Hecla Mining Company
Q3 2017 Earnings Call Transcript

Published: 7 Nov 2017

[Operator:]

Hello, ladies and gentlemen, and welcome to the Third Quarter 2017 Hecla Mining Company Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Mike Westerlund, Vice President of Investor Relations. Please go ahead.

[Michael Westerlund:]

Thank you, operator. Welcome everyone and thank you for joining us today for Hecla's third quarter 2017 financial and operations results conference call. Our financial results news release that was issued this morning before market open along with today's presentation are available on Hecla's website. On today's call, we have Phil Baker, President and CEO; Lindsay Hall, Senior Vice President and Chief Financial Officer; Larry Radford, Senior Vice President, Operations; and Dean McDonald, Senior Vice President, Exploration. Any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act and constitute forward-looking information under Canadian securities law, as shown on Slide 2. Such statements include projections and goals which involves risks detailed in our Form 10-K, Form 10-Q, and in the forward-looking disclaimer included in the earnings release and at the beginning of the presentation. These risks could cause results to differ from those projected in the forward-looking statements. In addition, during this call we may disclose non-GAAP financial measurements. You could find reconciliations of these to the nearest GAAP measurements in the accompanying presentation which is available on our website at www.hecla-mining.com. Finally, in our filings with the SEC, we are only allowed to disclose mineral reserves, which are ore deposits that we can economically and legally extract or produce. Investors are cautioned about our use of terms such as measured, indicated, and inferred resources, which are not reserves, and we urge you to consider the disclosures that we make in our SEC filings. With that, I will pass the call to Phil Baker.

[Phillips Baker:]

Thanks, Mike and good morning, everyone. Let's get started on Slide 3. The third quarter financial performance was largely the result of throughput increases at Greens Creek and Casa Berard and higher zinc and lead prices. Increasing throughput has been an ongoing focus and both mines' throughputs are now significantly higher than when we acquired them. Our ability to maximize the milling capacity without spending significant capital has greatly enhanced the economics of these mines. The increased throughput has given the second most gold production in our history, the most was back in 2002 and this quarter is the most gold revenue ever in our history. The operating performance has generated free cash flow and lowered our unit cost estimates with our long-lived mines and focused on productivity expect us to find more ways of delivering additional high return investments in our mines. In the upper right side of the slide, it shows our silver cash costs per ounce are remarkably low, negative $0.63 and $6.65 per cash and all-in sustaining cost, both after byproduct credits, respectively. That means for silver, Hecla is generating about $17 per ounce of margin before sustaining capital and other costs. In our 126-year history, there's really only been a few times that we've seen this strong a margin. Our share performance exceeds our peers, but I'm told it's held back because of the ongoing strike at the Lucky Friday and you can see that in the bottom left side of the slide. And I'm surprised by this under-performance or this lower performance than I would have expected, because the strike is really a short-term event at a long-lived mine where the grade improves and productivity improvements are available to us like we've done at the other properties. We are making decisions on the strike and on other Lucky Friday issues for the long-term because although the Lucky Friday has not made a meaningful contribution to cash flows recently like our other mines, we believe it can in the future and I'll talk more about the strike in a minute. And let me shift gears a little bit. I also want to highlight work that we're doing to improve productivity and our exploration success with the list that's in the bottom right of the slide. And I'm highlighting this, because what I hope you take away from the quarter is not only our economics today, but how we're positioning Hecla to deliver shareholder value from productivity and finding ore, a lot more ore. So first on productivity. At Casa, the control center is complete. So, changing the supervision process and implementing the autonomous operated 985 level will now happen. Automation is also advancing at Greens Creek and at Lucky Friday, we have an agreement with Atlas Copco for mechanical mining machine that's going to cut rock in the stow to allow us to move away from drilling and blasting, which will increase productivity and safety. The exploration success at San Sebastian and Casa are potentially game changers for those properties. I know we're an operating company and the focus is often just on exploration, but I hope you don't underestimate what these name mean to the value of these properties. And there is going to be more on these topics and others by Lindsay, Larry and Dean. And let's go to Slide 4, that updates our annual estimates. Generally, we've tightened the production ranges and significantly lowered silver cost per ounce estimates. Our company-wide estimate for cash cost is $1 and our all-in sustaining cost estimate $9 after byproduct credits per silver ounce. This is going to give us the lowest cost per ounce in about a decade. We are now able to give total silver production guidance, because we know that when the Lucky Friday strike is resolved, there is going to be a ramp up period that's going to take more than a quarter to implement. Based on this guidance, we see the fourth quarter is being solid and there is maybe a bit of upside if zinc and lead prices stay strong, and that's upside in the costs. We see Casa delivering as expected, so gold production cost will fall in the range. So let me talk about the strike, and let's look at Slide 5. While there's been progress, the fundamental issue of the strike continues to be who decides where people work when? The position of the union is that this system that we've had in place for decades doesn't need to change, but the mine has changed dramatically in the last 5 years and will change even more in the future as we mine at greater depths where conditions are more challenging. We need a workforce that can embrace more diverse skill sets to deal with the changed conditions and will be compensated accordingly and our proposal does just that. As much as we would have liked to have the strike resolved, we know that this mine can have a 30-plus year future in front of it. So we're willing to spend the time and the energy on getting management of the mine right, putting the mine in positioned to generate similar or even better returns as our other mines have done. So when do we expect the strike to be resolved? Well, we hope in the next few months. We know employees would rather be working and we want them working too. We believe that the changes negotiated over the past year, employees can return to work, knowing they will continue to be well compensated. But if the strike continues, it's not going to be because compensation, but because union has said, they just want to keep things where they are, but there is no need for change. But with our other 3 mines performing well, our balance sheet is strong, the current price in environment and our very firm belief that we have to change how the mine is run. We expect our salaried personnel will continue advancing capital and maintenance programs that would have occurred anyway. And from time to time, we will produce some ore to partially offset the care and maintenance costs. Basically, we don't at this point expect a lot of change from what we have been doing during the strike and of course we reserve the right to change paths as conditions change. So, I'll now turn the call over to Lindsay for the third quarter financial review.

