Hecla's (HL) CEO Phil Baker On Q2 2014 Results - Earnings Call Transcript

Jul.31.14 | About: Hecla Mining (HL)

Hecla Mining Company (NYSE:HL)

Q2 2014 Results Earnings Conference Call

July 31, 2014 10:00 AM ET

Executives

Mike Westerlund - Vice President IR

Phil Baker - President and CEO

Jim Sabala - SVP and Chief Financial Officer

Larry Radford - SVP Operations

Dean McDonald - SVP Exploration

Analysts

Jorge Beristain - Deutsche Bank

Garrett Nelson - BB&T Capital Markets

Joseph Reagor - Roth Capital Partners

Trevor Turnbull - Scotiabank

David Bond - Platts Metals

Operator

Good day, ladies and gentlemen. And welcome to the Second Quarter 2014 Hecla Mining Company Earnings Conference Call. My name is Derek, and I’ll be your operator for today. At this time, all participants are in a listen-only mode. We shall facilitate a question-and-answer session at the end of the conference. (Operator Instructions)

I would now like to turn the conference over to Mr. Mike Westerlund, Vice President Investor Relations. You may proceed.

Mike Westerlund

Thank you, operator. Welcome everyone and thank you for joining us for Hecla’s second quarter 2014 financial and operations results conference call. Our financial results news release that was issued this morning before market opened. Along with today’s presentation are available on Hecla’s website.

On today’s call we have Phil Baker, Hecla’s President and CEO; Jim Sabala, Senior Vice President and Chief Financial Officer; Larry Radford, Hecla’s 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 Laws 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 this 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. This has been strong second quarter for Hecla with all three mines operating well in a strong price environment. Let's look at some of the key highlights on slide three. Our silver production is up 12% quarter-over-quarter as Greens Creek continues to produce solidly and Lucky Fridays fully operational. Our gold production is up 96% quarter-over-quarter, mainly due to the acquisition and successful integration of the Casa Berardi mine. This has been a good quarter and Jim and Larry will provide more details in a few minutes.

These production increases come at a time of rising metals prices, of particular note is zinc which is risen sharply over the past several months, it’s up about 21% since the beginning of the second quarter. The prospect for continued improvement in zinc price looks good. Since we only hedge a portion of the production, we will capture those higher prices both for today and into the future. Our hedging program has been successful accomplishing what we said out for it to do and I’ll let Jim talk about it a bit later.

The real benefit from increasing production and a rising price environment comes when you look at our financial results. Revenues are up 38%, operating cash flow is up $27.7 million, adjusted EBITDA up 18% and cash cost after byproduct credits per silver ounce declined over the prior year period and is on its way to being even lower for the full year.

We made the commitment at the beginning of the year that we would operate within adjusted EBITDA in order to preserve our financial strength. And I am happy to report that we continue to meet that objective. We will end the second quarter -- we ended the second quarter with $222 million in cash which when you remove the $14 million in warrant proceeds, it leaves about $208 million which was the cash balance at the end of the first quarter.

Finally our exploration results at San Sebastian, Casa Berardi and Greens Creek are exciting. Some of the intercepts at San Sebastian’s middle vein are over one ounce gold equivalent. The results at Casa are the best we have seen in the year we’ve owned it. And at Greens Creek exceptional drill results are the norm. Dean will talk more about them.

So what does the remainder of the year look like? As indicated on slide four and in our new release, production guidance is reaffirmed. Our cash cost after byproduct credits guidance for Greens Creek is lower to $3 per silver ounce, down from the previous guidance of $5. Company-wide, our new cost guidance is about 25% lower going from [650] to $5.

When you look at our growth profile, we expect to produce 20 million of silver equivalent ounces in 2014, looking at precious metals only, which if achieved is about double the 10 million silver equivalent ounces we produced in 2012.

And earlier this month, we announced promotion of Mark Board to the position of Vice President - Technology and Innovation from Director of Geotechnical Engineering. Mark is a world class rock mechanics engineer with over 35 years of experience, PhD from the University of Minnesota and was recently elected as a member of the National Academy of Engineers. The NAE along with the National Academy of Science provides what is considered unbiased advice to Congress and government agencies on technical issues. There have only been about five mining professionals inducted in the history of the NAE, which is about 50 years.

