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Hecla Mining Company (NYSE:HL)

Q4 2012 Earnings Call

February 25, 2013, 10:00 am ET

Executives

Jim Sabala - SVP & CFO

Phil Baker - President & CEO

Larry Radford - VP, Operations

Dean McDonald - VP, Exploration

Analysts

John Bridges - JPMorgan

Anthony Sorrentino - Sorrentino Metals

Trevor Turnbull - Scotia Capital

Jeffrey Wright - Global Hunter Securities

John Tumazos - Very Independent Research

Steve Butler - Canaccord Genuity

Operator

Good day, ladies and gentlemen, and welcome to the Quarter Four 2012 Hecla Mining Company Earnings Conference Call. My name is Carolyn and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions) As a reminder this call is being recorded for replay purposes.

And now I would like to turn the call over to Jim Sabala, Senior Vice President and CFO. Please go ahead sir.

Jim Sabala

Thank you, operator. This is Jim Sabala, Hecla’s Senior Vice President and Chief Financial Officer. Welcome everyone and thank you for joining us for Hecla’s fourth quarter and year-end 2012 financial and operations results conference call.

Our news release was issued this morning before market opened and today’s presentation are available on Hecla’s website. On today’s call, we have Phil Baker, Hecla’s President and Chief Executive Officer; myself; Larry Radford, Hecla’s Vice President, Operations and Dean McDonald, Vice President, Exploration.

Any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act as shown on slide two. Such statements include projections and goals which are likely to involve risks detailed in our Form 10-K 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, in our filings with the Securities and Exchange Commission, we are only allowed to disclose mineral 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 and we urge you to consider the disclosures that we make in our SEC filings.

And with that, I will pass the call to Mr. Baker.

Phil Baker

Thanks Jim and hello everyone. I am glad you could join us on the call. I am going to provide a brief overview; Jim will speak about the financial results; Larry, operations and Dean, predevelopment and exploration. Then we’ll have, we'll answer questions.

Let's start with slide three. This past week we released news on of resuming production at the Lucky Friday which was non-producing while rehabilitation work was done to clean, rebuild and improve 6,100 foot silver shaft and the bolting and repairing of 7.5 miles of workings with more than 61,000 bolts and over 20 miles of chain-linked fence.

Over the last two months, MSHA has modified certain orders allowing the use of the shaft to the deepest loading pocket at 59.70 an excess of the 10 or 11 stopes. With these modifications, we've initiated production of ore and shift our first concentrates to Teck’s trail smelter two weeks ago. This is on the schedule we envisioned by a year ago. I am going to pause here to comment on a new story that implies the process to production is different than what I just described. So let me explain in a little more detail.

MSHA through its inspection process issues orders and citations to shutdown specific areas of a mine. A year ago, we were issued orders and citations that affected the shaft, the 5,900 mainline and other areas; shutting down the shaft, the main access to the mine and the main haulage way, effectively shutdown the whole mine. So in January and February of this year, certain orders were modified because these areas were judged to be safe; that modification allows activity in the modified areas, so we're not using the shaft in the main haulage way and other areas where the areas have been modified. We still have other places that we need to do work to get the orders modified and terminated and we think that will be an ongoing effort through June to do so.

So a year ago, when we thought the shaft work would take about a year and while we didn’t know for sure, that was our estimate and we were right. So we have work that will be ongoing over the next four months, we expect to be ongoing for the next four months and we expect to be in full production in the third quarter. So it is an estimate that we make, we look at the work that we need to do and just like we did a year ago, we are doing the same thing in concluding when we will be able to be back in to full production. And so we expect that to happen in the second half of the year earlier in the third quarter. So I hope that clears up any confusion on how the process works.

In addition to the work required by the orders and citations, we have done other work that we believe makes the Lucky Friday a better more, reliable longer living mine. We established new and consisted mining procedures. We added additional safety training. We hired additional safety professionals; mine management and engineering staff and we acquired new types of equipment that we believe will reduce risks and improve productivity.