[Lindsay Hall:]

Thanks, Phil and good morning to everyone. On Slide 7, you can see the comparison between this quarter and last year's quarter of some of our financials. Revenues are down primarily due to Lucky's Friday being on strike as well as the timing of concentrate sales from our Greens Creek mine, offset by stronger revenues from Casa Berardi. Year-to-date looking forward, production at Greens Creek is on plan, so the normal timing of concentrate sales will cause variances when comparing quarter-to-quarter revenues recorded on the income statement and changes in inventory and the balance sheet.. We reported an adjusted income of $16 million, $0.04 per share, which consists basically of adding back to reported net income $15 million in mark-to-market derivative and foreign exchange losses. The mark-to-market losses are the result of strong spot zinc prices of about $1.40 measured against our hedge positions at approximately $1.29. We benefit from strong zinc and lead prices and we are comfortable locking those gains in by hedging some of our production forward. Realized, we hedge, not because we have a fundamental view on the metal, but to increase the visibility of cash flows. We will continue to put positions on in the future, we are just changing the timing of realizing the higher prices such as we've seen in this quarter. Also I would point out that the interest expense on the income statement is higher than last year, simply due to the fact that we are not capitalizing interest to Lucky Friday's #4 shaft construction project, which was completed last year. The only amount of outstanding debt remains about $506 million of bonds. The third quarter 2017 provided operating cash flow of $46 million before working capital changes compared to $48 million in the third quarter last year. After working capital, the swings in operating cash flows are larger due to short-term movements related to income tax payments and concentrate shipments and receipts, which will always be the case. So, again, another strong quarter of operating cash flows that after taking into account our capital expenditures for the quarter, which was 44% less resulted in $3 million of positive free cash flow for the quarter. Our cash and short-term investment balance at the end of the period amounted to $206 million, a growth of $14 million from the third quarter of 2016. So our balance sheet continues to get stronger as our net debt-to-EBITDA ratio remains at the investment grade levels. Turning to cash costs and all-in sustaining costs, company-wide cash costs after byproduct credits per silver ounce declined 117% from last year to negative $0.63, while all-in sustaining cash costs after byproduct credits also declined to $6.65 per silver ounce. It is negative, because of revenues we see from our zinc and lead concentrates are greater than the cost of producing the silver, which results in a negative cash cost after byproduct credits. Here in lies the strength of polymetallic mines such as Greens Creek and Lucky Friday, while we are in the business of mining for precious metals, we also enjoyed the revenues when lead and zinc being lined at the same time. And as Phil noted earlier, we have reduced our estimates for annual cash costs and all-in sustaining cash costs after byproduct credits per silver ounce. Turning briefly to Slide 7, silver operations continued to deliver one of the highest silver cash cost margin at the industry as shown on Slide 8 and was 104% of sales or $17.64 in the third quarter. The gold cash margin is much improved this quarter as well at 42% of sales or $533. Turning to Slide 9, you can see our revenue stream is diversified with gold at 50%, silver at 30%, lead and zinc at a combined 20%. Greens Creek continues to be the dominant source of revenue. Obviously as Lucky Friday was operating, silver revenue would be higher and its contribution to overall revenue would also be higher. So in summary, despite the strike at Lucky Friday, we continue to have a strong balance sheet, excellent silver cash costs after byproduct credits, and all- in sustaining cash costs, and are optimistic about the potential for the rest of the year and beyond. I would now pass the call on to Larry to talk about the operations.