We now have Geotechnical Engineering teams working largely at Mark’s direction in each of the mine. So we vest Mark to also focus on technology and innovation. Given our mine’s expected mine life, I think this is known and justified but required. If you consider the history of Hecla, which is over 100 years, it's because of the innovations we’ve applied the mines like the Lucky Friday where we were in earlier developer of pace fill and underhand cut and fill mining.

And in the same way, we individually have been changed by new technologies. Think about the iPhone, the iPad. Well the same thing is happening in the mines, real time and continuous data capture and analysis is moving underground. Photo technology is being used to understand the movement of rocks; battery powered and autonomous and semiautonomous equipment is already operational in some mines, just to name a few. And Mark is going to lead the focus on how we use these and other technologies to improve our long-term performance. I am excited by this effort because I think there is the potential for multiple game changers to make our mining both safer and more profitable.

And I will turn the call over to Jim for the second quarter financial review.

Jim Sabala

Thank you, Phil. The second quarter of 2014 can best be described as a quarter of continuing improvement compared to the same period last year. We saw improvement in our key financial metrics, the production of both silver and gold and increased realized metals prices.

On slide six we summarized the key financial metrics for the second quarter of 2014 compared to last year’s quarter. Revenue increased 38% to 118 million, adjusted EBITDA increased 18% to 40 million, operating cash flow has increased by $28 million and cash cost after by-products credit per silver ounce declined 4% to $5.34. These results have come about for several reasons, including continued consistent operations and a continued availability of low cost electric power at Greens Creek, increased production at Lucky Friday as our operations ramped up and the benefit of consistent operations at Casa Berardi as our optimization efforts there continue. As we are all aware when the mining company comes down to efficient production and in that area we have also shown improvement for the second quarter.

On side seven you can see our silver production increased 12% to 2.5 million ounces mainly due to increased production at Lucky Friday. In addition our gold production increased to 43,000 ounces almost double what it was in the second quarter of 2013, primarily the result of our acquisition at Casa Berardi on June 1st of last year and continued production at Greens Creek.

When we acquired Casa Berardi, we knew there are number of areas that the mine that we believe we can improve on and as a result of the work by the staff of the Casa Berardi mine and the Hecla technical team that has been working non-stop there, we expect to see the benefits of improving the projects during the course of 2015. The solid production improvement combined with a careful attention to cost by our operators and strength in the base metals market has allowed us to continue to report industry leading low per ounce cash cost after by-products credits and strong margins.

As shown on slide eight, silver operations continued to deliver a strong cash margin in the first quarter of 73% of sales or $14.28. Our cash cost after by-products credits per silver ounce of $5.34 is a reduction of 4% over Q2, 2013 and remains at the low end of the spectrum for our industry. And of course improving metals prices is to not hurt.

During the quarterly average realized price for all four metals we produced improved as shown on slide eight. For the quarter, our average realized silver price was up 21%, gold 4%, zinc 12% and lead 8%. Hecla now offers the investor a truly diversified revenue stream with 40% of our revenue from gold, 33% from silver, 14% from zinc and 13% from lead. In addition, we have an active hedging program, which seeks to reduce price risk associated with our forecast base metals production, while still allowing some upward participation in base metals prices.

And when we have an uptick in metals prices, people often ask why do you hedge? In Hecla's case, it comes down to the following. It brings consistency to our operating performance, reducing operating volatility allows us to maximize asset value over the long-term, if we have predictable cash flows. Second, it preserves our ability to service our debt, as evidenced by the outstanding market performance of our bonds. And thirdly, it allows us to continue long-term capital investment in business development activities unimpeded by short-term variables. And we do it in a way to preserve some of the upside. For example on slide 11 through 2016 we have locked in about $190 million of revenue. But importantly we have preserved a large portion of the upside and price continue to strengthen. For zinc we have prices guaranteed of just under $1 but we have flexible pricing for 53% of 2015's metal, 69% of 2016 and all of 2017's production.

A similar situation exists for lead. Our hedge booked is prices from $1.03 to $1.07. We have 44% of 2015's metal, 55% of '16 and all of the subsequent years available. As we have previously communicated one of our goals during 2014 is to operate within adjusted EBITDA. As you can see on the cash bridge on slide 12 adjusted EBITDA was 39.8 million compared to our discretionary expenditure of 35.2. With metals prices move significantly in the coming quarters we could adjust discretionary expenditures and modify our business plan as appropriate.

