Hecla Mining Company

Thank you for standing by. My name is Van and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2025 Hekla Mining Company Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Mike Parkin, Vice President, Strategy and Investor Relations. Please go ahead.

Thank you and good morning for joining us on HECLA's third quarter 2025 results conference call. I am Mike Parkin, Vice President, Strategy and Investor Relations. Our earnings release that was issued yesterday along with today's presentation are available on our website. On the call today is Rob Krichmarov, President and Chief Executive Officer, Russell Lawler, Senior Vice President and Chief Financial Officer, Carlos Aguilar, Senior Vice President and Chief Operations Officer, Curt Allen, Vice President Exploration, as well as other members of the management team. At the conclusion of our prepared remarks, we will all be available to answer questions. Turning to slide two, cautionary statements. Any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act and involve risks as shown on slide two. In our earnings release and in our 10Q filings with the SEC, these and other risks could cause results to differ from those projected in the forward-looking statements. Non-GAAP measures cited in this call and related slides are reconciled in the slides or the news release. I will now pass the call over to Rob.

Thank you, Mike, and good morning, everyone. So turning to slide three, let me just start by reminding you why Heckler stands apart in the silver sector. You know, as the oldest silver company on the New York Stock Exchange with a history dating back 134 years, we operate exclusively in the premier jurisdictions of the United States and Canada. We maintain peer-leading silver exposure on both a revenue and resource basis with an average reserve life that's double our peer growth. We're building project momentum through strategic investment in our pipeline and we're achieving cost excellence as the lowest cost producer among our peers. And I've got to say, these are exciting times and Heckler really is thriving on strong silver and gold prices. We're using this momentum to strengthen our finances, fund high return projects and boost shareholder value. But I think the outlook's even brighter. Silver faces its fifth consecutive year of supply shortages, with rising industrial demand and investment flows expected to support prices for years to come. And unlike most of our peers, we're uniquely positioned with one of the most favourable silver to gold revenue ratios in the sector, allowing us to capitalise on this silver strength and drive meaningful value creation for our shareholders. Moving to slide four. Q3 really was exceptional, and just let me walk you through why. Firstly, record results. We delivered record results this quarter. We hit revenues of $410 million. Net income came in at $101 million, and adjusted EBITDA was $196 million. These aren't just numbers. They prove that our business model works. We capture upside in strong markets while our cost position offers protection in weak ones. Now, here's what matters a lot, and that's our balance sheet transformation. Net leverage has improved from 1.8 times this time last year to 0.3 times in Q3. So that's an 83% reduction, and that's in a single year. That's a structural de-risking of the company. This de-leveraging consisted of fully repaying our revolver, redeeming $212 million of debt, and paying the $50 million Canadian note due to Investment Quebec. So this deleveraging effort has eliminated over $15 million in annual interest expense. We've gone from being capital constrained to capital flexible. Our cash flow generation has been nothing short of stellar. We've generated $148 million in operating cash flow, while consolidated free cash flow came in at $90 million. And here's the key piece, all four of our producing assets, Greens Creek, Lucky Friday, Casa Berardi, Kino Hill, generated positive free cash flow for the second consecutive quarter. So that's operational momentum. On the operational front, our silver production was 4.6 million ounces, up 2% from last quarter. Cash costs were negative $2.03 per ounce, thanks to strong by-product credits, while all sustaining costs came in $11.01. As a result of this performance, we've tightened our production guidance and reiterated the cost guidance. Our surface cooling project is progressing on track and is expected for completion in the first half of 2026, while Greens Creek received its weapons permit for the dry stack tailings expansion. Completion of these projects is critical to the future success of the company. So in summary, our operations have executed really well. We've de-risked the balance sheet and built financial flexibility. We're cash generating across all assets. And we're positioned to invest in growth. And that's the transformation story. I'll now pass the call over to Russell.