And as with all Hecla operations, we are continuing to implement a new National Mining Association CORESafety Program. This is a new industry led framework to improve safety in the US mining industry and all of the work that we have completed to this point, have been done in accordance with MSHA approved plans as well and all ongoing work is intended to meet all MSHA requirements.

Now the first meeting I had after announcing the Lucky Friday production was with the Silver Valley community that have been very supportive and are excited to see the Lucky Friday one of the Silver Valley’s largest employers back on the road full production. The Lucky Friday is one of the great Silver mines in the world having operated for 70 years and has been a 100% owned by Hecla for the past 54 years. And we plan to invest approximately $70 million in the mine this year in 2013 including the resumed work on #4 Shaft Project which is already 45% complete. This project allows to access the higher grade ores and a conveyance that we expect to be operating to Lucky Friday for decades to come.

There is good production growth at the Lucky Friday with production this year and in 2013 of about 2 million ounces next year about 3 million ounces and in the 2016 timeframe about 5 million ounces, as we reach higher grade material. We are working on an optimization study to increase the mine rate, you know, the number of tons that we produce, that we have go through the mill, provide even more production and even better economics on top of already excellent economics. This past year was a reset of the mine that we think will allow it to operate longer and at higher rates and with lower risks and improved returns.

Now there is another story of the Lucky Friday that’s just as an impressive and that’s Greens Creek; Greens Creek’s improved silver production quarter-over-quarter during the year and the cash flow it provided was all of the cash flow for the company with Lucky Friday being down. In addition, we made the largest capital and exploration predevelopment investments in our history and so when we’ll go to slide four with some of them quarter’s highlights.

Greens Creek produce 6.4 million ounces in 2012 at average cash operating cost of $2.70 net of by product credits. We generated operating cash flow of $69 million which is net of the $50 million of exploration predevelopment expenditures and $25 million payment pursuant to our 2011 environmental settlement. We could do this because of continued strong margins that our mines in this case is just the Greens Creek enjoys. Jim’s going to highlight this in a minuet. And despite not having the Lucky Friday production Hecla continues to be the largest US silver producer and has industry leading operating costs and margins.

Through the year we also maintained a strong balance sheet ending 2012 with $191 million in cash and no significant debt as we continue to invest in advancing our three predevelopment projects. I'm pleased to note that our exploration and predevelopment programs ended the year with the highest silver reserves and resources levels in the company's history. Dean’s going to provide more details on this in a minute.

Lastly, the silver markets in 2012 remained strong and despite recent volatility continue to be strong in 2013. Therefore, the board declared a special $0.01 dividend for the fourth quarter. We think the dynamics for silver is unique because of its dual role as an investment vehicle and its consumer industrial demand. While we think investment demand for silver will continue to be strong, we know that there is extraordinary growth in consumer and industrial product demand that we believe that silver’s futures is really very good.

I'm going to come back with some closing comments but let me turn the call over to Jim.

Jim Sabala

Thank you, Phil. During the recent fourth quarter and for the full year with Lucky Friday on standby the performance at Greens Creek was principal driver behind totals revenues of $81 million in the quarter and $321 million for the full year.

As you can see on slide six, silver production levels ramped up during the year at Greens Creek as ground support rehabilitation worked in the early part of the year was completed and production returned to what we consider normal levels. In fact, Greens Creek produced 37% more silver ounces in the second half of the year than in the first half.

Cash costs as seen on slide seven were $3.45 per ounce, net of by product credits during the fourth quarter and $2.70 per ounce on average for the full year. The increase in total cash costs per ounce for the full year was primarily due to higher production cost due to increases of contract miners and lower by product credits. The decrease in by product credits was due to lower prices or base metals.

As shown on the five-year trend in the slide with average silver prices going from $14.40 per ounce in 2008 to approximately $32 per ounce this past year, our margins have more than doubled to $29.41 per ounce of silver. As important is the fact that we've maintained the cost per ounce below $5 per ounce over the extended period in spite of fluctuating base metals production, prices and industry wide escalating operating costs.

