost outlook, primarily because of the byproduct credits and the lower zinc treatment charges at Green Street that Lauren talked about. Now, this new guidance, if you look at this, it adds about $3 an ounce to our expected margin. So at current prices, we think we have about $10 an ounce of free cash flow generation just from the silver operations. The other thing to point out is that with the consistency that we have at Greens Creek and Lucky Friday at full production, and the increasing grade that we see at Lucky Friday, that our U.S. silver production is expected to reach about 15 million ounces by 2023. And this is double what we had in 2018. Now, before we open the line for questions, I want to talk for just a few moments about silver, maybe a little more than we've done on these calls before. And if you'll look at slide 17 here, I want to do this because this time is really like no other for silver. If you think about it, the photographic demand decline, which was a governor on total demand over the last 20 years, is now long over. Industrial demand has been growing at a 2% growth rate for the last decade, and it's continuing to grow, and we think we'll be fueled even more by the same factors that are fueling copper, this energy transformation. Industrial demand has generally been strong for the last 20 years and looks to be even stronger with the current fiscal and monetary policies. And then finally, miners are challenged to substantially reverse a five-year annual decline in mine silver production. We actually mined 110 million ounces less than the high of 2016. So getting back to where we were is going to be hard. Now, if just industrial demand continues to grow at the same rate as the last decade, so that 2% growth rate, we think, and we think this is going to understate it because of the energy demand we're going to have, the world's going to need 70 million more ounces of silver per year. Now, this doesn't sound like much because it's only 7% of the current market. Until you realize that to meet that demand, even if no mines are exhausted, you need seven new mines a year that are the size of Green Street, which is the United States' largest silver mine. Or you need Fresno to produce about 150% more, or you need Codelco, who has a substantial byproduct. silver production to produce three times as much silver. And so our view is it's not likely that even combining all the different companies in the industry that are trying to grow their silver production, that we're going to be able to produce silver that is equivalent to seven Green Street mines. But if we do, they're going to be in riskier jurisdictions. And we believe that over the next decade, we are in a market that's well-positioned for a silver squeeze to happen. Now, this is not the sort of silver squeeze the Reddit investors were thinking about, but it's a squeeze nonetheless because it's just that demand has already risen faster than supply, and it's positioned to continue to do so. The result of this squeeze, prices will rise, and the shortfall is going to be met by above-ground stocks. And I was struck, if you look at what happened in 2020, when ETF and coin demand rose dramatically, prices rose 50% over the roughly average silver price of 2018 and 2019. So what do we think the high and low silver price will be over the coming decade? Let's first give you the lows. We think we'll have higher lows. We don't think we'll have lows for any significant period of time to be below $18 to $20 an ounce. And for the highs, there's no reason silver highs will not do what gold and copper have done. And what's that? They both either exceeded or have just come in just below their all-time highs. So to see a $50 plus silver price is not unreasonable. So one final thought on how you should think about silver. What it has become is the precious copper or the industrial gold. And the reason I say that is there's really no metal quite like silver. It's needed in applications similar to copper. But unlike copper, it's an investable metal with lots of investment options. You have the above-ground stocks. You have ETFs. You have coins. And silver is like gold, but unlike gold, only about 20% of the demand for silver is investment. And for gold, only about 10% is industrial demand. So think of silver as precious copper or industrial gold. And, of course, Heckler is in a unique position as the largest silver producer in the U.S. We produce a third of all the silver produced in the United States, and that production is growing. We're the oldest silver mining company, and we have a history of outperforming silver and every other mining company when the silver prices run up, which obviously we think that's what's going to happen over the course of the coming decade. So with that, Operator, I'd like to open the line for questions.

As a reminder, if you would like to ask a question, press star 1. That is star 1 for questions. We'll pause for just a moment to compile the Q&A roster. We have a question from the line of with HC Wainwright.

Hey, thanks for taking that. I assume that's Heiko. I'm going to assume that's what it is. Still some regulations on the silver linings, that dividend increase, and the terrific day in the market for your shareholders, and I assume yourself as well. Two quick questions for me. Well, there you go. The slightly lower silver grades at Greens Creek due to normal variations in the ore body, as you put it, seems like the year as a whole will still be pretty unchanged. But do you anticipate the same trend in Q2 and the second half to be better, or is there already improvement in the current quarter? I mean, we're essentially halfway through it.