Thank you, Rob. Moving to slide six, I want to continue to highlight the strong financial performance we delivered during the third quarter. We generated $393 million in mine site revenues, with silver continuing to be our primary revenue driver at 48% of the total, followed by gold at 37% and base metals rounding out the balance. This percentage of silver revenue, especially with the jurisdictions in which we operate, makes us a standout in the industry. Our silver margins remain robust at $31.57 per ounce, representing 74% of the realized price of silver, with all in sustaining costs of just over $11 per silver ounce. We're demonstrating excellent cost discipline across our operations. Our net leverage ratio improved to 0.3 times during the quarter, the lowest in more than a decade, down from 0.7 times in the second quarter. This reflects our adjusted EBITDA growing to $506 million on a trailing 12-month basis, as well as our significant reduction in overall gross debt outstanding while maintaining disciplined capital spending. Most importantly, we generated consolidated free cash flow of more than $90 million during the quarter. Greens Creek led the way with nearly $75 million, demonstrating why it remains one of the world's premier silver mines, We continue to see the free cash flow inflection we've been speaking about at Casa Berardi with nearly $36 million in free cash flow during the quarter, while Lucky Friday added $14 million, and Keno Hill impressively contributed more than $8 million while we continue ramping that asset up. The third quarter marked the second consecutive quarter of all of our producing mines contributing to positive free cash flow. As you can see, at current prices, we anticipate generating significant cash flow. As we turn to slide seven, I'll walk through our capital allocation framework, which is disciplined and focused on six clear priorities with each one having a specific purpose. Our first priority is investment in safety and environmental excellence. This is non-negotiable and is the foundation of everything we do. Second is investing in sustaining capital at our operating lines. We target a minimum of 10 to 15% returns of these operations. Investing in sustaining capital keeps our production stable. extends our mine lives and generates cash flow with low execution risk. Third is our investment in growth capital. Where we target returns of at least 10 to 12%, this investment is intended to increase production and extend mine life. However, we will only make these investments if they demonstrate robust economics at conservative prices. Fourth is investment in exploration. Historically, we've underinvested in exploration. However, because of the deleveraging of the balance sheet and associated cash flow that's been freed up, We anticipate further investment in this area. In fact, we are currently targeting 2% to 5% of revenues as we look to 2026. Investment and exploration provides asymmetric upside. And although we're planning to invest more in this area, we'll also be prudent with our investors' dollars and target the highest return opportunities, both brownfield narrow mines and greenfield optionality. Fifth is we plan to make further investments into leveraging and strengthening our balance sheet. From a pure financial perspective, we anticipate a return of 5% to 7%. However, more importantly, having a strong and deliberate balance sheet reduces risk and provides flexibility. It also allows us to maintain investment during downturns and seize opportunities when they arise. The last priority is shareholder returns. We currently pay a quarterly dividend and will consider further shareholder returns only after operational requirements are met and the balance sheet is strong. That said, we're confident enough in cash flow to start thinking about this. In summary, this framework isn't complicated. It's about maximizing value while maintaining financial flexibility to navigate cycles. We're operating under this framework now, and we've seen better prices and stronger cash flows. We'll see the capital and exploration projects we invest in meet these above criteria, including the remainder of this year. And with that, I'll turn the call to Carlos.

Thank you, Russell. Turning to slide nine, Green's Creek is delivering exactly what we need from our cornerstone assets. a strong operational quarter driving robust free cash flow generation. The third quarter silver production came in at 2.3 billion ounces with 15,600 ounces of gold, both tracking well to full year guidance. Sales came in at 178 million, up 46% from last quarter, driven by a higher volume sold and metal prices. More importantly, the unit economics are excellent. Cash costs came in at negative $8.50 per silver ounce and ASIC of negative $2.55 per ounce, both after byproduct credits. Pre-cash flow was nearly $75 million for the quarter. Based on our strong year-to-date performance at Greens Creek, we are tightening our silver and gold production guidance and lowering our capital expenditure guidance while reiterating our cost guidance. Moving to slide 10, Lucky Friday continues to do what it does well, deliver consistent, profitable silver. Third quarter silver production was 1.3 million ounces with a 7% increase in mid-silver grade. Sales came in at $74.2 million, up 15% quarter over quarter. The free cash flow was $13.5 million. nearly tripled the prior quarter, reflecting improving operational momentum. The surface cooling project is on track for 2026 completion. This investment is strategic. It opens access to deeper high grade zones, extending mine life and profitability. Thanks to our strong year-to-date performance on Lucky Friday, we are tightening our silver production guidance, reiterating our total capital expenditure guidance, and modestly raising our cost guidance. Turning to slide 11, Keeney Hill, we have now delivered two consecutive quarters of positive free cash flow, a significant milestone. Our water silver production came in at nearly 900,000 ounces at an average milling rate of 323 tons per day. Inner Hill is well-positioned to deliver on its 2025 silver production guidance. The free cash flow was 8.3 million, positive cash generation while still in ramp-up and investment mode. We had hedges through the second quarter of 2026, providing silver price protection during this period of capital investment. Our reliability improved significantly in the third quarter thanks to the Yukon Energy's successful repair of the hydroelectric plant. This reduced a key operational risk we have been managing. Consistent with our other two primary silver mines, we are tightening our silver production guidance at Keenahill based on a strong year-to-date performance. Capital expenditures are expected to modestly exceed our original guidance as we are outperforming on several key factors, including the underground development, which is tracking 13% of all planned here today. Turning to slide 12, Cassette Berardi delivered another solid performance, setting the mine up well to achieve guidance. Gold production of 25,000 ounces, down 11% due to plant lower underground ore grades. And cash costs of $1,582 per ounce and ASIC of $1,746 per ounce. We are tightening gold production guidance for Casa Verde based on a strong year-to-date performance while maintaining our cash costs and ASIC guidance. Our 2025 capital expenditure guidance for the mine remains unchanged. The company is actively evaluating options to extend production beyond 2027. These initiatives could potentially reduce the previously disclosed production gap and enable Casa Verde to remain a sustaining cash flow contributor to the portfolio. I'll now turn the call over to Kurt.