[Lawrence Radford:]

Thanks, Lindsay. On Slide 11, you can see Greens Creek had another excellent quarter, producing 2.3 million ounces of silver, with a negative cash cost per silver ounce after byproduct credits. The mill operated at an average 2,391 tons per day in the third quarter, which is a record since the mine began operating, and 9% higher than the third quarter of 2016. In addition to throughput driving cost lower, silver grades were higher, which was offset somewhat by weaker base metal grades, and we continue to get the benefit of the tight market for zinc and lead concentrates. Definition drilling is expanded ore mineralization in East Ore Zone, which is nearly added haulage level. This ore has the potential to add higher grade feed with shorter cycle haulage. The tele-remote LHD continues to operate at Greens Creek as shown on Slide 12, as we learn how to best employ this resource. We plan to have a second tele-remote LHD in place next year. With our ventilation on demand initiative, variable frequency drives are being mounted on underground fans, the objective of which is to reduce energy costs. With our phased drilling initiative, we will be adding automated drilling guidance to our jumbo drills next year, much as Casa Berardi has already done. The goal with this initiative is to reduce dilution and increase the length of rounds. On Slide 13, Casa Berardi had a great third quarter, remains on goal for the year. During the third quarter, Casa Berardi produced 44,141 ounces of gold, a record since its acquisition, as a result of higher grades and higher throughput. Cash and all-in sustaining cost per ounce are both on track to reach our estimates, and forecasted to generate substantial margin. Casa Berardi is the fourth largest gold mine in Quebec, so it's an important part of the mining industry, and it is an important part of our portfolio. The big story of Casa is the increased throughput has been made possible by introducing open pit material. Throughput has increased more than 100% since we acquired the mine, as seen on Slide 14. The plant throughput this quarter, 3,545 tons per day, was close to a quarterly record approaching the record set in the second quarter. Additionally, a monthly record was set in September at 3,913 tons per day. We ran a pre-crush trial, which is a method of adding additional grinding horsepower, and the results for 192 wet metric tons per hour versus the typical 165 wet tons per hour. We are analyzing the data to understand the effect on recovery in order to optimize the all-in sustaining cost. In addition, automation of the 985 drift, which is under construction, as shown on Slide 15, is on track for commissioning by the end of the year. This drift should ultimately result in a reduction of trucks and associated maintenance and personnel costs. The first 40-ton autonomous Sandvik trucks is in the mine, and the second will be arriving in 2018. San Sebastian continues to impress, as you can see on Slide 16. In its first year of operations, it generated twice as much cash flow as was expected. Since then, the greatest decline as we moved away from these Francine Vein and began mining in the Midland North Veins. It remains one of the highest grade mines in Mexico. In the third quarter, it produced almost 1 million ounces with negative cash cost per ounce. So both San Sebastian and Greens Creek have negative cash costs after byproduct credits. The team is on track to begin underground ore production by the first part of 2018, with about 1,200 feet left before the 2 ramps connect, as shown on slide 17. We are continuing to refine our mine plans into 2020 with cyanide-amenable ore, but with the discovery of this sulfide resources, which we are in addition to the non-Hugh Zone, which potentially has 5 to 6 years of mill feed. We are now reevaluating what we might do with the sulfide material. Moving to Slide 18. As Phil noted, the strike continues at lucky Friday, but we're not idle there, as supervisors are conducting limited production and we continue to invest in the mine with ongoing maintenance and a few capital projects. We're happy to announce that we are partnering with Atlas Copco in the deployment of cutting technology at Lucky Friday, and with the engineering and manufacture of the remote vein miner. We believe that this technology has the potential to make Lucky Friday a safer and more productive operation. I will now pass the call over to Dean.