Well, look, the guidance we give on production is unchanged, and so we'll have variations quarter to quarter. That's one of the things I have discovered after 20 years of being associated with Greens Creek is the quarterly fluctuations can be quite high, but almost every year it has met either its tonnage or its grade. guidance or goals, and I don't see this year as being different. Lauren, let me ask you to give a little more color.

Sure. Thanks, Phil. Hi, Heiko. Hope you're having a good day. Yeah, so we mine from a multiple zone array at Greens Creek, and consequently the The grade delivered to the mill can vary by where we happen to move mining at any point in time. And, of course, we build a plan for the year, and we typically achieve the plan for the year. But internal to the year, we may make adjustments in the mining sequence, and that's why you see the variability that Phil spoke of. And there's also some natural variability in the ore body, but that is a very consistent, very reliable ore body. And I would say on average delivers us a bit more metal than we expect. So I see no reason for things to look different for the full year, Heiko.

Very helpful. Thank you. You mentioned the treatment charges. Can you just sort of walk us through what you're seeing impact-wise in Q2 so far, basically?

Well, Q1 had an unusual situation in that we had a customer that fulfilled obligations. It really went back to 2019. And the Treatment charges were significantly lower in 2019 than in 2020. We had that big jump up. And then now 2021, we've had a reduction. So we had about a $4 million benefit in Q1 that's not going to be repeated. So that's why you don't see costs even lower. Russell, do you want to add to that?

Yeah, just to add to that a little bit to what Phil had said is that we had a non-recurring benefit of about $4 million in Q1 at Greens Creek. And then for the rest of the year, the treatment charges at this point have been set. So we should see... kind of some relative stability in those treatment charges based on our shipments.

And do you recall what the difference is in the zinc treatment charges from 2020 to 2021? Is that close to $150 a ton? Yeah.

Not quite, but pretty close. So it almost got cut in half.

Yeah. And remember that the zinc and the lead treatment charges for 2021 were not set until April. Yeah, last month or so.

Got it. And then just one quick clarification. Your provision for closed operation in environmental matters, you're at $3.2 million. It says it's due to an increase of the historic. Is that a one-time thing, or is there any recurring cash?

We would expect that this reflects the obligation that we will have at that property. It's an old rancher's exploration property. a uranium property, and we think this will fully cover the obligation, but you never know. But I do not anticipate it recurring.

Very helpful. Thank you all so much. Stay safe.

Okay, thanks, Saika.

The next question comes from the line of Trevor Turnbull with Scotiabank.

Yeah, thank you, Phil. I actually had another question about almost the same thing, silver at Greens Creek. But looking a little further out, we've noticed the silver, you know, the reserve grades haven't changed that much over the last few years as you update them. But certainly the head grades that you've been mining over the last several quarters or several couple years have moved progressively higher and are quite a bit higher than reserve grades. And I just wondered if you could comment on how you expect that to play out in terms of a revision to the mean or reversion to the mean, I should say, when we might expect silver grades to come down closer to reserve grade in your sequencing plants.

Sure. So you'll recall about three years ago, we announced that we had designed a new mine plan that was going to allow us to mine increased grades. And so sure enough, that's what's happened. We've been able to achieve that. And clearly, as time goes on, we expect the grades to decline. Like any good miner, we're going to mine the highest grades first. But having said that, what we're going to be focused on in order to stay at this sort of 10 million ounce level of production is trying to figure out how to increase the throughput. We started when we were the operator at 1850 tons per day. And I do it in tons per day and Lauren does it in annual, but we're at 2,300 tons per day now and have been for the better part of five years, I would say. So the focus is going to be, okay, how do we increase the throughput through the mine? And it's going to be a challenge because We have a fair amount of material that comes from longhole stopes, and at some point the plan is to go to all cut and fill. So it's going to be a challenge. But this Greens Creek operation, the culture of that place has consistently figured out how to make that mine better. And so I'm confident that we'll be able to maintain the sort of production levels you see, even with a declining grade. Lauren, what would you like to add?