We believe this gives Hecla and its shareholders very strong operating leverage through robust silver prices. Operating cash flow for the year was $69 million as shown on slide eight. Cash flow in 2012 was impacted by the payment made in the fourth quarter of $25 million related to the second of four payments required in connection with the company's Coeur d'Alene Basin environmental liability settlement that was reached in 2011. The remaining two payments on this settlement will be made this year and next.

Metal sales were $81 million during the quarter and $321 million for the full year and our gross profit was strong and above 40% for both periods. Net income applicable to common shareholders was $14.4 million or $0.05 per basic shares.

As shown on slide 10, earnings were impacted by a number of factors not reflective of our underlying performance. Mainly $25 million in suspension related activities, expensed at the Lucky Friday including $6.3 million in DD&A and mark-to-market non-cash valuation adjustments for our hedging portfolio.

Absent these items, earnings would have been $34 million or $0.12 per basic share. In addition, we invested nearly $50 million in exploration and predevelopment during 2012. We saw the benefit of net investment with silver reserves increasing to 150 million ounces silver and mineralized material up 7%, and other silver resources up 37%. In addition, primarily as a result of the success we achieved in Mexico, gold mineralized material increased fourfold and other resources increased 75%.

Slide 11 shows the average prices this past year compared to the previous year or our four metals. Going forward, on our base metals as previously mentioned, we continue to utilize a hedging strategy, which is locked in prices for lead and zinc for a significant portion of production through 2015.

We've been very active with this program over the last year. We count on base metals production to keep our cash cost low, and we currently have over half of our production cost over the next three years protected by our hedge program.

Slide 12 demonstrates Hecla’s strong balance sheet over the past year, ending 2012 with cash and equivalents of $191 million and the company has no significant debt outstanding.

With that, I would like to turn the call over to Larry for a review of operations during the fourth quarter. Larry?

Larry Radford

Thanks, Jim. Phil mentioned the big news for us is that the rehabilitation work on the Silver Shaft is complete and production has resumed at the Lucky Friday as shown on slide 14. We made the first concentrate this month and as we continue rehabilitation and workings and get clearance from MSHA we expect to slowly ramp up production in normal levels by the mid-year. For the full year, we expect silver production at Lucky Friday to be approximately 2 million ounces.

As you recall, the Lucky Friday was shut down a year ago to rehabilitate and enhance the 6,100 foot Silver Shaft, which is the main access in hoisting facility for the mine. This work included clean and all the loose cementitious material that had built up, filling the metal brattice of length of the entire shaft which provides a physical barrier between the east and west halves. Repairing shaft’s fill and installing new power cables all of which should improve the shaft’s functionality and potential hoisting capacity.

During the fourth quarter, the construction on the bypass on the 5,900 foot level which allows access to stopes was completed. Ground support has been upgraded for over 7.5 miles of underground workings; these upgrades include in appropriate areas incorporation of recently developed ground support bolt-in products.

Current production is coming from the number 10 stope and number 11 stope located on the intermediate-vein package and 30-vein respectively. All mine employees have now been recalled to work and have received extensive safety training. In addition to ongoing training, the down time of the mine allowed us to make additional operational improvements with newer equipment including a bolter and shotcrete machine and we believe that the Lucky Friday will be a much improved mine as we resume production development and exploration.

In the mill, all major components were refurbished and rebuild. We've also resumed work on Lucky Friday number 4 Shaft project construction which is about 45% complete. The shaft (inaudible) set up activities primary mechanical and electrical systems and critical lateral development largely complete.

Construction work for the number 4 Shaft project is expected to focus on shaft banking and station development activities until project completion which expected in 2016.

