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spk01: Good day and thank you for standing by. Welcome to Q1 2022 HECLA 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 the session, you will need to press star 1 on your phone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your first speaker today, and Vita Patel. Please go ahead.
spk00: Thank you, operator, and welcome, everyone. Thank you for joining us for HECLA's first quarter 2022 financial and operations results conference call. I'm Anvita Patel, HECLA's Vice President of Investor Relations and 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 Sel Baker, HECLA's President and CEO, Lauren Roberts, Heckler Senior Vice President and Chief Operating Officer, and Russell Lawler, Heckler 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 two and three in our earnings release and in our 10-K and 10-Q filings with the SEC. These and other 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 are found in the slides or news release. With that, I will pass the call to Phil.
spk08: Thanks, Invita. Good morning, everyone, and thank you for joining our call. Looking at slide four, the world is experiencing a combination of risks and events which we haven't seen for quite some time. Inflation is the highest in more than 40 years. You have the Russian-Ukrainian War, 100-plus oil prices, rising interest rates, supply chain disruption, shortage of skilled workers, and of course, the continuing pandemic. As we consider these events, we remember that HECLA is a 130-year-old company that has weathered world wars, the Great Depression, recession, the Spanish flu, the 1970s oil embargo. So as we look at today's challenges, we have perspective to navigate these times successfully. And why can we navigate them? The first reason is because we operate in the best jurisdictions in the world, namely in the U.S. and Canada. And if you look at the specific states and provinces we are in, the Fraser Institute ranks all of them in the top ten regions for investment. And we're not just in these places. We are the largest silver miner in the U.S., producing about 40% of all the silver mined, and we're also a substantial gold producer in Quebec. Second, inflationary pressures and costs in capital are impacting everyone. However, our mines are not large consumers of capital, and as mature operations with decades of prior investment, sustaining and even growth capital are modest. We anticipate investing slightly more capital than normal at the lucky Friday, maybe $20 million more as we equip our new mining method to optimize it. We'll also see some pressure on our operating costs, mostly at Casa Berardi due to the volume of material it mines and processes relative to our other mines. However, we are proactively managing the risk, and we believe we can successfully navigate it. And Lauren's going to touch on this later in the call. But probably the most important differentiator of HECLA in costs from other silver producers are the revenues from our byproducts, zinc and lead. We are the United States' third largest producer of zinc and lead, The byproduct credits from this revenue appear to be offsetting the inflationary pressure. Third, we operate the best silver mines in the world. Our consolidated all-in sustaining cost was less than $8 per ounce, or a 70% margin of about $17 per ounce, so very low cost. Not only that, our silver mines have very long mine lives with more than 14 years, and that doesn't include resource conversion or exploration potential. And our reserve base is the largest in the United States. Fourth, each mine, again, has generated free cash flow for the quarter. In fact, this is HECLA's, on a consolidated basis, our eighth consecutive quarter of free cash flow generation. That's $232 million of free cash flow over the last eight quarters. And when I look back over the last six years, we've generated positive free cash flow in all but one year. All of these factors culminate in a strong operational and financial quarter, allowing us to return 21% of our free cash flow to shareholders during the quarter and positions us for strong performance in these times. With that, I'd like to pass the call to Russell.