[Dean McDonald:]

Thanks, Larry. Hecla continued with aggressive drill programs, following successes at San Sebastian, Casa Berardi and Greens Creek. A list of drill intersections is provided in the appendix of the exploration release, which was issued last Thursday. These results give you insights into the high-grade resources we are expanding, and where our future gains in reserves could come from. San Sebastian continues to generate new discoveries. There are multiple opportunities to find new high-grade resources to extend the cyanide milling circuit, but also to identify polymetallic Hugh Zone style mineralization to justify a separate sulfide flotation circuit. On Slide 20, you can see the current Middle, North and Francine Vein pits in the yellow outlines. The surface projection of the new Middle Vein reserve, the new underground ramp under development in black, and the green ellipsis where drilling is defining new reserves and resources. Of note, and as described in the last quarterly call, drilling along the east extensions of the Middle and Francine Veins, on the right of the diagram continue to expand resources and reserves that are in close proximity. Final resource modeling and mine design could advance this area as a new underground mining center. Recent drilling of the Professor vein at the bottom of the diagram has identified near surface oxide mineralization that is open along strike and at depth. Slide 21 shows a longitudinal section of the Francine Vein. The expansion from drilling of the Hugh Zone has gone faster than expected, and we are very optimistic about the results. Recent drilling to the West end of the Hugh Zone resource, as defined by the hatch pattern in the center of the diagram has identified high grade polymetallic mineralized pods that are shallower and extend more than 900 feet west of the current resource. Drilling at the east end of the Central Hugh Zone resource recently returned wide sulphide bearing intersections that may link the current resource to a shallow, high-grade resource to the east. Additionally, as shown on Slide 22, an intersection 2,500 feet away from the current resource on the left of the diagram return similar mineralization. In all, we expect the Hugh Zone style mineralization, which currently covers a strike length of about 3,500 feet to expand significantly in the coming months. In Slide 23, recent drilling at the west extension of the Middle Vein mineralization is defining a polymetallic resource, that in places maybe easily accessible to the underground development. This drilling may represent the upper fringe of Hugh Zone style mineralization that is open to the east and east. Mineralization being defined in the West Middle Vein, in combination with the growing Hugh Zone resource could ultimately provide the critical mass of base metal bearing ores to make mining them economic. During the quarter, at Casa Berardi , we had up to 9 drills operating within the longitudinal shown on Slide 24. Underground drilling along multiple high grade lenses of the 118 and 123 zone expanded reserves and resources to the west and east and extended resources below the current workings. Higher in the mine drilling, the 124 zone defined high-grade lenses that were identified by earlier surface drilling. The red arrows in the longitudinal project the extension of many mineralized zones down-plunge throughout the mine and show the huge potential to extend the life of Casa Berardi. The plan map in Slide 25 outlines in yellow, a series of proposed and planned open pits along the Casa Berardi Fault, which shows why we're so excited about the potential for expansion. Up to 4 drills on surface confirmed the continuity and expanded near-surface mineralization as shown in the green ellipsis of the 124, 134 East Mine Crown Pillar and 160 zones that will determine the boundaries and viabilities of these areas for expanded open pit mining. A new near-surface resource is also developing to the west of the northwest, southwest area. In addition, we have made it a priority to export from surface to Casa Berardi Fault corridor and have made several interesting discoveries. What is also promising is that the higher grade mineralization appears to extend from these areas to depth, opening the potential for additional underground drilling and mining. At Greens Creek, as shown on Slide 26, definition and exploration drilling continues to have success at the East Ore and Upper Plate zones, which has described earlier by Larry as higher in the mine. Lower in the mine, we're adding to the resources in the Deep 200 Southwest Bench and Gallagher zones that in time will become part of the life of mine plan. Elsewhere in the company, we continue to advance exploration programs in Idaho, Quebec and Northern British Columbia. And with that, I'll pass the call back to Phil for some closing comments.

[Phillips Baker:]

Okay. Thanks, Dean. So it's been a good quarter operationally, we've seen the benefits of higher throughput and our exposure to base metals and the higher prices for those metals, excellent exploration results, we've seen advancements in our productivity improvements. So it's been a good quarter and we're happy to take questions now. So, operator, if you can let the first question come on.

[Operator:]

[Operator Instructions]. Your first question comes from the line of John Bridges with J.P. Morgan.

[John Bridges:]

Phil, I just wondered to what extent these strong numbers that you reported are so high grading while you have the one mine offline and to what extent you've made long-term improvements, which have improved your cost structure?

[Phillips Baker:]

Well, let me make a few comments and then I'll let Larry jump in, maybe Dean as well. But look, when I look at the plan for 2017, it's been a life of mine plan for the past, probably at least 3 years and that life of mine plan has not changed dramatically in those 3 years in terms of what we're mining, the grades that we were expecting. I think if you go back a couple years ago, we said, we would have a lower grade in 2017 compared to 2016 and sure that's what we've had. So if anything, we're not high grading it, we're just following the plan. In terms of cost reductions, I think cost reductions are a difficult thing to achieve, and so what our focus has really been on productivity improvements. So we're looking for better recoveries, we're looking for higher throughput. We think there is more bang for the buck focusing on those things than attempting to lower cost. Clearly, you try to lower cost where you can, but that's a difficult process to have that really be impactful. Larry?

