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Hecla Mining Company (NYSE:HL)

Q2 2013 Earnings Call

August 8, 2013 10:00 AM ET

Executives

Mike Westerlund – VP, IR

Phil Baker – President and CEO

Jim Sabala – SVP and CFO

Larry Radford – VP, Operations

Dean McDonald – VP, Exploration

Analysts

Jorge Beristain – Deutsche Bank

John Bridges – JPMorgan Chase & Co.

Trevor Turnbull – Scotia Capital

Operator

Good day, ladies and gentlemen, and welcome to the second quarter 2013 Hecla Mining Company Earnings Conference Call. My name is Crystal and I will be your coordinator for today. At this time all participants are in listen-only mode. We will facilitate a question-and-answer session towards the end of the presentation. (Operator Instructions). I would now like to turn the presentation over to your host for today Mr. Mike Westerlund, Vice President of Investor Relations. Please proceed sir.

Mike Westerlund

Thank you very much operator. This is Mike Westerlund, Hecla’s Vice President of Investor Relations. Welcome everyone and thank you for joining us for Hecla’s second quarter 2013 financial and operations results conference call.

Our news release that 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, President and CEO; Jim Sabala, 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 as shown on slide two. Such statements include projections and goals which are likely to involve 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, in our filings with the SEC 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.

With that, I will pass the call to Phil Baker.

Phil Baker

Thanks Mike and hello everyone. I am particularly glad you all are joining us today to talk about what’s been a very busy quarter and a lot has happened in the past three months. We acquired Aurizon, we issued eight-year debt and we began operating Casa, so a really great performance at Greens Creek and made significant progress on the Lucky Friday. Of course we also saw precious metal prices declined dramatically affecting our realized price for the quarter and it has prompted measured and sensible cost reductions.

On this conference call we will talk about all these things in more but I want to start with an overriding feature of Hecla. We have the assets management and balance sheet that can withstand the fluctuations of our market. We see these lower precious metal prices as an opportunity to demonstrate how our long lived low cost assets can deliver strong cash flow which will provide a base for growing our existing assets, acquiring other assets and other ways of getting shareholders value.

So we are still on a path of growth. From the Lucky Friday restart and expansion to completion of Casa shaft deepening and infrastructure improvements to the work on St. Sebastian, San Juan and Heva and to acquiring new assets.

So let’s focus now on the quarter. So see slide three. When I look at this quarter I am struck by how well we performed despite the weak metal price environment. The acquisition of Casa Berardi is very important to us and it’s going to generate significant cash flow for many years. But as a result of the purchase we incurred several expenses related to the transaction that hit this quarter particularly hard, specifically 20 million acquisition cost and 6.5 million in interest.

Now I recognize that we are going to pay interest quarterly going forward but I highlighted because we had one month of gold production offsetting three months of interest cost. So we expect these items not to impact us in the same way in the future.

In addition, we incurred $15.1 million provisional price adjustment which is reflecting the sharp decline in silver price on metal shipped in this and the previous quarter. We have taken steps to avoid these provisional price adjustments in the future. Absent these items we actually had a very strong financial quarter comparable to the second quarter of 2012 despite the weaker silver prices.

So let’s talk about the quality of our assets. We produced 64% more silver and 68% more gold than last year. This is due to the very strong performance at Greens Creek, the ramp up of the renewed and reopened Lucky Friday Silver Mine and our newly acquired Casa Berardi gold mine acquired June 1st and the Aurizon transaction.

Greens Creek had an exceptional quarter, one of the best in its 25 year history because it processed the second highest quarterly tonnage producing over two million ounces of silver. That’s 48% more than a year ago and 11% more than the first quarter. And it was at an operating cash cost net of byproducts of just $2.71 per ounce of silver which provides the basis for remarkable margins an especially important factor in these markets.

Now the Lucky Friday continues to ramp up production after reopening in February. This ramp up is taking generally the length of time expected as they bring every element of the process in to balance; Development, production, backfilling, milling and tailings. We are very much on track for normalized production of three million a year and have a platform for increased production to five million a year after 2016 when the fore shaft is done.