I would just add that we have plenty of time to work on this issue. The decline or the reversion to something more like the reserve mean is a number of years out. And, of course, we continue to drill there, so we may have some exploration success that is helpful. But we'll plan as if the grade reverts at some point. And in order to compensate for that, we'll be looking to increase throughput. And we'll also put some effort into looking at recovery in some of the satellite zones, which could be a bit lower. So we'll work on both of those things. We've got a number of years to work on it. The good news is we've just completed some detailed review of the mill, the grinding circuit in the mill, which is typically the limiting factor, and we're in really good shape on the grinding circuit.

So you mentioned recovery, and it is interesting also to look at the recovery improvements that have happened over the course of the last decade. I want to say it's 10 recovery points.

Yeah, it's been significant.

But we're still only at 78% recovery, 80% recovery. In that range. Yeah. So we've got some, you know, that's still quite low, Trevor, to have an opportunity to improve things.

No, I appreciate that. And, no, it's good to know you've got some runway at these grades and certainly time to keep the continuous improvement going at Greens, which we have been noticing. So I appreciate that. Thanks, guys.

Thanks, Trevor.

The next question comes from the line of Lucas Pipes with B. Riley.

Hey, good morning, everyone, and I'd like to add my congratulations on a very strong start to the year. Thanks, Lucas. My first question is on Lucky Friday, and maybe just to take a step back. Obviously, there are a lot of things going on at the moment. Plenty of higher levels of output over the coming years. You mentioned the changes in the mining methods, and I wondered if you could elaborate on that and share with the investment community what changes have taken place on the ground and how that transition is progressing. Thank you.

Sure, Lucas. So, you know, the big limiting factor at the Lucky Friday is seismicity. We have about 20% of our availability of our stoves. They're not available about 20% of the time because of seismicity. And so we're looking at how do we solve that. And we've got two approaches that we're considering. One is a drill and blast approach. The other is the remote vane miner. And so we're testing the drill and blast approach. which is basically the idea is one where we, I'll just call it sort of a big blast is kind of what we're doing. We're inducing the seismicity when we want it induced over a larger area of the mine rather than sort of heading by heading, cut by cut, drilling each day. So we're doing something that's larger than that. It's still early days on whether that's going to be successful. There's lots of challenges, but you can see with the results that we're on track with what we have said we would do. And so I don't see that changing, but I do see the potential for a lot of upside if you can eliminate that that that seismicity unavailability of the stoves so so we'll do that and during the course of 2021 we would anticipate in 2022 we could start testing the rvm But one way or the other, we're going to improve the throughput through the mine. We think there's the potential. You have infrastructure that you could produce roughly 50% more tons of

than what we have traditionally done so we we think uh if we can figure out how to control the seismicity better lauren what would you like to add to that i think it's all about the seismicity and getting the heading availability up and um you know the this work began um as a means to improve the safety performance um in the mind and the management of seismicity and In the course of pursuing that work, a typical blast at the Lucky Friday under the previous mining method, it's a round-by-round thing, which maybe is a few hundred pounds of explosives at a time. And we've been doing some big de-stress rounds to relieve the seismicity, sort of tens of thousands of pounds of explosive at a time. And what we observed is that it generated some positive effect in terms of delivery of broken muck to the mill. And so we're capitalizing on that as a potential means to improve productivity and production both. And that's the path that we're moving down now. As Phil said, there's much to be done in terms of experimentation and refinement of the method, but the early results are quite promising.

and and lucas the other thing i'll add is that seismicity is not a new issue for the lucky friday you go back to 87 88 there was a change in the mining method to deal with seismicity then so this is this is an ongoing issue that this mine has had and and you know i suspect 30 years from now 40 years from now somebody will say oh we can improve the mining method in some fashion so it's it and and you know deal with seismicity so

Very much an evolution.

Yeah.

Very helpful. Very helpful overview. And, of course, best of luck as you continue to improve the efficiency, safety, and output of these very attractive operations over the long term. So appreciate that. My second question is on Montana. There were some comments in the release, and I just wondered, can you go back there and maybe elaborate on what you anticipate in terms of potential development at the properties you have and how much of a priority this is in the current environment? Thank you.

Well, Lucas, it's a big priority for HECLA because it's our largest single resource at any of our properties. It's the third largest undeveloped copper asset, as well as being this large silver asset, 330 million ounces of silver resource. And so we're trying as... to go as rapidly as possible to get underground so that we can do the drilling to prove that we will not have a negative environmental impact and to develop a mine plan to best mine these ore bodies. There was a court decision that has caused us to say, okay, we probably need to evaluate whether everything is in the right place for being able to accelerate getting underground. And we haven't come to a conclusion with that, but you'll certainly hear more over the course of the next coming probably two or three months. as to what course of action we'll take. But I can assure you there is no priority that's higher for HECLA outside of our existing operations than the Montana assets.