[Lawrence Radford:]

Yes, this isn't the result of changing our plan, it's a result of executing our plan and we did get the benefit at Casa, some definition drilling that was very purposeful and brought in a little bit of higher grade. But fundamentally, Casa is on plan, San Sebastian is on plan, Greens Creek is on plan, we're just working our plan.

[Phillips Baker:]

Dean, anything you want to add?

[Dean McDonald:]

Well, just a comment, John. Our drill results at Greens Creek, surface of Casa, underground of Casa really are consistent, I think with what we've found for the last 5 years. At San Sebastian, we don't have the incredible grade that we had with these Francine pit, but it's still very good cyanide circuit grade. And then as I alluded to in this presentation is that the Hugh Zone polymetallic zone really is emerging both in the Francine and Middle vein and so that creates the potential upside at San Sebastian.

[John Bridges:]

I was interested in following up on the polymetallics, the veins are relatively narrow, so I was just wondering what sort of tonnage you thought you could generate from those given the strike extend that you've demonstrated along the deposit?

[Phillips Baker:]

Well, when we did a previous study, I mean the tonnage was still relatively small, my recollection was that was about 1000 tons per...

[Unidentified Company Representative:]

Yes, I mean [indiscernible] mill has created about 5,00,000 so that's really our goal is to [indiscernible].

[Phillips Baker:]

But when we did some previous studies, the most that we were ever contemplating was a 1,000 tons day and those studies go back to 2005, John, on just the Hugh Zone. Just one other comment on the grade, if you think about it, if you look at the statements, we're mining lower grade, I think at every place San Sebastian, Greens Creek, Casa then we did a year ago.

[John Bridges:]

And so the 1000 tons a day was based on the original Hugh Zone deposits, so presumably the grade to extent means upside to that although that would require new decisions on the mill?

[Phillips Baker:]

Look this is a whole new evaluation of what we can do. We had made the decision back in 2005, the Hugh Zone wasn't large enough to take it forward and we needed exploration success. Well, we're now starting to have that exploration success. We're in the early days of it, but it's the first signs that what we were hoping we would have as we explore that would occur and we're seeing it not only at depth, but we're seeing it particularly to the west. So just stay tuned, don't try to extrapolate too much too soon, but this is something to watch, because it will change, I expect in the course of the next 3, 4 quarters.

[Operator:]

Your next question comes from the line of Anthony Sorrentino with Sorrentino Metals. Your line is now open.

[Anthony Sorrentino:]

At Casa Berardi, some of the recent goal discoveries are below the mine's infrastructure. When will you make a decision to access this ore and what method would you use?

[Phillips Baker:]

Well, look this is just a new drilling that we're doing and we'll end up doing the development for the infill drilling and then we'll build buying plans to decide how to -- and to extend its economic, decide how to access it. There are no plans relative to the mineralization that we're discovering at this point. But you certainly have infrastructure that's in place, I mean, you've got development of the shaft, it's down to what the 1.10 levels?

[Phillips Baker:]

It's in the low 10.10, rather that's what I'm meant to say, 10.10 level and then we have that 985 and presumably we would ramp below that to the extent that there is sufficient mineralization. Larry?

[Lawrence Radford:]

Yes. A lot of what's been discovered in the last year is really Casa open pit feed and being covered that a bit. Internal to the underground as well there certainly been some nice find, some of that's quite high in the mine, some of what we're drilling on now is high in the mine. We don't have a lot of new resource below the lowest level of the 985, but should we establish a substantial resource below that, then we'll ramp down from that level.

[Anthony Sorrentino:]

And similar question at San Sebastian, would the ramp still be sufficient to reach the deeper targets recently discovered?

[Phillips Baker:]

Well, what we're contemplating, doing is going in and taking a bulk sample from what we're -- have recently discovered because that's shallow ore than the Hugh Zone. When we were originally contemplating the Hugh Zone, we contemplated the shaft, we'll certainly evaluate whether that's still the right way to approach it or do we ramp-off the existing infrastructure that we have. And at the end of the day, its going to really be a function of what the drilling tells us, as to whether there is sort of material between where we are now and where the Hugh Zone is. Larry, anything else?