Number 4 Shaft is expected to allow access new to higher grade ore zones and significantly extend mine life. Total project capital is expected to be approximately $200 million with approximately $92 million orders already spent. Production at Greens Creek on slide 15, started up slowly in 2012, due primarily to ground support part rehabilitation work that we undertook, and through the year output in Greens increased and in the fourth quarter we have produced 2.1 million ounces.

Second half production was 37% higher than the first half. For the year, Greens Creek produced 6.4 million ounces at cash cost of $3.70 per ounce. Greens Creek silver production was 2.1 million ounces at the cash cost of $3.45 per ounces. Cost were higher in the fourth quarter due primarily to increase due to some contract miners and lower by product credits due to lower based metal prices.

Mining costs per ton were $69.28 per ton in the fourth quarter compared to $50.95 per ton in the fourth quarter a year ago again, primarily due to the eastern contract miners. Drilling costs were $30.26 per ton in the fourth quarter which were consistent with pervious year’s fourth quarter.

On the safety side, the 2012 all injury frequency rate of 2.12 is at 40% reduction from 2011 which was $3.74 and a (inaudible) in 2008. Greens Creek last year had record capital expenditures since the opening of the mine and total of $62.2 million in 2012 which was focused on underground mine development definition drilling, mining fleet replacement, tailing dam expansion and the construction of expanded and upgraded account facilities all of which set a sub for improved operations with a longer life.

For the coming year, our CapEx budget is higher than 2012 with the folks on mine rehabilitation around the historic East Ore Zone continued mine development as well as the purchase of new equipment. Production at Greens Creek in 2013 is expected to again exceed 6 million ounces. Based on current metal prices, costs are expected to be approximately $3.25 per ounce, net of by products, which are higher than 2012, but lower than the fourth quarter of last year and still we believe at the lowest end of operating costs among major silver mines in the world.

I'll turn the call over to Dean for exploration and predevelopment. Dean?

Dean McDonald

Thank you, Larry. Hecla had a very successful year on the exploration and predevelopment front replacing mine silver production, adding additional mineralized material and other resources and advancing all of its exploration and predevelopment projects in Mexico, Colorado and Idaho as well as the purchase of the Monte Cristo Exploration project in Nevada. Year-end silver reserve levels are at their highest in company history. For the seventh consecutive year, we increased silver reserves to 150 million ounces and silver resources to 127 million ounces of mineralized material and 172 million ounces of other resources at December 31, 2012.

As shown on slide 17, since 2003 our silver reserves have increased 230%, our mineralized material 274% and our other resources 179%. In fact, since 2001, we have increased our silver resources by 800%. Due largely to work at San Sebastian this year, gold mineralized material increased four-fold to 1.7 million tons averaging 0.07 ounces of gold per ton and other gold resources increased 75% to 13.5 million tons averaging 0.5 ounces of gold per ton.

Our reserve and resource levels are now at the highest levels in the company’s history and we believe that with the exploration potential remaining at our existing operations and exploration development properties, there remains great opportunity for this trend to continue.

The most significant addition to the resources occurred at the San Sebastian where the Middle Vein as shown in slide 18 has been defined for over 3,000 feet long strike and from surface to over 1,000 feet depth. New other resources consisting of 8.8 million silver ounces and 45,000 ounces gold have been reported and the mineralization appears to be opened along strike in both directions and has depth potential.

Noteworthy is the proximity of the veins as shown in slide 19 and that the combination of the Middle Vein with the Andrea vein and Hugh Zone at San Sebastian represent a silver resource of 4.4 million ounces of mineralized material and 23.9 million ounces of other silver resources. And a gold resource of 73,900 ounces of mineralized material and a 159,700 ounces of other resources with substantial copper, lead and zinc as well.

Metallurgical, hydrological and geotechnical studies are continuing and scoping studies are now in progress to determine the mine rate and sequencing to optimize the exploitation of these veins. It is anticipated that this scoping work will be completed in the third quarter of 2013. Preparations have begun on the rehabilitation of the ramp access and engineering design is advancing to determine access to the Middle Vein and Hugh Zone.