spk10: Thank you, Phil. Turning to slide six, we saw revenues of $186.5 million, 33% from silver, 39% from gold, and zinc and lead at 28%. Greens Creek had about half the revenue, while Casa Verde was at 33 percent and Lucky Friday at 20 percent. Bill mentioned our capital, and I'd like to highlight our limited but consistent capital spend. Over the past three years, HECLA averaged $107 million of capital spending. This year, our capital spend guidance is $135 million due to investments at the Lucky Friday. We generated $38 million of cash flow from operations and free cash flow of more than $16 million after our semi-annual interest payment on our bonds of $18.5 million. We ended the quarter with $212 million in cash and available liquidity of $445 million. Bolstered with this strong financial performance, our leverage ratio remained consistent at 1.2 times, which remains significantly below our target of 2 times. Based on these credit metrics, we saw upgrades from the rating agencies. Moody's upgraded us to B1, while S&P upgraded us to B+. Turning to slide seven, I'll speak more on the margins and free cash flow generation of our operations. The green portions of the bars in the chart on the bottom left is the quarterly margin. And over the past eight quarters, our silver margin has averaged 60% of the silver price realized. Since June 2020, we have generated $232 million in free cash flow. And after paying dividends, we've increased our cash balance by about $136 million to end the quarter with $212 million. With this level of cash and the fact that it is growing, I frequently get asked about capital allocation. Our priorities are to make investments that de-risk the mines, lower the costs, or expand the resource. After that, we will build a fortress balance sheet and then return capital to shareholders in the form of dividends. Turning to slide eight, everyone in the industry is seeing inflationary pressures. Like others in the industry, we are seeing these pressures on various aspects of our costs. For us, the biggest driver is labor at 38% of our total production costs and has increased by 14% over the past year. Other costs that are key but individually small have increased 24 to 56%. Over the same period, our base metal byproduct revenues that are credits to unit costs are up 23%, largely offsetting the inflationary pressure. With that, I'll pass the call to Lauren.
spk04: Thanks, Russell. I will start in slide 10. Greens Creek produced 2.4 million ounces in the quarter, which is the result of mining higher grade than we've seen in the prior several quarters. The increase in silver production, combined with stable operating and capital costs, resulted in very favorable margins. The cash cost was negative 90 cents per ounce, and the all-in sustaining cost was $1.90 per silver ounce, resulting in a margin of almost $23 per ounce and free cash flow of more than 53 million. One thing I'd like to highlight is that Greens Creek has generated $1.7 billion in free cash flow since 1987. At startup, 35 years ago, the mine had a reserve life of seven years. Today, the mine has a reserve life of 14 years, and we continue to invest in exploration and definition drilling to extend the mine life. This mine is among the best in the world, relating to grade and margin, and it resides in one of the best jurisdictions possible. The Lucky Friday mine produced just under 900,000 ounces during the quarter, which is just slightly less than Q4 production. This quarter marks the sixth consecutive quarter of free cash flow generation since the mine achieved its target throughput in the fourth quarter of 2020. Production at the Lucky Friday was impacted by supply chain disruptions, where several pieces of mining equipment key to executing the plan were delivered late because of shipping and port delays. These pieces of equipment are on site and expected to be commissioned during the second quarter. We anticipate receiving additional units later in the year, and we're monitoring delivery schedules closely. Lucky Friday also was affected by a shortage of manpower, which necessitated the use of contractors to fill in the open positions, thus increasing the cost during the quarter. We're working hard to fill these positions, and with the production anticipated to be stronger in the last quarters of the year, the cost should come in line with guidance. At Casa Berardi, we produced just over 30,000 ounces of gold, which was within our plan, but manpower shortages in the underground mine resulted in feeding the plant more open pit ore from the F160 pit. As the grade from the open pit is lower than the underground, this resulted in a higher cost per ounce of production, where we saw the cash cost at over $1,500 and the all-in sustaining cost at over $1,800, both higher than our annual guidance. Looking forward, we are working hard to fill the underground ranks to achieve the target production rate from underground. Development crews now are close to full staffing and we continue to work on filling out the maintenance crews. As we look forward, we anticipate increasing the tons which are sourced from the underground mines to return to our planned cost profile. Notwithstanding these challenges, the mine continued to generate free cash flow during the quarter, which was aided by higher gold prices. Although we believe we can successfully navigate the challenges brought on by inflation and supply chain disruptions, we believe cast sobriety is the operation which is at most risk of being affected. In general, this is simply due to the amount of material cast sobriety mines and processes, which inherently causes it to be more susceptible to the underlying input costs. For comparison purposes, cast sobriety mines approximately eight times the volume of rock and processes about 1.8 times the volume of ore, as Greens Creek, while having on site roughly one and a half times the number of people. All of this in an area which is experiencing incredibly high competition for skilled labor. At this time, we have not adjusted our cost guidance as we believe we can navigate these challenges, but we do anticipate inflationary pressure at this operation. With that, I would like to return the call to Phil.