Lastly, our new Casa Berardi gold mine which we acquired in the Aurizon acquisition contributed only a month’s worth of production to the second quarter 68% increase in companywide gold production over the same period last year. So you can see how much of an impact on our gold production Casa will have in the third quarter and particularly the fourth quarter when we will see higher grades. Larry is going to talk more about all three of these properties in a few minutes.

By the end of the year we expect all three mines be running at normal production rate. So we have three excellent operating assets that are low cost, have operated in very low price environments and give us a real advantage of producers that have higher cost operations. But we also understand that even with the strong and improving asset base we need to be disciplined and prudent in managing our cash position. At the end of the second quarter our cash and equivalents position was nearly 300 million. So we believe we have more than adequate cash to handle the capital projects before us to continue our production growth profile.

But with the dramatic reduction in precious metal prices we have taken a hard look at curtailing expenses and capital programs. We have made some significant reductions this year but we have done it in a thoughtful way recognizing that the majority of our programs can only be done in the summer and require significant upfront planning and logistics. We didn’t want to lose that work so we are completing many projects.

Today we are already starting our plans for 2014. Our guide for next year’s combined expenditures on capital, predevelopment and exploration will be to have it fit within the adjusted EBITDA we generate. In other words, we should generate free cash flow in 2014 and we will still continue to advance growth projects like the fore shaft at the Lucky Friday.

So before I turn the call over to Jim let me add that the management team at Hecla has a couple of 100 years of combined mining experience. We have been through down markets before and we understand how to manage operations and projects during these periods to maximize value to shareholders.

So with that I will turn it over to Jim for the second quarter financial review.

Jim Sabala

Thank you, Phil. During the second quarter total revenues were $85 million which was 27% higher than the previous year’s second quarter despite much lower metals prices. The increase was primarily due to higher production. The revenue breakup by mine and by metal as shown on slide five was approximately 66% attributable to precious metals.

For the year given current metals prices and with the acquisition of Aurizon we expect the precious metals component to increase which will result in about 72% of our metal being attributed to silver and gold for all of 2013. I would point out from the onset that this was not a typical quarter in terms of our earnings largely due to several large items during the period.

As Phil mentioned, not only were there one-time costs related to the Aurizon acquisition of $20 million but we also incurred three months of interest expense on the notes issued for the acquisition. However we realized only one month’s worth of production from the Casa Berardi mine since the acquisition was completed on June 1. In addition, there were 15.1 million of negative price adjustments and outstanding smelter settlements which I will discuss in greater detail.

Consolidated silver production was 2.2 million ounces of silver with 2 million ounces coming from Greens Creek which was 64% higher than the previous year’s second quarter and 18% higher than the first quarter of this year. At Lucky Friday where startup began in February second quarter silver production totaled 217,000 ounces, an 80% increase over the first quarter. All previously operating shafts are now in production and we believe we are still on track to produce approximately 1.3 million ounces of silver in the second half at Lucky Friday and likely on the higher end of between 6 million ounces and 7 million ounces for Greens Creek for a total of between 8 million ounces to 9 million ounces of silver production company wide during 2013.

As you can see on slide six realized silver and gold prices were down significantly, about 22 – excuse me about 40% and 22% respectively from the second quarter of last year, with zinc down 3% while lead prices increased about 7% from the year earlier period. Clearly precious metals have been impacted the most this year with realized silver prices declining more than twice as much as gold on a percentage basis.

On slide seven we look at the impact of our realized prices more closely. Realize that the decline in base metals was mitigated by two programs, one was our hedges of our forecast long term base metals production and two a shorter term program that locks in provisional pricing. The adjustments related to lead and zinc contained in our concentrate shipments were largely offset by net gains on forward contracts of four-tenths of million dollars in the second quarter for those metals.