Very, very helpful. And with the court case, was that a challenge to the record of decision?

So there's two properties, Lucas. There's the Rock Creek and there's the Montenor. It's actually the same war body. It's just been faulted off. And we bought two separate companies, so it's been on two separate tracks. And so it was a court opinion on the Rock Creek property that would suggest that the biological opinion necessary for the permit needs to consider um the mine as if it's in production rather than just the expiration of the rock creek mine so that's what we're evaluating is is what does that mean for the the work that's being done on the biological opinion for montanor and of course it's not just our decision it's a decision of the department of the interior and and of the forest service very helpful and in in terms of um

the potential timing impacts. You mentioned this is a very high priority to get on the ground. In this case, how much extra time would a resolution of this court opinion take?

Lucas, I don't have a timing of it to be able to give that to you. As soon as I do, we will. We'll let everyone know.

Terrific. Well, Phil and team, really appreciate all the detail, and best of luck. Okay. Thanks.

The next question comes from the line of Ryan Thompson with BML.

Yeah. Hey, guys. Thanks for the update. Just a couple of questions for me. Maybe just the first one. At Nevada, you're guiding to 17,000 to 19,000 ounces for the rest of the year. Can you just sort of walk us through how we should be modeling that sort of quarter by quarter and just timing of when the refractory ore is going to be processed?

The short answer is the majority of it comes in Q2 because we're running the material through the Midas mill. The remainder is really in the hands of the third-party processor as to when they're going to blend it in with their normal material. And so I think you can anticipate that's over the second half of the year, majority of that ore that's going to the third-party processor. Okay. I don't know, in terms of ounces, Lauren, do you have any recollection of?

I would expect the majority of the ounces in Q2, probably two-thirds or three-quarters of the ounces in Q2.

Perfect. That's really helpful. And maybe just sort of more of a high-level question. You made some very interesting comments on the silver market and your view on the silver price. Can you maybe just tie that into a discussion on growth in silver? We've seen a couple of your peers recently make acquisitions of gold mines, your last couple of acquisitions with Klondex and Casa were both gold mines. Can you maybe just tie that into a discussion of M&A and sort of what you're seeing in the market and how you're thinking about the company's sort of silver to gold sort of revenue mix?

Well, you know, M&A is always something that you're considering. For us, though, it's not the highest priority because we do have this growth that's built into the Lucky Friday. You know, in addition to the higher grade, we think the mining method where we're better managing the seismicity will allow that to grow beyond that. We also have things like the Montana assets that, that would be a, you know, look at, it could produce as much, if the two properties together, you could produce as much from Rock Creek and Montenor as you could, as you can from the rest of HEPLA combined. So those are the things. And we have other assets in the mix that we have acquired over the course of the last number of years. And so my view is that whether it's silver or gold, You're going to see somewhere between three and five properties come into production over the course of the coming decade. And certainly to the extent they could be silver because we do have such a strong view on the strength of that market for this decade, we'll do that. But gold, we think gold will do well also. So we're not going to not put attention to gold. And you'll hear more in a couple of weeks about the exploration that we're doing in Nevada. Very exciting. And it's gold with a fair amount of silver, but it is primarily gold. So we like both metals, but we do think silver is relatively better than gold.

Perfect. That's all I had. Thanks a lot for the update, guys.

Sure thing.

Again, if you would like to ask a question, press star 1. The next question comes from the line of Matt Farwell.

Hi. This is Matt Farwell with Roth Capital. Thanks for taking my question. Just a quick question on inflation and sort of the macro discussion out there is that It's focused on inflation as well as lower interest rates. But it seems to me that your costs are in check. And I was wondering if you can just comment on what buckets of costs might be a factor going forward if this commodity rally continues for you. And also maybe comment on how the lower interest rate environment, despite inflation, Despite the concerns about inflation, the lower interest rate environment is really helping to improve the credit, your cost of credit, your cost of capital, and has ultimately resulted in improvement in your rating by the credit rating agencies.