spk08: Thanks, Loren. And if you'll turn to slide 13. Today is the 150th anniversary of the United States mining law. And so I'm going to do something a little different than what we've done. I'm going to take a minute or two just to talk a little bit about U.S. policy toward mining and the supply demand on silver. The pandemic and the Ukraine war has really opened the eyes of both the public and policymakers of the need to increase domestic production of minerals here in the U.S., There is an increased understanding that minerals are the first link in a supply chain needed for energy transformation and national security. So for the first time in my career, I saw six of nine Democratic senators on the Natural Resource Committee publicly recognize the need to improve the permitting process. Senator Ron Wyden stated, reducing dependence on foreign minerals is as much a national security issue as it is an environmental question. He's a Democrat. Senator Angus King, who's from Maine, stated, I don't think the permitting process itself should be used as a weapon to stop a project. Now, I'm mentioning this not because I expect quick changes in environmental laws that the US mines are subject to, and these are the clean water, clean air, endangered species, and NEPA, but I'm just mentioning this because there's a change in the tide that I expect is going to rise over time. And it's not just the Senate. President Biden invoked the Defense Production Act because minerals are needed for batteries for national defense and the economy. And so this means the Department of Defense has funds to significantly invest in the U.S. mining industry, and we will investigate these investments that will qualify. Now, The other reason for mentioning this is because about the mining law is the Biden administration doesn't appear to be completely aligned toward this goal of increasing mineral production. I expect that you'll see some news today or over the next few days if it's not already out there about the mining law. And the purpose of the law was to establish land tenure on federal ground. The rules establishing permitting and environmental standards are in the other laws that I just mentioned. But what you're probably going to see from the administration is news that the law is old and allows mines to skirt environmental controls. Just to be clear, it doesn't. So you will probably see in the news legislative proposals to replace the mining law and new regulations. In fact, there will be hearings in both the Senate and the House with respect to some proposals. So basically, there's a struggle within the Democratic Party between those who recognize the present and future battle to get the minerals needed for energy and national security, and those who are really fighting the battle of the past to keep metal in the ground. And my sense, based on what I see in both the Senate and the House, is the desire for a green transition and a stronger national security will prevail. What does this mean? It means that copper, zinc, and silver, metals that HECLA has very large resources and is the largest, as I said a moment ago, the largest U.S. silver reserve, is going to have policies that will encourage mining. And the graph on the right, on this slide, shows the silver market already consuming more than the mine production and recycling supplies. And so the deficit is expected to grow this year to about 70 million ounces. To put that in a context, that's seven greens creeks. And over the next few decades, the U.S. Energy Information Agency expects the demand for just solar to be half a billion ounces or half of what is currently demanded for all uses. And electric vehicle demand is probably going to grow even faster than solar. In the same way that demand has doubled over the last 30 years, it's easy to conceive that it will double again over the next 30 for silver, the demand for silver. So there's going to be pressure on governments to implement policies to encourage mining, and there'll be pressure on the price to rise to encourage miners to build the new mines and increase production. And so all of this puts HECLA and its shareholders in a great position to benefit. And so with that, operator, I'd like to open the call to questions.
spk01: Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from from HC Wainwright. Your line is now open.
spk07: Thanks for taking my questions. Your capex was $21.5 million, obviously $7 million less, and you attribute this to lower spending at Greens Creek and Casa. We're in quite an inflationary environment. I think the word inflation was mentioned eight times in your press release, and you mentioned it several times in this call. So I'm just curious, what do you attribute these $7 million in savings to? I guess what I'm asking is how did you save such a meaningful number of cash, given that you're talking about inflationary pressures that cost annual relief?