So as demonstrated on slide 13 we finished the quarter on the back of strong operating results with the contribution from all three of our long lived minds and excellent liquidity. We have 222 million in cash and equivalents and including our revolver we have a total of over 320 million in total liquidity available to the company. Of this about $14 million were warrant proceeds which were paid under the Coeur d’Alene Basin settlement early in the third quarter. We expect the final payment to come later in this quarter as the final batch of warrants comes due on August 10th. And with that the final payment to the government that decades old legacy liability is extinguished.

With that now I would like to turn the call over to Larry for a review of operations.

Larry Radford

Thanks Jim. On the operating side Lucky Friday continues to impress showing a 17% increase in production over the first quarter and 278% over the prior year period as you can see on slide 15. The higher volume of our 821,000 ounces of silver has led to lower cash costs after by product credits for silver ounce of $9.10. The mine is running well. We recently had a tour of bond investors and analysts through the mine and the feedback was what we already know the mine is orderly in business like and our miners are experts. We are now running a record seven [stops].

Regarding the #4 Shaft project on slide 16, we’re approaching the 7,500 station and the shaft is more than 68% complete. We’re on track for completion of this $215 million budgeted project in 2016. The #4 Shaft project is designed to give us access to higher grade ore zones, potentially increasing silver production at Lucky Friday to the 5 million ounces per year rate as soon as 2017. I’m particularly pleased to note that the #4 Shaft team has worked nearly a 1,000 days without lot time accident.

On slide 17, Greens Creek had another consistent quarter producing 1.7 million ounces at a cash cost after by product credits per silver ounce of $3.52. The reduction in silver ounces produced is due to mine sequencing and has contributed to slightly higher cost, although by industry standards they are very low and are well within our guidance for the year. The cost continued to be helped by the availability of hydro power which we expect to last through the third quarter. The plant expansion of the Greens Creek Tailings Facility continues to work its way through the permitting process. If all permits are received as anticipated, constructions should begin in 2015.

On slide 18, you can see the Casa Berardi has produced 28,623 ounces of gold in the second quarter at a cash costs after by product credits of $952 per gold ounce. The small drop in production from the first quarter contributed to the higher cash costs. This brings the mine production about 122,000 ounces gold since we acquired it on June 1, 2013.

We continue to work on our plan to optimize Casa Berardi's operations as this undergoes the transition from mining zone’s West of West Mine Shaft to mining zone’s East of the shaft. We've brought 118 and Principal Zones in the production. The Principal Zone has surface ramp access which is allowed for increased tonnage.

So far we have identified about $140 million in potential improvements over the life of the mine in recoveries and reduced dilution and in reduced need for development. We expect to really start seeing the benefits of these programs in 2015.

In slide 20, you could see some images from the shaft deepening project at Casa. The project that was originally started by Aurizon who deepened the West Mine Shaft by 340 meters has now reached the shaft bottom. This project is expected to provide additional access to the 118 zone, improve ventilation, provide lower cost material handlings and it enabled deeper exploration.

We continue to expect the shaft work in loading pockets to be finished late (inaudible). Commissioning will require the shaft to be down for about two weeks and we will be paid by the end of the third quarter when the optimal time is for this to take place.

I'll turn the call over to Dean for exploration and pre-development.

Dean McDonald

Thanks, Larry. Our exploration and pre-development budgets have been more restricted this year, but this has not stopped us from systemically adding new resources at our mines and projects and continuing to convert those resources to reserves extending mine life at all the Hecla mines. During the quarter, we had active underground drilling programs at Greens Creek, Casa Berardi, and on Lucky Friday and on surface at San Sebastian, Greens Creek and in Quebec.

There has been considerable success in drilling high grade intersections at the three mines in San Sebastian and a table of recent intersections can be found at the end of the Q2 press release.

At Greens Creek, we continued to deliver high grade drill intersections that will add resources along the 200 South and Southwest bench trends as shown in slide 22 and upgrade resources to reserves at Deep 200 South, 5250 and West Wall zones. In the next two quarters we expect to complete more exploration in definition drilling in these areas which should boost resources and reserves and continue to extend mine life.

On surface, drilling in the Killer Creek area North, Northwest of the mine has begun to follow up on broad high grade stockwork mineralized zones defined by surface drill programs in 2012 and 2013 and evaluate the deeper mine contact. We have been very active at Casa Berardi with extensive definition and exploration drill programs as shown on the longitudinal section in slide 23. Recent drilling programs have been very successful at upgrading and expanding resources in the 113, 118, 124 and 140 zones.