[Lawrence Radford:]

Sure. There is kind of two stories here. One is the Hugh Zone, Phil mentioned, which has been known for 10 years, and the development that we're putting in now gets us about halfway vertically to the Hugh Zone. So that makes the Hugh Zone that much more attractive. And then the new finds that Dean have mentioned, some of them are actually quite relatively close to development we're putting in now. It's so early that we haven't put designs to any of these, were still drilling it but one can certainly get a concept of coming off the new development.

[Operator:]

[Operator Instructions]. Your next question comes from the line of Bryce Adams with Bank of Nova Scotia.

[Bryce Adams:]

Just a couple questions on San Sebastian, probably for Larry. Firstly, how long do you expect the open pit mining to continue in 2018?

[Lawrence Radford:]

Well, the open pit mine will continue through the end of the year, maybe a little bit into the beginning of the year, but we will in the first quarter of next year, all the production will come from underground by the end of the first quarter, will come from underground.

[Bryce Adams:]

What will be the impact on silver production there with the changed underground--?

[Lawrence Radford:]

We haven't given guidance, yet for 2018. But it certainly will be a few million ounces, some things, probably not as high as where they are this year, but certainly higher than a couple of million ounces.

[Bryce Adams:]

So throughput will stay the same but production is not going to be cut in half or anything crazy like that?

[Lawrence Radford:]

Yes.

[Operator:]

Your next question comes from the line of Brett Levy with [indiscernible]. Your line is now open.

[Unidentified Analyst:]

Just in terms of priorities, I know you guys look at refinancing, look at delivering, look at acquisitions, look at sort of additional exploration where you are, can you kind of put them in rank order, and then add stock buybacks or anything along those lines for that list?

[Phillips Baker:]

Look, I guess the first thing we'll say is, we want to have a conservative balance sheet because of the vagaries of the commodities prices. So we did 2 things, we have cash and we hedge the lead and zinc exposure that we have. So we're going to keep a fair amount of cash on the balance sheet, number one. Number two, we have lots of productivity improvements that we are evaluating that can generate double and in some cases triple-digit sort of return. So we're going to put our money there. Thirdly, we're evaluating new technologies that have the potential to be really sort of game changer. So we'll put money there. Fourthly, we look at the exploration that we have both at the properties we've talked about, plus other properties. So you'll see us put more money there, and then just continuing to drive throughput improvements, particularly at places like Casa and San Sebastian. And then we've got other assets that don't get much attention that we're focusing attention on the Heva-Hosco, and other properties that we're trying to figure out how do we create value from those things. And then we have things like Rock Creek and Montanore, that we see the permitting process coming to a conclusion, and maybe as early as next year, we could maybe be underground doing the exploration development there, and those would be large capital investments. So we have a whole series of things that we own , that comes first before we evaluate, really anything, consider the other opportunities. But then of course, we're looking at our expertise and applying that other assets, and if you look at the performance that we've had it Greens Creek since we acquired it in 2008, we now are producing the most tons in the history of that mine. And that's a mine that's been operating 30 years, if you look at Casa, we've now developed open pits. So we think we can acquire other assets and improve the operating performance of those assets. So that would probably be next in line with what we do. And then comes refinancings and comes stock buybacks and dividends, and all of those things. So that's sort of the order, and how we think about this.

[Operator:]

Your next question comes from the line of John Tumazos, with John Tumazos Independent Research.

[John Tumazos:]

When will the East Crown Pillar ounces stop at Casa Berardi or wind up? First and second--

[Lawrence Radford:]

Let me answer that one before you go on. It's about a 5-year total mine life at these East Mine Crown pillar, from beginning, Dan.

[John Tumazos:]

So when you say 1/4 million ounces from Casa Berardi or even more if you develop some of the--?

[Phillips Baker:]

No, we'll have a combination of ounces coming from the open pit and from the underground. From the open pit in the quarter, how many ounces, 8,000, 9,000 ounces? So it's additive to what we produced from the underground. So when you think about this mine, think of it in terms of being 150,000 to 175,000 ounce producer, unless we figure out how it was 8,949 ounces for the quarter. So the idea of this being over 200,000 ounces is going to really required discovery of better grade mineralization underground that is larger sort of volumes than what we have in the 118, 123 zone.

[Lawrence Radford:]

Sorry, you want me to answer that?

[Phillips Baker:]

Sure.

[Lawrence Radford:]

So these mine crown pillars pit is -- it runs through 2020, and then it's always been the concept at Casa that's the Principal Pit would follow. There would be an uninterrupted open pit production. Now with some of the new finds in the one potential 134 pit, potential 160 pit, more than likely those pits will come online before the Principal. So we've got a lot of options.