Second quarter realized prices were lower than average metal prices for the quarter as the result of the previously mentioned negative adjustments to provisional settlements of 15.1 million compared to negative price adjustments to provisional settlements of 1.5 million in the second quarter of 2012. We had a situation like this in 2008 as well where prices declined rapidly for the time period between the shipment of concentrate and the final settlement and we had to take a dramatic reduction in the realized price.

In addition this year about 40% of our second quarter silver production was sold in June at lower prices than the average for the second quarter which magnified the lower realized price. Our hedging policy for base metals has been very successful. It sets us apart from many other gold and silver companies and locks in a significant portion of our cash flow. To avoid these provisional price adjustments pertaining to silver and gold starting in the third quarter we will now lock in or hedge the provisional price for all metals once the concentrate is shipped.

Even with strong current silver prices, silver margins on a consolidated basis as shown on slide eight were still $10.70 per ounce of silver or 66% despite the realized silver price of $16.27 per ounce during the quarter. Over the past six years we’ve seen consistently strong cash margins ranging between 66% and 120%.

Cash cost net of by-product credits on a consolidated basis were $5.56 per ounces down 21% from the first quarter as production from the Lucky Friday continues to ramp up. And at Greens Creek cash operating cost of net of byproduct credits averaged a very lower $2.71 per ounce of silver. We are anticipating operating cost to decline going forward this year as Lucky Friday production ramps up, with average companywide silver cash cost net of byproduct credits estimated to be in the $5 per ounce range for the full year assuming prices at or near the status quo.

Hecla’s balance sheet also remains very strong with $296 million in cash at June 30th as shown on slide nine. This is our highest cash position in over five quarters and gives us the strength to weather the current metals price environment. We also have available an undrawn $100 million credit facility.

On slide 10 showing a cash flow usage you can see that during the quarter we generated adjusted EBITDA of $31.5 million. During the quarter we invested 10.7 million in predevelopment and exploration spending as well as $20.3 million on the Aurizon acquisition cost.

I highlight just because several of these expenses are specific to Aurizon and because the exploration and predevelopment spending is expected to decline during the remainder of the year as we’ve trimmed some exploration and expect to conclude some predevelopment projects such as completing the Bulldog decline at San Juan Silver.

We generated a negative seven-tenths of a million of operating cash for during the quarter mainly due to the items described earlier, in addition to lower metals prices. At current metals prices with production increasing at Lucky Friday and now coming from Casa Berardi and operating cost improving we would expect to see improvement in cash flow as well especially if metals markets improve.

The forecast for capital expenditures in 2013 has been revised downward by 13% to a $178 million excluding capitalized interest. Exploration has been revised downward by 28% and predevelopment by 35%. We are monitoring the metals prices closely and we’ll manage further expenditures as needed to help ensure positive operating cash flow in 2014.

And with that I would like to turn the call over to Larry now for a review of operations during the quarter.

Larry Radford

Thanks Jim starting with slide 12. Lucky Friday continues to move to normalized full production with all working areas operational. We had a slight delay during the quarter as we invested in new hoist controls that are state-of-the-art. It has a significantly improved system.

July has gone as planned averaging 760 tons per day. We should reach 900 tons per day by September. We expect the second half of the year to be much stronger than the first with considerably higher production by 1.3 million ounces and lower costs 950 per ounce by the fourth quarter as we reach the normal production rate.

In the second quarter a total of 217,096 ounces of silver was produced, 80% more than the first quarter at cash cost of $32.19 per ounce. The elevated cost were due to expected start-up cost.

Mike Westerlund

Operator there is someone there that has come on the line that is with not Hecla. Are you there operator?

Operator

Yes I am here. One moment let me find out who this is.

Mike Westerlund

Hang on for just a second Larry. Sorry about the interruption.

Operator

I apologize, it’s fixed.

Mike Westerlund

Okay thank you. Larry you can continue.

Larry Radford

Great, returning to Lucky Friday, a total of 23,226 tons of ore were milled during the second quarter. Work continued in the second quarter on the number four shaft project which is expected to increase production levels beginning in 2017. Greens Creek as shown on slide 13 had a great quarter, silver production was 2 million ounces or 48% higher than last year. The increase was due to primarily the higher tonnage, as Phil said the second highest in the mine’s history and higher grades.