With the addition of new resources from the Equity, North Am is drilling the San Juan silver project in Colorado, now encompasses 7.6 million ounces of silver, mineralized material and 33.1 million ounces of silver and other resources. As shown in slide 20, the development of the ramp into the Bulldog underground infrastructure is now advanced over 800 feet and expected to be completed in the fourth quarter of the year.

Once this access is established, underground sampling and drilling are expected to commence in an effort to confirm the resource and provide platforms to expand these resources. The refinement of scoping studies and economic models continues with the preliminary economic study due in the third quarter of 2013.

Slide 21 shows our exploration and predevelopment projects for 2013. The $51.5 million of budgeted expenditures are at approximately the same level as 2012. However, we expect to see additional funds at both San Sebastian and Creek compared to last year. These are both development projects which we expect to advance more quickly towards production.

And with that, I will pass the call back to Phil for some closing comments.

Phil Baker

Thanks, Dean. Just a couple of things I want to cover. If you look at slide 23, the work accomplished this past year sets us up for expected production growth of approximately 25% to between 8 million to 9 million ounces of silver. And we expect production levels and cost to be higher in the first half of the year as the Lucky Friday ramps up production to normal levels with 2013 silver production at the Friday to be approximately 2 million; companywide operating cash costs are expected to be approximately $5 per ounce for the full year, which we think is still amongst the lowest in the silver industry and in the current strong silver market with our base metals hedging program should continue to generate strong margins and cash flows for Hecla.

Cash cost at Greens Creek are expected to come in at approximately $3.25, which we believe is still perceived amongst the lowest in the world. We plan to continue to improve the infrastructure at Greens Creek in an effort to reduce risk and further expand reserves. Consequently, our companywide capital programs are expected to be approximately $152 million which includes the resumption of 4 Shaft. In addition to our operations, we expect to see continued progress at our exploration and predevelopment projects in Mexico, Colorado, Idaho and Nevada.

Our goal is to generate organic growth in production to 15 million ounces by 2017 and we believe we are on track for that goal and have the strong balance sheet and cash flow generation to make that happen as well as the assets.

Finally, over the past year, Hecla has made investments in three companies Dolly Varden, Canamex and just announced last week Brixton. In aggregate, we have invested $8.3 million, these investments are consistent with our strategy to invest or acquire underground gold assets in Canada and the US, in certain States in Mexico or in silver assets throughout the Americas. We plan to continue to make these investments and acquisitions because we seek long-term value.

Thank you for your interest. And with that operator, I will open the line for questions.

Question-and-Answer Session

Operator

Okay, thank you. (Operator Instructions) Your first question comes from the line of John Bridges from JP. Please go ahead.

John Bridges - JPMorgan

So Jim, thanks for the taking the call. The rehabilitation, could you fill in a little bit more on the remaining rehabilitation, how do you highlight to that before, it’s a bit of a surprise?

Phil Baker

As we said from the beginning when we would reopen the mine, we would have rehab that we have to do in the workings and that’s what this is now. Some of the rehab work is related to orders and citations from MSHA, some is not, what we have done is made a point of going in and doing a consistent thorough rehab job as we reopen all of the stopes. So we have just, we have made that a prioritization back when we started getting in the mine back in August of last year.

John Bridges - JPMorgan

There is this additional support or what?

Phil Baker

Its really bolting and it is additional ground support, its bolting and for the most parts chain-linked fencing and then overtime we’ve got a one of the pieces of equipment we’ve purchased is shotcrete and we will be shotcreting the ramping system just to protect really the wire mesh.

John Bridges - JPMorgan

But wasn’t this a problem before when the shotcrete got fired off the walls?

Phil Baker

No, shotcrete equipment is new for us.

John Bridges - JPMorgan

The contract of shaft sinking contractors were there any payments for them to balance out the inability to work for you and is that included in the new $200 million guidance?