Thanks, Carlos. Moving to slide 13, our Nevada assets offer opportunities to unlock hidden value. We have three key properties with significant historical production. Midas, 2.2 million ounces of gold historically with a fully permitted mill and tailings capacity. Hollister, 0.5 million gold equivalent ounces within hauling distance of Midas. And Aurora, 1.9 million ounces of gold historically with an onsite 600 ton per day mill. All properties have significant exploration potential, minimal regulatory hurdles, and existing infrastructure. We're developing a comprehensive Nevada strategy with an exploration update on Nevada, Keno Hill, and Greens Creek coming later this month that will shed light on our Nevada exploration progress and what's to come next year. You can expect a heightened level of activity in Nevada next year as we work to surface value from this exploration portfolio. I'll now turn the call over back to Rob.

Thanks, Kurt. I'm pretty excited what you and your team are doing in Nevada, so keep up with this work. We've got four strategic priorities that flow directly from our transformation. The first is long-term value creation at Keno Hill, prioritizing permitting and execution. At current prices and even at lower prices, this asset is expected to generate material returns at 440 tonnes per day and has expansion optionality beyond that. Second, continue deleveraging and strengthening our balance sheet. We focus on free cash flow generation across all assets. And we've proven in Q3 that we can do this rapidly when the middle prices support it. Third, establish a capital allocation framework balancing further debt reduction, organic growth investment, exploration, and potential shareholder returns. And fourth, portfolio rationalization, continually assessing which assets deserve more capital and where to monetize non-core assets for higher return opportunities. With that, I'll turn it over to the questions.

At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. please limit your question to one and one follow-up. We will pause for just a moment to compile the Q&A roster. Our first question comes from the line of Heiko Ile from HE Wainwright. Please go ahead.

Hey there. Thanks so much for taking my questions. Can you hear me all right? We can hear you. Oh, perfect. You want to just go through some of the inflationary factors that you're seeing at your asset base across the mines? I assume the effects of that have been muted a little bit in the last few quarters. But maybe just go through some of the inputs or equipment or hires, whatever, where you're still seeing inflationary impacts and also maybe some supply chain bottlenecks.

Good morning, Heiko. This is Russell. I'll take this question. And, you know, Carlos, please chime in as well. But I would say that the biggest inflationary factor we've likely seen or the biggest maybe cost pressure that we've seen is, you know, with the metals price environment that we've seen, there's obviously competition for labor. And so we have to be competitive as it relates to, you know, what we pay for labor, but also, you know, filling roles and looking for, you know, you know, where we can't fill them, we have to fill them with contractors. And that's been a, you know, something, a challenge that we've had now for quite some time. It's just, you know, with the higher price, you see that getting exasperated. But then in addition to that, what we do see from, you know, pure inflationary perspective, we, you know, I'd say the impact is relatively muted, like you said, but we are seeing some tariff costs as we think about capital projects, and maybe there's components that we have to import, you know, And so then we'll see, you know, potential tariffs on those types of items. We try to minimize that, right? And we try to find the best competitive bid for the quality of component that we're looking for. But there's a little bit there as well. Carlos, do you have anything to add to that?

Yeah, there's a little bit, you know, related with mining supplies and reagents and, you know, air movement, you know. That is mainly, you know, all these stuff related with the workforce consultants and labor.