The second half of the year should be more like the first quarter. Mining and milling cost per ton were up 6% and 17% respectively in the second quarter compared to last year. The increase in milling cost was due to the use of diesel power generation. We should have a few months of hydroelectric power and then we should go back to diesel in the fourth quarter.

The cash cost net of by-product credits per ounce as silver increase to $2.71 per ounce compared to a $1.03 per ounce in the second quarter of last year due primarily to lower by-product credits as a result of lower by-product production and lower gold and zinc prices. The production of gold, lead and zinc were up 13%, 19.5% and 10% over the first quarter respectively. I think Greens Creek is on track to produce between 6 million and 7 million ounces of silver in 2013.

We only had one month of Hecla controlling the operations of Casa Berardi as shown on slide 14. Production of gold totaled 6,740 ounces at an average cash cost net of by-product credits of an estimated $1,152 per ounce because of lower tons and grade due to mine sequencing in June.

We will see more of that in the third quarter. It will not be until the fourth that we expect Casa will start getting back to more normalized production both in terms of tons and grade. We are focused on not only completing the shaft and base plant but in implementing a structured ground control program like we have done at Greens Creek and the Lucky Friday.

We plan to initiate surface fit work at Casa Berardi referred to as the East Mine ground filler fit project that’s been deferred until further engineering studies are completed. We further managed capital expenditures that Jim mentioned though it is not expected to impact near term production and permitting activities are continuing. Casa Berardi is expected to produce approximately 60,000 ounces of gold in the second half of 2013 with about two-thirds of this in the fourth quarter at a cash cost net of by-product credits of $900 an ounce, with its expected long-term run rate of 125,000 to 150,000 ounces per year.

I will turn the call over to Dean for exploration and predevelopment during the second quarter.

Dean McDonald

Thanks, Larry. As has been discussed on the call there has been a thorough review of discretionary spending at Hecla. These reductions have been conducted in a thoughtful and prudent manner enabling high priority exploration and predevelopment projects to continue to show steady progress. As outlined in slide 16 exploration expenditures were 6.2 million in the second quarter, the forecast of approximately 29 million for exploration expenditures in 2013 for the consolidated Hecla which includes Aurizon has been revised downward to 22 million a reduction of 28%. The predevelopment budget has been revised downward for the consolidated company by 35% for 2013 to approximately 16 million.

These amounts will still allow us to continue to advance our projects. Exploration programs succeed in extending high grade mineralization at Greens Creek, San Sebastian, Casa Berardi and Heva and Hosco. In the press release we have provided information on these exploration results with tables of drill intersections at the end of the release. And I’d like you to take a look at them.

Predevelopment work includes optimization studies and ramped design on the Hugh Zone in Middle Veins at San Sebastian and the advancement o0f the decline to the Bulldog Vein at the San Juan Silver project. We’ll have more to say on these two projects this fall as studies and designs are finalized, so stay tuned.

I will pass the call back to Phil now for some closing comments.

Phil Baker

Thanks, Dean. As we begin to see in the second quarter and expect to see through the remainder of the year the acquisition of Aurizon creates a larger, more diversified precious metals producer with operating exploration development assets in mining friendly jurisdictions. We’ve created a financially stronger gold and silver growth oriented Hecla with high cash margins and strong free cash flow expected in the coming years.

The second quarter growth in silver and gold production is a good start but we do not consider it a representative quarter from financial standpoint due to all the one-time items. All of our high quality assets in operations have long life and operate in low political jurisdictions giving investors a more secure risk profile with a very strong experienced management team delivering multiple revenue streams.

A theme that we consistently hear in the mining industry is the need to generate real returns that can be realized by shareholders and we believe the Aurizon acquisition is exactly what the market is asking for. It’s an acquisition of an operating asset which should fund its own capital requirements and be cash flow generating in 2014. And so be generating returns at that point. It’s going to enhance our ability to grow and deliver future returns to shareholders potentially including the form of dividends.