spk08: Well, it's basically just the timing of the expenditures. We still anticipate we'll spend $135 million. Order of magnitude, we double the amount of capital in quarters two and three, and then we have roughly the same amount of capital in the fourth quarter. So it's... It's in line with what we would expect. And this is not an unusual HICO. We tend to underspend in the first quarter, and then during the summer months, you know, remember Greens Creek is, you know, where it's located in the summer months, we have significantly more capital.
spk07: Right. Well, that answer makes a lot of sense. Um, you talk about that CASA was constrained by a lack of available manpower, uh, due to the competition for skilled works and the ability to be, you mentioned some of that earlier on this call as well, purely out of curiosity, what positions would you say you had the most, uh, challenges filling and what did you see with wage inflation? And I guess building on all of that, we're halfway through Q2. Uh, is, is any of that a beating yet in the second quarter?
spk08: Well, it's, you know, we, we, Everywhere you have positions, you have difficulty with skilled positions, particularly miners and people in maintenance of the equipment. You know, is it going to abate? You know, I can't predict what it will do. Lauren, any comments on labor issues?
spk04: I think the way that we should think of it is with strong metal markets come high demand for the skilled trades. And by skilled trades, for us, the biggest impact that we're seeing is in maintenance personnel. It's by far the most challenging position to fill and keep full, followed secondarily by what we would refer to as full cycle miners, and then to a lesser degree, electricians and some of the other technical trades.
spk07: And just salary-wise, what have you seen?
spk08: As far as increasing wages, well, you can see on our slide that shows the inflationary pressure. A lot of that is, I don't remember what we have on that slide. What do we have?
spk10: So what we did see, if you look at Q1 of 21 over Q1 of 22, we saw it went up by about 14%. And that's going to be spread amongst all of the mines, frankly, just as we try to remain competitive.
spk07: Perfect.
spk08: Thank you all very much, and stay safe. Thanks, Heiko.
spk01: Your next question comes from Trevor Turnbull from Scotiabank. Your line is now open.
spk09: Thank you, Operator. Phil, at Lucky Friday, you mentioned you're expecting some new equipment deliveries, and I just wondered, kind of on the back of Heiko's question there, will any of that new equipment kind of offer some relief on the maintenance issues at Lucky, or Is it really like you were talking about, Lauren was saying, just really getting enough skilled maintenance workers?
spk08: Yeah, it certainly helps. There's no question. But, you know, it's just a few loaders that we're having delivered and they're larger pieces of equipment than what we've had in the past for the most part. Lauren, anything to add?
spk04: Yeah, it's exactly what Phil says, Trevor. The new gear is part and parcel to the new mining method, and the two units in question that we spoke about were large loaders or larger loaders than what we've had in that mine historically. So they were pretty key to some of our planning for the year, and I'm happy to report that they are on the ground and in the process of being disassembled, reassembled, and commissioned. We do have some more units coming that also support the mining method. So far, they're tracking reasonably well for delivery. But in addition to supporting the mining method, you raise a very good point that new gear requires less maintenance. And so it should start to help relieve some of the pressure on the maintenance groups. But you have a lot of gear. Yes, we have a lot of gear. And that's a relevant point because we are reducing numbers of total gear when we add the new units, so it should be a virtuous cycle.
spk09: Right. You're going to get more capacity per unit and maybe more availability per unit, and therefore, yeah, I would assume you could slowly pull some of the amount of maintenance down over time.
spk04: That is the plan.
spk09: Thank you. And then I just wanted to ask a couple of quick questions on the more development exploration front. First one was at Hotter Graben. You talked about the water inflows, and I just wondered if that's something that can be handled simply with more pumping capacity, or if you also have any issues with discharge limits and have to think about things from a permitting perspective.
spk08: That's the drivers, the permitting drivers. Um, we, we do need more permitting capacity. And so that's has slowed us down in our ability to dewater it so that we can get back underground to do the, uh, to do the expiration drilling. And it's just going to take us toward the end of the year to get there.