Phil Baker

Yeah, Cementation acted as the contractor that did the shaft cleaning and so while they were demobbed for the four shafts they were remobbed for the Silver Shaft, so while there's some minor costs its not a material item for us and so the overall roughly $200 million total cost for the shaft is we are still on track for that.

John Bridges - JPMorgan

And then presumably you've got a big slug of concentrates that moved over into the first quarter?

Phil Baker

Well, what we have done is produce some concentrates, shift it to tech and we will continue to do that every few weeks we would expect to produce some more concentrate. We, some of the guidance that we've given in the past was roughly 200 tonnes a day on average of production for in the first quarter and roughly 500, 600, 700 tonnes a day in the second quarter. We are still on track for that, but the bulk of all of the production is going to come in the second half of the year.

John Bridges - JPMorgan

No, I was thinking in terms of Greens Creek because there's a big disconnect between your production and sales?

Phil Baker

Yeah, there was a big inventory in the receivables at the end of the year. Jim you want to add anything?

Jim Sabala

It’s just the result of normal transit on high seas, John we had some shipments right at the end of the year that didn't make it in time for the cash settlement.

Operator

The next question we have comes from the line of Anthony Sorrentino from Sorrentino Metals.

Anthony Sorrentino - Sorrentino Metals

Going back to MSHA again at what point, at what time or what point do you think, how long will it take before you have to go back to MSHA to get approval for production decisions or decisions related to the Lucky Friday mine?

Phil Baker

Well, they come in and they inspect periodically and so they will continue to do that and we continue to do our work and they inspect it and we are anticipating that there will be additional areas of the mine released as we go forward. This is nothing unusual. This is the process that MSHA has followed for years where they just inspect areas and if they have an issue with an area then they either issue a citation or an order and the company responds to those things.

Anthony Sorrentino - Sorrentino Metals

And would you have any idea when all of the areas would be released that there would be no other conditions going forward?

Phil Baker

Yeah, we are anticipating that that will be around mid-year and hence our guidance for normal production rates in the second half of the year.

Anthony Sorrentino - Sorrentino Metals

Right, okay, and you had said that you anticipated that the number four shaft project would be completed by 2016 and that the production at that time would be about 5 million ounces. Is that consistent with the original schedule or is that a little bit later and a little bit less in terms of ounces?

Phil Baker

Its one year later because of the Lucky Friday being down and it's the same number of ounces.

Operator

Thank you for that question. The next question we have comes from the line of Trevor Turnbull [Scotia Capital]. Please go ahead.

Trevor Turnbull - Scotia Capital

Just wondered, Dean went through an exploration update with a number of projects you have in Colorado, in Mexico and then I know you made some investments in some of the smaller explore cos. and I was just wondering if you could maybe handicap for us which of those projects, either internally or maybe outside the company, you think will end up making the third mine for you guys? It's just kind of hard to get a sense. I know you got some studies in progress and some more drilling that needs to take place but I am just wondering do you have a sense of which ones you got the highest hopes for advancing the fastest?

Phil Baker

Yeah, I think it's pretty clear that San Sebastian has the highest chance to become another mine for us the soonest and really for two reasons one is the addition of the middle-vein, you know, it's going to greatly improve the economics and what was already a fairly good picture and then secondly, the permitting process in Mexico is one that is faster and may be a little more certain than what we have in the US.

We are still quite high don’t take this to wrong way, we are still quite high on what we are doing in Colorado and the work we are doing in at the Bulldog that still could conceivably come in as well in the timeframe, but we think San Sebastian more likely.

Trevor Turnbull - Scotia Capital

I guess, reading between the lines that’s kind of the impression that I would have had as well. And then on the kind of corporate development front as you have looked at these investments in smaller companies, is that kind of the strategy going forward or do you still look at an outright acquisition of something given the opportunities?

Phil Baker

We are certainly looking at both. We think there is value in both smaller things and we think there are larger opportunities where it fits your skill set and so we are looking both of them.