[Phillips Baker:]

But John, what this all means is that -- you've got a really long mine life at Casa Berardi, the potential for very long, long mine life.

[John Tumazos:]

Excuse me, of I got too enthused with the good quarter. If everything went smoothly, permitting the two projects in Western Montana and you did not take a partner, what would be the capital requirement and what would be the primary years where you'd be writing big checks?

[Phillips Baker:]

Well, we still have to get the permits completed, and then there is the evaluation phase. But sort of contemplate that this could all come together in the next 6 to 7 years of exploration and construction. So you'd be talking about writing checks 5, 6, 7 years out from now. We would likely develop these things sequentially and so that would never be a huge check written where you're trying to develop the 2 projects simultaneously. Order of magnitude, the amount of capital that you're talking about, is probably in the range for both projects done over the course of 4, 5 to 6 years, $750 million for both projects. So the annual outlays would be we think manageable sort of levels. Now, having said that, we would certainly contemplate bringing in a partner to participate in the development of the project. We don't feel like we have to.

[Unidentified Analyst:]

Would the confirmatory exploration and development, tunneling and drilling cost something closer to $10 million or $20 million a year or closer to $25 million or $50 million a year?

[Phillips Baker:]

Look, over the course of the 3 years, you're probably looking for each one of these less than $50 million over sort of a 3-year timeframe.

[Unidentified Analyst:]

So $50 million a year a piece?

[Phillips Baker:]

It could be. Look we haven't put the plans together, but I don't think that's an unreasonable assumption and my colleagues are shaking their head yes.

[Dean McDonald:]

Yes, we inherited technical reports from the predecessor companies, which were the only official in it's work, recreating that work now.

[Unidentified Analyst:]

I drove across those things over 30 years ago, it's amazing how long we wait.

[Phillips Baker:]

It is, but it's reaching a conclusion and those are things that I became familiar with 17 years ago and I was skeptical at their ability to come into production until the 9th Circuit. Some of the rulings in the 9th Circuit made in favor of the projects. So we have good legal basis for having confidence in these projects going forward.

[Operator:]

Your next question comes from the line of Cosmos Chiu with CIBC.

[Cosmos Chiu:]

Just a few questions from here, maybe first off, clearly Hecla is at the forefront of any underground mining technology. Going to your autogenous LHDs underground, in addition to safety, have you realized any tangible cost savings or will you be expecting to realize any tangible cost savings and what might that be?

[Phillips Baker:]

Well, look, we're still at the early stages of the utilization of these things, and in fact Sandvik has a team that is working with us and I think we're one of the few companies that they're doing this with to try to develop how to best utilize these units in an operating mine. I mean, the focus has been on trying to use them in the long-haul stops and trying to use them during shift change and that's the start, but we're looking at other ways of trying to realize benefits from the technology. And we will, it's just going to take time to put it altogether, because the mine's not set up to have these autonomous vehicles and again, we're not in a position to have people and autonomous machines on the same level at the same time. Larry, what would you like to add to that?

[Lawrence Radford:]

Yes, I mean the trial has been done and application is really an interesting trial, because the machine basically digs itself. Once you've established throughout, it'll hold material to a set point, dump itself and all you really have to do is press button to get it to cycle again from surface.

[Cosmos Chiu:]

And this is at Casa, right?

[Lawrence Radford:]

This is at Greens Creek. And so this is kind of the first step. Obviously you have to have fiber in the area, and you have to have constant communication, and so our next step is really to get the machine running in our cut and fill application, which is challenging, just because of the hitting the fiber in the area. But once we are able to do that what we expect is, in addition to being able to work cross shift, we will have the phases ready for bolsters when the next shift comes in and what that means is our bottleneck underground, which is generally bolt-in will stop making that a bottleneck.

[Phillips Baker:]

So this is a big debottlenecking exercise at Greens Creek and then once we've learned from Greens Creek, the idea would be to apply at Casa just in the same way that we're taking things at Casa has been applying and it bringing it to Greens Creek like the automated jumbo.

[Cosmos Chiu:]

But Larry mentioned, there is still some automation being done at Casa as well, right. I believe the 985 drift you're going with the autogenous LHDs?

[Phillips Baker:]

No, it's just the trucks that are autonomous.

[Cosmos Chiu:]

Oh, the trucks, okay, at Casa?

[Phillips Baker:]

Yes, so they're running on that 985 level or they will be. We've got first one, you saw the image on the slide and that will be running there.

[Cosmos Chiu:]

And then I guess, this could be a sensitive question here, but in terms of taking what you've learned from one asset, applying it to the different assets here, looking at Greens Creek, what was sort of like the plan in terms of future automation at Greens Creek and is that an issue with the ongoing strike?