I had a different follow-up question, but now you got me curious. I mean, you spent almost $9 million on exploration, $8.8 million, I think it was. What are you seeing with labor costs related to drilling and also timing for getting your assays back? Is there any positive or negative changes?

I think you could. Yeah, this is Kurt. You know, we have seen some increase in our drilling costs. Really, it's associated with labor, drillers and drillers helpers. Regarding assaying, turnaround has been somewhat normal. Of course, you know, this time of the year, it starts to tighten up a little bit as people are getting their summer sampling programs into the assay labs. But it hasn't been as bad as it was a few years ago.

Cool. I'll get back in queue. Thank you.

Thanks, Lincoln.

Our next question comes from the line of Alex from National Bank. Let's go ahead.

Hey, good morning, guys, and congrats on another great quarter here. I got two questions. The first one, you know, I think your last comment there about providing an update on expiration and projects in about a month or so that may kind of, you know, I might have to wait for that, but I'll ask it anyways. I mean, obviously, your balance sheet has improved quite a bit, and your cash flow outlook has improved. So, you know, when it comes to expiration next year and projects that you're getting excited about, can you give us any kind of taste of where you are, you know, what you're thinking about? You know, maybe you got the permit approval to start doing some expiration as well. You made a good mention here of Nevada. I'm just trying to get a better look of a sense of what we can expect there. And then my second question, you know, Keno Hill, again, the second quarter in a row where you guys look to seem to have made some some pretty good progress. Can you remind me of what metrics you need to see there to get that mind or that project rather declared commercial?

But sure, I'll start with exploration, then I'll hand it over to Kurt to fill in some more details. So we're going to substantially increase our exploration budget in Nevada. In fact, we've increased it beyond what the starting budget was this year. I'm quite excited by the results that we're getting there. We've also had quite a few dormant projects, which we expect to reinitiate. So things like the Rackler Belt targets up in the Yukon. This is virgin country with outcropping gossams, and so we need to make some advance there. And then obviously our near mine exploration where we continue to do resource extension drilling and seek new discoveries. Could you just fill in some more gaps, please?

Yeah, next year we're really planning on focusing on near mine and brownfields to start with. That's going to get the biggest part of the budget for next year. And then we're also doing more greenfields exploration and early stage exploration than what we've done in the past with the generative exploration program that will be kicked off next year as well. You know, we've got some really good targets. We've got some really good property packages. As Rob said, the Rackla district is just ripe for discovery, and we're looking forward to getting in there and spending the summer doing the basic boots on the ground field work there. And then Nevada as well. Sorry. And Nevada, I'm really excited about, you know, like we talked about, we've got infrastructure, minimal requirements on the permitting side of things. So that's really, in my view, a faster track to production, probably from any of our exploration projects outside the mine, the current mine operations areas.

Yeah, no, it's great. Yeah, go ahead. Yeah, sorry. Yeah, if I could just add, Kurt touched on a point that's quite important, and that's that we're increasing our project generation efforts. I mean, you know, coming into this, coming into Heckler, one of my observations was that we generally stuck to our knitting. We stuck to our existing mine sites and focused all of our exploration there. I've talked about portfolio rationalisation and we will be farming out and divesting some projects, but we need to replace that. And so project generation is an important skill to have. We also need to become a little bit more commercial and create a whole series of options. And so, you know, look in the future for us to be doing earnings agreements on other company properties. So that's exploration. On Keno Hill, But for commercial production, we've got five criteria that we laid out for commercial production, and honestly, we're really only there on one, and that's for silver recoveries right now. Everything else, the completion of the major components, hitting 75% of mill capacity, finishing the major capex, that's all still in front of us. And so our current ramp-up plan really has us getting to commercial production around about 2027 at roughly 345 to 385 tonnes per day. And then... the following year, 2028, would move towards nameplate throughput. And that's assuming that we get the water discharge approval sorted with Yukon regulators. So, in summary, call it 2027 for commercial and 2028 for full nameplate.

Okay, that's great, Dan. Obviously, a lot of exciting stuff to come next year on the exploration front. Looking forward to it.

Thanks, Alex.

Again, if you would like to ask a question, press star one on your telephone keypad. Our next question comes from the line of Joseph Rieger from Roth Capital. Please go ahead.