We expect this year to have a much stronger second half in terms of gold and silver production, lower cash cost and further streamline operations. And let me just stop for a moment and just compliment Scott Hartman and the team at Greens Creek for the great quarter they have, they’ve had. I am not sure they can streamline their operations any more than they have, they’ve done a great job this past quarter.

Now we remain bullish on the fundamentals underlying the precious metals market and we’re going to closely monitor the market in terms of our capital expenditures for 2014 in order to generate that free cash flow next year.

One final note we’re going to be undertaking a series of marketing chips in the coming months to take the story of the new Hecla to investors and potential investors and look forward on our next call with you following the third quarter with our operating mines all running at normal production rates.

With that I’ll open the line for questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions). Your first question is going to come from the line of Jorge Beristain – Deutsche Bank. Please proceed.

Jorge Beristain – Deutsche Bank

Hi, Phil and everybody, Jorge Beristain with Deutsche Bank. Just on slide 14 on the Casa Berardi you were talking about cash cost, could you give us some color as to what the all in sustaining cost would be in terms of sustaining CapEx, SG&A and R&D that are associated with that mine on a per ounce basis please?

Phil Baker

Sure, I’ll now turn that to Jim.

Jim Sabala

Yeah, good morning. With regard to the SG&A relative to mine that’s one of the change we made when we took over Aurizon is that all the SG&A that’s associated with the [Valdora] office and the operations they are now included in cash cost per ounce which weren’t before. And in SG&A other than related to Aurizon is nominal. In terms of ongoing CapEx Jorge we really haven’t provided that yet. What we want to do is we just bought the asset last month. We’re going to be valuating all the capital programs there in connection with our nominal planning process and we’ll provide an updated guidance on that at the end of the year or shortly thereafter.

Phil Baker

But suffice it to say– Jorge is that we would expect it to be under the current price of gold today.

Jorge Beristain – Deutsche Bank

Could you give us that may be some color as to the ongoing R&D or exploration budget out there?

Phil Baker

We’ve not said that for the coming year. Order of magnitude it will be less than Greens Creek which is sort of $4 million or $5 million range. But we’ve not set that out. It is one of the things that we want to really focus on is where do we put the exploration development that’s required to have the platforms for the long-term growth in the resources space there. And that’s just going to take some work before we come to conclusion on that. Dean is there anything you want to add to that?

Dean McDonald

Well, Jorge the exploration budget this year at Casa is about 3 million to give you a bit of benchmark. But as Phil mentioned we do see a lot of opportunities both underground on surface to realize those underground opportunities, we really will need to evaluate what developments required going forward.

Jorge Beristain – Deutsche Bank

Great, that gives me some benchmark. And in terms of the CapEx could you just sort of give me an order of magnitude on I am assuming you talking about potentially classifying some of that CapEx as development work but are we talking just like 5 million a year or sort of what are you kind of annualizing right now?

Phil Baker

Go ahead, Jim.

Jim Sabala

Yeah, well of course there will be some capitalized development at the mine Jorge. And I think let’s see if I can find a report here but $5 million to $6 million would be a normal development budget for a mine of this size.

Jorge Beristain – Deutsche Bank

Okay, great. That was my main question. Thanks very much.

Dean McDonald

Sure, thanks.

Operator

Our next question comes from the line of John Bridges with JPMorgan. Please proceed.

John Bridges – JPMorgan Chase & Co.

Good morning, Phil, Jim everybody.

Phil Baker

Hi, John.

John Bridges – JPMorgan Chase & Co.

Hi, just wondering what’s changed to make you switch to hedging everything in your inventory pipeline, what changed that and what so cost is that add?

Phil Baker

It’s not the inventory pipeline. It is simply the metal it’s been shipped. So it’s what’s on the ship and is out the door. And it’s just the volatility post the end of month, end of the quarter and the impact that, that has on our realized price. The fact that we had a realized price of $16 versus I think the market average was about 23. We just feel like there is no reason to take that volatility. Jim you want to add anything?