Well, with respect to inflation, if you think about our cost structure, roughly 50%, between 45% and 50% of our cost is labor. And energy is about 10%. Everything else is pretty small because of the nature of our minds. So where are we exposed? It would be really on wage inflation. You know, I think we are watching that very carefully. We're going to be competitive. We've got lots of opportunities where we have the advantage of being in great places that people want to live. So attracting people is not an issue. But I will say, you know, one of the things that I was at the Lucky Friday, one of the things that was interesting was the cost of housing. going up in the availability of housing. So there are issues that go beyond just the specific costs of wages that we have to think about. Anything you guys, Russell, Lauren, you guys want to add on inflation?

You know, in terms of the cost structure that you mentioned, Phil, a large portion is labor, but we're not exposed to a significant degree to, say, fuel, for example, because of the operations that we have. You know, a lot of our power comes from, say, hydropower or renewable sources, so we don't always see the inflation there where others might be generating power. So from that aspect, we're not seeing that inflationary pressure. Yeah.

I think structurally, because we operate high-grade underground mines predominantly, we're not as exposed to ships and commodity prices as some other companies, as Russell said. Fuel is relevant, but it's not a huge factor, whereas at large open pit operations, it might be moving hundreds of thousands of tons a day. It is a much larger factor. Our reagent consumption is modest. Our steel consumption is modest. So we pay attention to those things, and where we can be strategic and protect ourselves, we do, but they're not huge exploiters.

And then with respect to... I guess our debt and the way I'm going to answer this question is we're looking forward to the call when we have the opportunity to start to call some of those bonds. It's a deal that we needed to do and we did it, but we think that it can be ultimately replaced with something that's quite a bit less expensive. But we have an on-call three. We're, what, I guess two years into it, or one year into it, so we've got two years to go. So I would anticipate you'll see at some point a refinancing when we can call the bonds. We think the rating agencies, with all due respect to them, are a little bit behind the curve with respect to where our ratings should be. Maybe that's no surprise to you or them that I would say that. But we would anticipate over time they should be improving our ratings. And I know Russell and Vita definitely think that.

Great. Thanks a lot for taking my questions. Sure, Matt.

The next question comes from the line of Guy Buckley.

Are you there?

We are.

Come on. First of all, you've done an excellent job. You've done an excellent job. But, boy, how did you run on and pick up that Nevada property? That's a gold mine.

Well, that's yet to be done, but we're working on it, and we're very excited about the opportunities at all four properties that we acquired in the Klondex area. acquisition realized that we acquired them because we saw the potential for very high-grade mineralization. You take Midas, its history was 25, 30 years of producing at an average grade of close to eight-tenths of an ounce. So we think there's more of that to be found, and we're excited by the exploration that we're seeing.

Well, you've done an excellent job. And, boy, I agree with Phil, Mr. Baker, that this, of the two horses, silver's the faster of the horse. It's the fastest horse. And I think he's absolutely right. With these solar panels requiring silver, electric cars requiring silver, the phone we're even speaking on has silver in it, and I think he's spot on. But that Montana... discovery. I drilled a well up there, an oil and gas well, a wildcat in Montana years ago. I know Montana very well. And that deal, that silver and copper you found in Montana, that is a doozy. If you guys get where you don't want that, maybe you could put it up for sale. There would be at least 50 entities that would try to buy that from you.

All right. Well, I can assure you that... Mr. Baker agrees with everything you've said. So thanks very much for coming on.

He's done his homework, and I've done my homework, and I'll tell you, it's great. Thank you very much. The only problem is that I don't understand why your stock is as low as it is, because if it isn't twice the price it is end of this year, I'll eat this desk.

All right, well, thanks very much. Guy, we should either go on to the next call or... Okay, thank you. Thanks very much.

Again, if you would like to ask a question for star one.

Okay, well, operator, are there no other people in the queue? There are no further questions. Okay, thank you very much. So I really appreciate your participation on the call. Should you have a question that you weren't able to ask, please reach out to us. There's the information on the press release. And, you know, Russell can talk to you or I can talk to you. So please feel free to reach out. And please stand by for our annual meeting. I think it's on the 19th of May. And at that time we'll be giving a presentation on our ESG and our environmental or our exploration. So thanks very much. I hope to see you on the 19th. Thanks. Bye.

ladies and gentlemen this does conclude today's conference call you may now disconnect