spk09: Okay. Um, and then, uh, hopefully somewhere where, where you don't have to worry about that anyway, down at San Sebastian. I was looking at the La Roca target you talked about where you think you may have an entire intact epithermal system and you've intersected some thick veins already, but you want to test those a little deeper. I just wondered, when do you think we might see the results of some of that deeper drilling? Is that something we get by the end of the year?
spk08: Yeah, I would anticipate that. Okay, great. That's all I had, Phil. Thank you. Okay, thanks, Trevor.
spk01: Your next question comes from Lucas Pipes of B Reilly Securities. You may now proceed with your question.
spk05: Hey, good morning, everyone. Phil, I wanted to also ask about Lucky Friday. You mentioned in the preceding questions the equipment and productivity gains there, but The mine has been improving productivity here for some time and I wondered if you could share your view on how productivity gains will be balanced with inflationary pressures at that operation specifically and as we look out into 2023. Thank you very much.
spk08: I guess I'll let Lauren, I don't have really an immediate response to the question, Lauren, but it just seemed to me that as we improve with the new equipment, just the mining method itself is just more productive. I mean, if you think about historically, the stoves have been shut down 25% of the time for seismicity, and we don't have that. that sort of lack of access. So that's going to be helpful. Where it all ends up, you know, how good can it get? It's not clear to me. I think there's a lot of opportunity to optimize, which has, I guess, the potential to offset some of the inflationary pressure. But, Lauren, what?
spk04: Certainly. The way I think we should think about this, Lucas, is You know, as we improve productivity, we have the opportunity to take the gain either in delivering more with fewer people or the same amount with fewer people or delivering more ore to the mill. And because this mill is not yet at full capacity, by far the better economic choice for us is to fill the mill. And so that is the direction we're moving. As we increase productivity, we're increasing the feed to the mill. And over the next 18 months or so, we should see steady increases in the mill throughput until we fill the mill to capacity. Even with that significant increase coming, the volumes of material moved at Lucky Friday are quite small. And consequently, the inflationary pressure is muted there compared to, say, for Casa Variety.
spk08: So really the revenue is going, while inflationary costs will increase, the revenue will increase more. Much more, much faster.
spk05: And on a per unit basis, the appearance of inflation should be quite muted too.
spk04: Correct.
spk08: Certainly relative to what it would be. Yeah.
spk04: Yeah. It still has an effect, and we're mindful of that, but the increase in volume of metal produced is far going to outstrip that.
spk08: And I just think that there's a lot of opportunity to optimize the method. I mean, we've been at it a year and a half. It's been very successful, but it has been, you know, remember this is a mining method no one else has ever done before. It's been very successful, but, you know, there's a lot that we're still learning from it.
spk04: And over the course of the next year, we're only now getting all the equipment that we would desire to have for this method. We've made it work with the gear that we had in the ground, which is smaller and older and in some cases not as fit for purpose. So we're quite excited to see what the future can bring.
spk05: And on the equipment, the deliveries, are those fully behind you or are there other important pieces?
spk08: No, there's going to be more. There's going to be more. There's a whole series of equipment. That's why the capital, you know, I mentioned the capital at Lucky Friday is, you know, in aggregate is about $50 million, and about 20 of that is more than what we typically would spend in order to have this growth. And so there's more coming. These were the two kind of key areas. large pieces of equipment that we were kicking off with the change in equipment.
spk04: It's kind of interesting what happened there. The manufacturer had the units ready to ship exactly according to the schedule that the manufacturer gave us. The problem was getting a ship nominated to move them out of the home port facility and And it was very delayed. And then when the ship was nominated and the units arrived off the west coast, it happened right at the time that the ports were completely plugged up and we incurred further delay there getting them off of the ship. So I think that was a bit of an anomaly, just a strange confluence in time. We do have about four more major production units and four pieces of support equipment coming this year, some additional ones next year. And we're monitoring those. I don't think we'll see the same sort of unusual shipping problems, but we are starting to see some pressure for delivery of machines out of the factories.