Jim Sabala

Yeah one thing I want to add is John is this doesn’t impact any long-term programs, we’re not going to do that. This is really that 90 day period from the time that we load the ship until we get the smelter settlement. And the hedge that we undertake is 100% effective hedge against the pricing mechanism in the contract. Now when I say 100% that’s the price mechanism. We’ll hedge about 95% of quantities because of the differing items you have in weights and assays and final settlement.

Phil Baker

So this is a no way some view taken on the metal’s price. This is merely once we booked the revenue is to just lock it in, and not have this variability. We just don’t think that’s helpful.

Jim Sabala

And to reiterate it’s a mirror image of the program that we have for lead and zinc and the short term program and that’s been 95% effective for a couple of years now?

Phil Baker

Yeah, we implemented that in 2009 and that’s been very effective for taking some of that volatility out.

John Bridges – JPMorgan Chase & Co.

Okay.

Phil Baker

So is that clear John?

John Bridges – JPMorgan Chase & Co.

Yeah absolutely. Just I’m curious because most producers of concentrate just take the ups and downs there and I was just wondering if it’s any particular trigger that closed that out...

Phil Baker

Well when someone like you who follows companies that have concentrate productions it doesn’t – you understand what’s going on, but we certainly find that some investors, it’s not clear to them as what happening and why we will either have higher or lower realized price.

John Bridges – JPMorgan Chase & Co.

Yeah, well I feel I’m learning every time so I don’t know whether I fully understand but – the industry, but just following on to Greens Creek you’ve been having a lot of assay with higher grades. When you know how what’s the volumes that you’re talking about and when might that high grade material hit your mill?

Phil Baker

Well I think we’re talking about material that’s in the 200 South, the Deep 200 South and there is a lot of development that needs to be done before we will reach that material and then do the close-space drilling necessary to move it into reserves and into a mine plan.

So it’s – I can’t suggest to you when that will happen. We will certainly because it’s a deeper we will certainly move it forward to balance out the fleet of equipment that we have. The good news is the deeper material is – it looks like an attractive grade but we don’t know that for sure but that certainly the impression that we have.

And it will take couple of years to build it into the mine plan and it will come in as soon as we can have it coming. Larry do have any more to add to that?

Larry Radford

I think you said it well.

Phil Baker

Okay.

John Bridges – JPMorgan Chase & Co.

Okay. Excellent. Many thanks guys. Good luck.

Phil Baker

Thanks John.

Operator

Our next question comes from the line of Anthony Florentino of Florentino Metal. Please proceed.

Unidentified Analyst

Good morning everyone.

Phil Baker

Hi Anthony, I was surprised you weren’t the first question?

Unidentified Analyst

Yes I tried to be first question but I guess a few people got in before me. With regard to San Sebastian could you go into further detail as far as what you’re finding along the middle vein?

Phil Baker

Sure I’ll let Dean answer that question in terms of the exploration but let me just say that it has advanced quite well. And what we’re trying to do is build the mill vein into a program into a plan, that would exploit it as well as the Hugh Zone and [Dreya] and so we’re working through that but the result of the middle vein have been encouraging. Go ahead Dean.

Dean McDonald

Sure, Anthony there is two aspect to the drilling that’s occurred the past quarter. One component has been in-fill drilling where we are in the process of upgrading the inferred resource that we reported in February. And most of that will convert up to indicated resource. At the same time we’ve been continuing to drill the Southeast where we found another zone of high grade there. And so that’s really been the emphasis for this past quarter.

You know the intention if you go to the longitude you’ll see that to the South East there is a fault that would appear to offset the mineralization and so the next bit of exploration activity is to try and determine that fault offset and find the continuation in the middle vein near surface to the Southeast.

Unidentified Analyst

Okay, fine. I saw that most of the – with the exploration spending in the first half I believe you had said something like 40% was spent at Greens Creek and 19% at Saint Sebastian. Would you expect similar percentages to be spent on exploration of the second half?