[Phillips Baker:]

Yes, I don't think there's any relationship between the automation and the strike. With respect to automation at Greens Creek, and just for the whole industry, we are at the very early stages of how to use this stuff. It is not plug in play. You have to reevaluate how you're doing everything in the mine for every step you automate. And we've got a team of people at the site that are very, very talented at both sides, both Casa and Greens Creek and they're advancing. But it's a fits and starts and its testing and if you get any impression from million in one in the industry that they've got this autonomous stuff figured out, there is more to the story. Larry, anything to add?

[Lawrence Radford:]

Just as Phil mentioned, these are very much bottom-up initiatives, very much driven by staff and very talented staff. We don't have $50 million fluctuations that's being done in a very practical.

[Cosmos Chiu:]

We all have been waiting for you to figure it out, Phil, but good luck, and I'm sure the resultant cost savings one day.

[Phillips Baker:]

Well, I think that's right. And again, we're focused on productivity more than on costs and I don't know if people get the distinction that I'm making, but it's really more tons per hour, more tons per man shift, more tons going through that mill that gives you the bigger value. And so that's where our focus is first and primarily.

[Operator:]

Your next question comes from the line of Mark Mihaljevic with RBC Capital Markets.

[Mark Mihaljevic:]

Just a couple quick ones from me. Lot of things have been addressed already. Just wanted to clarify if there is any more capacity within the Casa mill as it stands now, because obviously you were able or you had been previously permit constrained, so is there any additional capacity that's just permit constrained or is it now mill-list or mill limitation?

[Phillips Baker:]

The mill that we were crushing constrained and so what we've done is, we've put in in-pit crusher in and tested that. We haven't come to a conclusion yet as to what we're going to do there. But that's really been the constraint that we've had and we've got also see with that higher throughput that we did with the crusher what the impact is on the recovery. So it's still a work in progress. Just rest assured, though, if you look at the performance that we've had to-date, it's been pretty remarkable. If you go back to the Greens Creek, I was looking at the numbers, we're at 2,300 tons a day, we were 2,19,000 tons for the quarter. That mill actually started at a 1,40,000 tons back in 1989. When we came on site, it had never had a quarter more than 200,000 and so we've been able to continue to drive that up. So we'll do that at Casa as well once we do the obvious things, we'll go in and see how we could push it even further.

[Mark Mihaljevic:]

I guess kind of switching gears here, again, you did mention M&A is obviously being a consideration. So I was just wondering how the environment seems to be shaping up now and whether you think that there are some opportunities. And if you could kind of highlight one end of the spectrum you'd be looking at?

[Phillips Baker:]

When you say end of the spectrum, what you mean?

[Mark Mihaljevic:]

Well, just in terms of -- would be looking for a small tuck-in, would you be looking for something larger, something in production, something in development stage that type of--?

[Phillips Baker:]

Well, look, we're always in the market, we're always evaluating what we can add to the portfolio and what we can provide value to and we don't try to predict -- this is a great price environment or a bad price environment, that's we think is a very difficult thing to do. And we're going to buy a mine and we're going to operate it for, hopefully decades. So our focus is continuous. We don't stop evaluating other opportunities. Having said that, what we really need to see is where we can add value to these assets. So when we think about whether we'll do something large or small, I guess #1, when you think about a large acquisitions, we do like our assets, we do think we've got still a high-quality assets and so we're mindful of that relative to other assets we might acquire. We do think though that we can add value operationally and exploration-wise and we've been able to prove that. And we look for value, and if you look at what we did with the Rock Creek and Montanore, those were assets that we think -- frankly worth billions of dollars and we've bought them for pennies. And so we look for those where the market doesn't really understand what the asset is and maybe has beaten it down more than it deserves. We also are mindful of political risk. Everything we've done of late has been in the U.S. or Canada, so Rock Creek and Montanore in the U.S.; Casa, it's Canada and we'll try to do more of those things. But we do recognize that there is some great assets outside those countries and we were the largest gold producer in Venezuela for a decade. So we do know how to operate in difficult jurisdictions but to have more of a focus on the U.S. and Canada, just because operationally and politically it's more in our real half, but we were able to do things in other places if there is the right opportunity. Thank you, Mark. Well, I think that's all the time we have for questions. If you do have any more, please feel free to call Mike or I. We're quite proud of the quarter that we had, we're quite proud of the year that we've had and we look forward to continued strong fourth quarter. So thanks very much for joining us.

[Operator:]

This concludes today's conference call. You may now disconnect.