spk05: Very helpful. Really appreciate that level of detail. Switching topics, Phil, you spent some time talking about, in the prepared remarks, the changing attitudes towards mining in the US and kind of maybe a bit more consensus across the aisle. Is it too early for HECLA to take that and feed it into your strategic outlook of where you deploy capital, how you deploy capital? Would appreciate your thoughts on that.
spk08: Well, it certainly encourages us to continue to explore at our various properties that we have in the United States. And so you're seeing some of that this year. But just to be clear, I'm not suggesting a sea change happening tomorrow. But I think it will build momentum over the course of the next few years. And I think, you know, I... I was surprised to learn that some of these solar farms that people are wanting to put in place, that the environmental laws are being used, weaponized, as Senator King said, to prevent these projects from going forward. So what's happening is there is now starting to be an element of the environmental community that is supportive of changes and the permitting and the environmental regulatory regime, but it is very, very early days. Having said that, I mentioned it because it is very encouraging and it is a real change and it seems to me there's an inflection point that has happened as a result of the pandemic and the Ukraine war.
spk05: I appreciate that. Thank you. And then on that topic you mentioned, there's going to be something coming out here either today or in the coming days. So can you remind us what the details are on that?
spk08: Yeah, so again, this is the anniversary of the mining law of 1872, so 150 years that has been in place. And there is an event that's happening at the White House today that I would anticipate there will be news coverage as a result. And both in the Senate and the House, there are hearings, at least I know in the House in two days, there will be hearings on the mining law, on potential changes to the mining law. My comment to you is, It is unlikely those changes will go anywhere. And so it will be, you know, what things that happen will be done regulatorily. But I think the more important thing is longer term there's probably changes to environmental laws rather than the mining law. I would not anticipate a change to the mining law. But you're going to hear people suggesting that it will be changed. So I wanted to have our investors realize that it is not likely to occur.
spk05: Thank you. My final question for now on the topic of North American supply and projects in the pipeline, can you give us an update on the Montana assets and what... procedurally needs to happen here in the short term to move these projects forward?
spk08: Yeah, so recall what we did earlier this year is we changed course, and because the hang-up for these projects is not with the regulators. It was with the court. And so what we've done is we've changed course to try to design the path forward that will be difficult for the court to push back on, and that is making it an expiration-only permit. The permits that process that we inherited was to have the full monte, was to have it where we could actually take it all the way into production. We've just concluded that that, while it would be ideal if you could get that, we've just concluded that that's not likely to be able to get through the district court in Montana, while the expiration only will. And if we can do that, then we can prove not only the expiration so that we can develop a mining plan that is a modern mining plan, realize that what we inherited was really a plan of 15 years ago. What we can do is develop a mining plan that is even better environmentally, as well as do the drilling necessary to confirm the hydrology. So we're in that process with the Forest Service developing all the documents necessary to have the permit. And so we would anticipate that's a year, 18-month sort of process, closer to 18 months than a year to achieve that. And then with that, then we'll see if someone brings suit. And if they do, then we'd have to deal with it in the courts. And that's just the way the system works in the U.S. And that's what I would anticipate over the course of the next, maybe it's a decade, maybe it's less, that you'll see this change in the environmental regime if we're going to seriously deal with the shortages of minerals in the United States, if we're going to deal with the shortage of minerals necessary for the energy transformation. So that's my view of it.
spk05: It's remarkable. So there's been work on this permit for 15 years. Now you're settling for an exploration permit. This will take another year to 18 months.
spk08: And after that... So that gets us underground. And once you're underground, we actually think once you're underground and there's the recognition that the environmental impact is quite minimal, that and realize what the issues are relates to fish and bears. It's the exact same issues that we have at Greens Creek that is also in a wilderness area and it's in a national monument. So all the challenges that we are subject to for the projects in Montana, we have been dealing with successfully for the last 30 years at Greens Creek. So we think we're really well positioned once we get underground to be able to get over the line for a final permit. But the key is getting underground, and this seems to us is the path of least resistance.
spk05: Very helpful. Phil and team, really appreciate your time this morning. Best of luck.
spk08: Thanks, Lucas.