Operator

Thank you. The next question comes from the line of Jeffrey Wright of Global Hunter Securities.

Jeffrey Wright - Global Hunter Securities

If I am looking at 77 million approximately for Greens Creek CapEx this year, on a percentage basis or may be just a dollar basis, how much would be ore mining rehab and development versus equipment, I am just trying to sense how much equipment you need to?

Phil Baker

We'll pull up the schedule for that but clearly some of the things that we were spending money on our like the east ore area where it’s a rehab of an old ramping system that we want to increase the size because over the course of the past 20 years and the equipment size has grown and so our equipment can't fit in that ramping system safely, so that’s one of the bigger capital expenditures that we have, Jim you have the list there, why didn't you go through?

Jim Sabala

Yeah, I will just give you the three biggest lends if I can. Phil talked about east ore that's right run $20 million of total mine rehabilitation and development including east ore body. We have got about $13.5 million and other development projects at the mine about $14 million in surplus infrastructure projects and about $10 million in mobile equipment and rolling stock.

Phil Baker

And then just sort of peer rehabilitation is not related like east ore is to the development of that ore body, that there is fair amount that will go on but its in terms of its cost, its not a high cost item, Larry do you have any comment that you want to make on that?

Larry Radford

I think you covered pretty well.

Phil Baker

Okay, thanks.

Jeffrey Wright - Global Hunter Securities

Okay now that is pretty helpful. And if I was, there is also a comment on grade, dissipated grade through 2013 agreements, or you think grades is going to be consistent with Q3, Q4, or are we going up or going down a little bit?

Phil Baker

Maybe why don't you guys look what's in the model, because I don't recall at the top of my head, but it’s these things generally bounce around within a few (inaudible) or less dependence on gold and ounce or so in silver but do you remember Jim or Larry?

Larry Radford

Yeah, I think silver grades are generally trending a bit down through the year; I think grades it looks like are trending slightly up.

Jeffrey Wright - Global Hunter Securities

Okay. And to Phil’s point, if we are talking about trending down just the variability is within about 20 to 30 grams per ton, correct?

Larry Radford

Well, it’s about an ounce of silver per ton.

Operator

Thank you. The next question comes from the line of John Tumazos from Very Independent Research.

John Tumazos - Very Independent Research

Your balance sheet is very, very sweet with no debt and the Greens Creek acquisition paid for and now Lucky Friday reserved. Your projects seem to involve exploration expense for underground development as you look for the veins and relatively small mills that might be hundreds of tons a day for 25 million to 50 million. In the street juniors that you are investing in, is the style of exploration mineralization similar and is it fair to say that there is no $100 million capital projects on the horizon?

Phil Baker

Well, I guess I would make two comments; one with respect to our predevelopment projects, both San Sebastian, San Juan, Colorado and Mexico, both of these projects, I think the sort of size you are talking about probably are $100 million plus sort of capital and look this is just me sort of pulling numbers out of the year, call it a $100 million to $200 million sort of in that range; when you consider all of the infrastructure that you have to put in place. With respect to those other projects, the predevelopment projects, its really early, early days to be able to know what a mill might involve and all the logistics might involve, but suffice it to say it is low tonnage, high value, mineralization, largely for at least two of them and we would not anticipate some sort of major capital program anytime soon for those that would be stress to Hecla’s balance sheet; Dean do you want to add anything on as far as the style of the mineralization is…...

Dean McDonald

Sure. John with our investment in Dolly Varden; Dolly Varden has had historic production and is a long trend of [SK Creek], so we anticipate that style of mineralization a bit like Greens Creek, so very high grade typically lower tonnage. Canamex in Nevada, primarily veins and breeches; there is a near surface target that maybe amenable to open pit mining, but for the most part its veins and breeches underground. Brixton, which is probably early stage, large breech zones and so it’s too early to say what it could be; certainly very high grade so far; it maybe a larger deposit than the first two I've described.