Dean McDonald

Generally not the exploration at Greens Creek, a sizeable portion of that is surface exploration and that program will likely end at the end of – mid to end of August. So those expenditures will drop dramatically. With San Sebastian we have some additional work but again both Greens Creek and San Sebastian in the second half those expenditures for exploration should go down quite dramatically.

Unidentified Analyst

Okay. Then where will the difference be spent?

Dean McDonald

Well in generally as we talked about earlier there have been significant cuts in the exploration the latter half of the year because of seasonal – for any work in Alaska, Idaho is that it needs to be done over the summer. It then quickly declines. So really the latter part of the year is really digesting the information that’s been generated both in the second quarter and through to the end of August.

So overall Anthony we’re not going to be spending a lot of money on exploration third and fourth quarter.

Phil Baker

Yeah I mean third is relatively about $5 million to $6 million in the fourth quarter is probably half of that. So it does trim off pretty dramatically. Part of it is we’ve just made a conscious decision to do that in light of the lower prices.

Unidentified Analyst

Okay. Very good. All right. Thank you for answering my questions.

Phil Baker

Sure thanks for calling.

Operator

Our next question comes from the line of Trevor Turnbull with Scotia Bank. Please proceed.

Trevor Turnbull – Scotia Capital

Hey guys.

Phil Baker

Hi Trevor.

Trevor Turnbull – Scotia Capital

I just have the quick question for you Phil on the guidance you’ve given for Casa here in the second half. You were pretty clear about kind of how the ounces are going to break down between third and fourth quarters. But I’m wondering kind of what the swing factors are, is just going to be a pretty big change in tonnage or I’m assuming that’s more going to be changes in grades, say from Q2 into Q3 and the Q4. Can you just give us a sense of how that trend is changing over the next couple of periods?

Phil Baker

Well I do not have that in front of me and I don’t know if Larry does. But our mill grade is higher in the fourth quarter. I don’t remember the tonnage difference between the two quarters. Larry do you have that with you?

Larry Radford

Yeah what do you want you want the first half second half..?

Trevor Turnbull – Scotia Capital

Well just roughly speaking relative Q3 versus Q4 is the grade is, is it the grade or the tons that is really driving two-thirds of the production coming in the fourth quarter.

Larry Radford

It’s both. Roughly we got 33% more tons in the fourth quarter than the third and the grade is of on average it’s about a full gram from the third and fourth quarter.

Trevor Turnbull – Scotia Capital

Okay. And so were you kind of looking to exit 2013 running at about 2000 tons a days is that a good kind of target that you’re shooting for?

Larry Radford

That’s exactly right.

Trevor Turnbull – Scotia Capital

Okay. That’s all I had on cost. I just a quick question I know you get asked this a lot and I just can’t remember. Up at Greens Creek you do get the benefit of hydroelectric power sometimes and other times not so much. Can you remind me is that a seasonal thing or can that kind of happen anytime during the year just dependent on the weather?

Phil Baker

Well number one it’s a yearly thing. Some years there is just more precipitation than others, that fill the dam up. And so some years we’ve had power almost the whole year. Other years like this one it’s – has phased in and out. So it’s really hard to predict when that will occur. We have a few months this year where we are getting hydro, but for the most part it’s – this is a diesel generated year.

Trevor Turnbull – Scotia Capital

And so kind of once you get to this point in the year, you assume you are probably going to – you are not going to get a lot of relief until next spring when the run-off starts again.

Phil Baker

Yeah, do you remember is it October that we are projecting that we will be on hydro, Larry?

Larry Radford

It’s up to October, we run hydro then we go back to diesel.

Trevor Turnbull – Scotia Capital

Yeah, okay. All right. Thanks Phil.

Phil Baker

Sure thing.

Operator

Ladies and gentlemen this concludes the time that we have for question today. I will now turn the call back over to Mr. Phil Baker for closing remarks.

Phil Baker

Okay, thanks very much for being on the call today. If you do have any questions please feel free to give Mike a call or me and have a good day. Thank you so much for being on the call. That concludes it operator.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.

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