spk01: Your next question comes from Joseph Frigor of Roth Capital Partners. Your line is now open.
spk06: Hey, Phil and team. Thank you for taking the questions. So most of the stuff I want to touch on has already been touched on by prior callers. But you mentioned that your biggest concern as far as inflation and supply chain issues is related to cost of priority. If inflation doesn't let up and the supply chain issues don't let up for the rest of this year, What's the order of magnitude of upside in cash costs and operating costs at that mine?
spk08: You know, I can't speculate as to what that might be, but what I would suggest to you is we're anticipating more production over the last three quarters of the year, and therefore, you know, the free cash flow generation we think will continue to occur at the mines. Lauren, anything to add?
spk06: Nothing to add, Phil. Okay. Are there any opportunities out there to lock in some hedging on any of your costs to prevent further impacts of inflation?
spk08: When you think about our costs, it's largely labor. That is by far 38% of the total cost, so So you can't hedge that.
spk10: Yeah, as I look at it, you know, excuse me, you know, labor, it's at 38%. You see on slide number eight, we call that contractors because that's a portion as well, and that'll be one of those areas we look to, you know, reduce the contractors with employees. We've already talked about the, you know, the tight labor market, but, you know, we'll look to do that. You know, the item that tends to fall out to be hedged would be diesel. and you know we really don't consume a whole lot of diesel you know in 2020 in the first this first quarter 2022 five percent of our costs were diesel um or fuel as a whole and you know as such you you know you just don't see a lot of benefit to that and that really just you know plays to the fact uh especially on the silver mines these are small mines casa berardi you see a little bit more but but frankly not not a huge amount more than you'd say at greens creek as a percentage of the cost
spk08: So Joe, remember that most of our power generation is hydro. For most of the year in most places, Greens Creek on occasion will have periods of time that we're generating power at site, but that's gosh, it hasn't been very often over the last four or five years, but there is the potential for that. So it is It is really hard to see where we can do cost hedging. What we have done is we have managed on the revenue side to make sure that we are confident in the cash flow generation from the lead and the zinc. We hedge a portion of that and then we realize the benefit of the even higher prices that we're seeing. So we're in pretty good shape in terms of having the revenue offsetting the inflationary pressure.
spk10: The only thing I would add to that from the Casa Verde's perspective is we do hedge the Canadian dollar. And so that gives us some consistency and some benefit, at least as it relates to the past few years anyways. And that includes both. Direct production costs, we have hedges going out over the next few years. But also in 2022, we have a portion of the capital spend that we've hedged as well.
spk06: Okay. And then one final thing, kind of big picture. You know, you guys in the past have made some acquisitions. The, you know, let's call it explorers and developers have been under significant pressure on their share prices for, you know, over a year now. Um, are you seeing any opportunities out there where you guys could be, you know, opportunistic, um, and potentially acquire, you know, the next, uh, heck of a mind?
spk08: You know, we, we are always sort of engaged in the M&A world. And I, I'll just tell you, Joe, it's, you know, they come few and far between because it takes two to tango unless you're willing to do something on a hostile basis, which, You know, we're reluctant to do that, you know, unless there's a transaction maybe that gets announced. We would prefer to do something collaborative with, you know, other companies. So, you know, stay tuned. We'll continue to be in that market, and, you know, as things develop, we'll see where it comes out. But having said that, You know, we're fortunate in that we have mine lives that will go on for decades. We have growth that's occurring with the Lucky Friday from higher grade and then growth on top of that from the new productive method. So we don't feel compelled to acquire things, but we certainly stay in the market because You know, we want to find these large land positions that have the potential for long-lived, low-cost assets. So you've got to keep engaged to get those things.
spk06: Okay. Thanks, Tyler. I'll turn it over.
spk08: Thanks, Jeff. Okay.
spk01: Your next question comes from John Tomazos of Tomazos Ferry Independent Research. You may now proceed with your question.
spk03: Hey, Phil.
spk08: Hi, John.