Hey, guys. Thanks for taking the questions. I had a question on your guidance. Obviously, raising the low end was great, but it seems like if I look at say like Greens Creek's gold production, Lucky Friday's silver and Casa's gold production, you'd have a pretty weak quarter for Q4 to not hit like above the high end. And so I'm wondering if that's just a matter of like company policy not to raise the high end of guidance or is it that you guys are having some expected downtime or anything during the quarter or lower grades or, you know, just help me figure out how to, you know, stay within that high end.

I think, Joe, Joe, this is Russell. I'll take the question, but, you know, my colleagues, you know, they'll chime in as well. You know, if you go look and take a look at the, in our earnings release where we have our past five orders of production, you know, you will see Green Street, for example, does have kind of a production profile that will vary, right? So, you know, Q3 of last year, Q4 of last year, we were less than 2 million ounces. I think what The guidance would probably tell you is we'll probably see a 2 million or so ounce quarter at a green street for the Q4. And I think, you know, as we think about our guidance, we try not to guide to the quarter, but we also understand that we've only got one quarter left. And, you know, that's kind of where models say we're going to come in.

Okay. But that's her. And then I'm looking at the really strong price realizations you guys had in the quarter. I mean, normally there's some fluctuation, but it was abnormally strong this quarter. Was there anything specific that led to that? Was it just timing of shipments? Did you have more like late quarter shipments and early quarter shipments? And that's how the weighted price got, you know, so well above a spot or is there something else I'm missing there?

I would say I'll jump in again. There's two factors here. One is the timing that you mentioned. You know, Greens Creek, you know, obviously is our largest silver producer, and they ship once a month. And, you know, they tended to ship later in the quarter. And as you see the price change throughout the quarter, it ran up at the end of the quarter, which obviously weighted our sales for the end of the quarter. That's part of it. The other thing that, and I've got here, she's our treasurer. You guys all know her since she did, you know, IR recently. You know, with the change of the silver dynamics where we've seen the more upside potential, I'll say, we've actually started to utilize more callers as it relates to our provisional hedging, which gave us that upside. And so I think, you know, in the past, you'd have seen us use forwards, but as we saw the market change, we started to be more flexible in using colors for provisional hedging, which has allowed our investors to enjoy more upside. So I would say it's both of those factors.

Okay. All right. That's helpful. I'll turn it over. Thanks, Justin.

Once again, if you would like to ask a question, press star one on your telephone keypad. There are no further questions. I will now turn the call back over to Rob Krishmarov, President and CEO, for closing remarks.

Thank you, Van. So let me bring this all together. We came into 2025 with a clear mission, and that's transform Heckler from a cash-constrained operator into a financially flexible company that can pursue value-creating opportunities. And I think our results clearly demonstrate that we've executed on that plan. Really, there's four things I want to re-emphasize. First is operational execution is solid. All four of our producing assets generated positive free cash flow this quarter. Greens Creek and Lucky Friday are performing as we expected. Casa Barati is tracking cost improvements and Keno Hill has achieved consecutive quarters of profitability and is ramping towards our next production target, 440 tonnes per day. Secondly, record financial performance with quarterly revenue, net income and adjusted EBITDA at all-time highs. And we did not leave deleveraging to chance. We combined operational cash generation with strategic capital deployment to fully repay our revolver, redeem $212 million in debt, and fully repay the maturing IQ notes from free cash flow. And in doing so, we moved from 0.7 times to 0.3 times leverage in a quarter. So that's disciplined capital management, and it gives us the flexibility that we need. Third, we have general We have genuine optionality now. So reserve lies between 12 and 17 years, expansion potential at Keno Hill, strategic evaluation broader portfolio to surface value for shareholders, and the ability to pursue value creating M&A, but only if the right opportunity emerges. And that flexibility is what we lacked as a cash constrained company. The next phase is about demonstrating consistent execution, stable cash generation, continued deleveraging, and disciplined capital deployment. And that consistency is how we recapture our historical value premium. And we're confident in our part. Four strategic direction with four well-defined long-term pillars that will guide our capital allocation. And we'll elaborate more on that in our strategy day on the 26th of January, our investor day rather. And so summing up, I think there's a compelling valuation with industry leading reserve life, peer leading silver exposure and strong jurisdiction quality. all at reasonable valuation that we believe offers significant upside. And we're executing on our plans, generating substantial free cash flow and building a foundation to sustain the value creation for shareholders. With that, thank you, everyone, for dialing in and have a good day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.