John Tumazos - Very Independent Research

So is it fair to say that the combination of all your predevelopment efforts have you excited enough and busy enough that you are not in the acquisition market like some of the other silver companies that are prominent?

Dean McDonald

Well, John, I guess two things. One is, we clearly think there is value out there and hence why we’ve made investments in some companies. We would also say that could apply to the acquisition of companies. So we’re in a fortunate position that everything we have in hand, and outside those three investments, we control their future. We can determine when we make the investment. So, we don’t have a timetable that we have to follow. So it gives us quite a bit of flexibility that if we do see value some place that we can refocus, reorient the direction that we're going in. And so that’s what we're trying to do John; we're looking at things and we're prepared to allocate capital where we see the best value.

Dean McDonald

Anything else John?

John Tumazos - Very Independent Research

No, thank you very much.

Dean McDonald

Okay, appreciate it. Let me, before we take the next question let me just go back to the question about the grades for the coming year. In 2012, we had an average grade of about 11 ounces. We would expect to see 2013 at over 12 ounces. So up from the average for the year, probably down from the average for the fourth quarter and that’s we are heading where we would expect to be for Greens Creek. So we will take the next question.

Operator

Thank you. The next question we have comes from the line of Steve Butler [Canaccord Genuity]. Please go ahead.

Steve Butler - Canaccord Genuity

So you guided to the half one and half two cost per ounce for Lucky Friday obviously 17 down to [9.50], most of them I assume Phil must be just simply the scale or the denominator the tonnes per day as you alluded to, is it the sort of fixed cost?

Phil Baker

That’s right.

Steve Butler - Canaccord Genuity

Okay. So great profile is not part of the corporate further cost trend?

Phil Baker

No, no it’s just simply few ounces that we are able to produce, the number of stokes that we have rehabilitated that we can get into isn’t there yet.

Steve Butler - Canaccord Genuity

Right. And the previous question I guess, just to clarify the mid year or this 2013 mine plan, Phil is predicated on you getting additional releases from other mine for MSHA, as you go throughout the year is that correct?

Phil Baker

Yeah that’s right. I mean it’s just the work that we need to do to be able to access the mine and it’s from now only their perspective good, it’s from ours I mean we have a obligation to make sure the areas we go into are safe and that’s what we are doing.

Steve Butler - Canaccord Genuity

Alright. And you have referenced to Shaft Greens as you see Phil just to get a perspective there. Are these costs sort of incremental from going forward and they weren't material part of your cost base in the past, if so what has screening may be extra bolt-in may be added to your mining cost per ton which I last sort of, you guided or last head estimates of about $58, well I'll call it in the $60 per ton range plus or minus mining in the past is that a higher number going forward?

Phil Baker

Yeah, I mean certainly it had inflation in just the whole industry and we certainly have experienced it, and you added a few additional people and that adds to the cost, but it’s not a material and certainly it’s embedded in the guidance that we’ve given you for the year. I am thinking in terms of cost per ton, we would anticipate maybe as time goes on, not in the first half of the year and not for 2013, but as we go back to 2014 and I want to say cost per ton is about 10% then what we had in the past and I think it’s a result really of the general inflation more than anything and Larry do you want to add to that?

Larry Radford

The budget for 2013 for rehab in shotcrete is $2 million.

Steve Butler - Canaccord Genuity

Okay, thanks Larry. And the throughput in the second half for Lucky Friday would be around what level, about 900 tonnes per day or?

Phil Baker

Yeah, we would expect to get to about that level.

Operator

(Operator Instructions)

Phil Baker

Okay, well, if there are any other questions, we certainly would welcome phone call. Let me add that we have new member of our team, I should have done this at the beginning Michael Westerlund who is our VP of Investor Relations. Yes, certainly feel free to give him a call or Jim or myself. We'd be happy to answer any further questions you might have. So with that, we'll sign off. Have a good day. Thanks.

Operator

Thank you for your participation in today's conference. That concludes the presentation. You may now disconnect. Have a good day.

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