spk03: Phil, I'm worried that our guys in Washington aren't as smart as the people in China that tightened a year ago when our guys were saying inflation was transitory. And they seem to be hell-bent now on tightening, even if a recession's already started. And there's a lot of evidence of inflation. I looked at the Pittsburgh newspaper this morning and the electric utilities raising rates 45% in western Pennsylvania. That hasn't hit the CPI yet. So anyway, Phil, if our guys in Washington screw up and raise rates too much for 12, 18 months, how much of your silver and gold do you think you can go without selling? You know, how bad they might screw things up in the short term? Yeah, you have 200 million of cash. Do you think you can not sell five or 10 million ounces of silver and just hold it?
spk08: So the short answer is no, because we don't actually produce a silver bar, we produce concentrate. And we don't have a place to store that concentrate. You know, we and we and then we also have framed contracts where we're obligated to deliver. So So, no, we will not be not selling silver. Could you conceivably not sell gold? Yeah, conceivably you could do that. I would not be inclined to do that. So, John, as much as that has an appeal to it, we probably will sell what we produce. On the other hand, what I'll suggest to you is we've got low costs. So we can weather whatever the price decline might be with that significantly higher interest rate. But the other thing to remember is, and you know this better than I do, is that just because you have higher interest rates doesn't mean you have low gold and silver prices. We certainly have seen in the past, and you've got to have the events come together to make this happen, but we've seen in the past
spk03: metals prices be quite high high high interest rates so why do you think Phil that I'm having a hard time coming to grips that gold is up this year from 1796 or so last year and silver is down from 2508 average last year roughly why do you think I know we've had the big ETF buys on gold but Why do you think silver is down? It's just hard for me to understand.
spk08: John, I don't understand it either, but what I would suggest to you is given the demand that's required, this industrial energy demand that's required of silver, I just look at it and say this is just going to make the highs higher
spk03: when when things turn, it's going to be worse than we expected and better. I agree.
spk08: Yeah.
spk03: So Phil, inflation today is partly a monetary phenomenon, but partly a structural phenomenon. We have wars. If there's fertilizer shortages in the farmers harvest 10% less, that's lower productivity. And all the COVID and supply chain disruptions are lower productivity. And I'm really worried that the Fed is trying to solve things with interest rates that can't be solved with interest rates. Maybe it's time to go to prayers in God. I don't know. But what else could you do other than to start batting down the hatches in case there's a bad short term?
spk08: Well, look, that's what I think is the most prudent thing for us to do. I mean, you would see us pull back on expenditures. We have the ability to do that because we don't have the same pressures that others have. I don't know. Do you guys have that?
spk10: My only comment to that, you know, all of these mines that we're operating have, you know, mine lines that are decades ahead of it. So in terms of the short term, these things will operate through those environments. We have We have a strong balance sheet with lots of cash, and we also have some levers to pull as it relates to reducing the expenses. So, you know, we're talking about, frankly, kind of a bump in the road that, you know, this company has gone through in the past.
spk04: I think, John, we've spent – this is Lauren, John. We spent the last several years and really culminating in this year of reinvesting in our infrastructure at our three primary producers – And I think those minds now are in very good condition in terms of the physical equipment, fixed equipment and facilities. And so it is possible for us to pull back our capital outlay in future years if we need to do so. We've invested while the business was good, which is always prudent.
spk03: Thank you and good luck. Thank you.
spk08: Thanks, John.
spk01: Again, if you would like to ask a question, just press star 1 on your telephone keypad. Again, it's star 1 to ask a question. There are no further questions at this time. I will now turn the call back to Phil Baker for the closing remarks. Please go ahead, sir.
spk08: The only thing I'll say is that we do have these time slots available, so if you do want to have a conversation with one of the executives at HECLA. We're priding ourselves in being available to all investors and interested parties. So you have the opportunity. These are, what, 30-minute time slots, my recollection? Yeah. So those are available to you. And so please take advantage of them if you have some more questions that weren't answered. Thanks very much. Have a great day.
spk01: And this concludes today's conference call. Thank you everyone for participating. You may now disconnect.
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