The improved coordination between surface and underground teams is giving a renewed focus to our exploration program and is resulting in some of the highest grade intersections since we acquired the mine, confirming our strong belief in its exploration potential.

We are particularly encouraged at the 124 and 140 zones where strong mineralization extends down plunge from near surface to depths up to 1500 feet. A review of the Southwest zone has been a catalyst for new resource modeling and mine planning in the area and where considerable proportion of this resource could be brought into the life of mine plans as new reserves.

At one of our more advanced exploration, pre-development projects, the San Sebastian property near Durango, Mexico, we had considerable success in adding and upgrading new high-grade silver-gold resources in the Middle Vein, as shown in the longitudinal section in slide 24. Drilling pierce points shown in the longitudinal represent the drill spacing required to upgrade the resource to an indicated category and define some very high-grade zones within 300 feet of surface.

The list of recent intersections as shown in the press release includes some spectacularly rich intervals including 84 ounces per ton silver and 0.32 ounces per ton gold over 9.5 feet and 79 ounces per ton silver and 0.12 ounces per ton gold over 6.6 feet. These are some of the highest grade intersections identified in the history of the property, reintegrating our search in the immediate area for new veins.

As shown in slide 25, shallow drilling and trenching results in the vicinity of the Middle Vein reveal a number of prospective new surface targets such as the North Vein and extension veins that we expect to evaluate by drilling in the next two quarters.

Metallurgical test work of the Middle Vein mineralization with related mill design and mine optimization continued to advance this project towards a potential production decision. Finally, at the San Juan Silver project, we are making steady progress in permitting and engineering design.

And with that I'll pass the call back to Phil.

Phil Baker

Thanks Dean. Operator, I would like to open the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions). And your first question will be from the line of Jorge Beristain.

Jorge Beristain - Deutsche Bank

Hi. It's Jorge with Deutsche Bank.

Phil Baker

Hi, Jorge.

Jorge Beristain - Deutsche Bank

Hey. Just a question I have is given how well zinc has done year-to-date, if you could just refresh us on the sensitivities. Particularly at Greens Creek if you were have move to say using about $1 baseline for zinc and also remind us of where you are in the hedging, how many orders forward and when we could start see the real flow through of higher zinc prices on your unit cost up there?

Phil Baker

Jim?

Jim Sabala

Sure. Jorge, in terms of cost per ounce which is the benchmark statistic, $0.01 change in zinc price this year impacts cost per ounce in the second half about $0.16 an ounce.

Jorge Beristain - Deutsche Bank

So order of magnitude, given that we're seeing -- I think you’re using about a baseline right now of $0.80 right?

Jim Sabala

Right.

Jorge Beristain - Deutsche Bank

So, we’re talking doing the math is that 3 bucks…

Jim Sabala

$0.01 times, 25 times 16, whatever that math we accept it.

Jorge Beristain - Deutsche Bank

The $0.20 time 16, so that's what I am asking. It looks like you’re carrying a pretty hefty tailwind there. And I just wanted to understand when would that or could it actually start impacting your results given that you’re kind of hedged I guess.

Phil Baker

Well it impacts us right away because we don’t hedge 100% of it. Our policy called it for a maximum loan is 60% and we’ve not never got there and I think as indicated on slide 11 that I’ve got, we’ve got a 37% of our forecast zinc hedge, so that means 63% is open and then for 2015, 53% is available; for 2016, we’ve got 69%. So, there is tremendous sensitivity to both the zinc and lead right from the get go.

Jim Sabala

So you’ll start seeing given that the price increases really happened in the second quarter, it starts to flow through in the third quarter given the way that the pricing is on the shipment side at Greens Creek.

Jorge Beristain - Deutsche Bank

Sorry, we’ll start to see that in 3Q?

Phil Baker

Yes. We start seeing in the 3Q given the way the pricing is on the shipment side of Greens Creek.

Jorge Beristain - Deutsche Bank

Okay.

Jim Sabala

And really I’ve said in 4Q.

Jorge Beristain - Deutsche Bank

And then could you also just comment a little bit on the energy situation with hydro up there it wasn’t quite clear you’re saying that there was volumes were impacted by lack of electricity, but on the other hand it looks like you’re reducing costs quite a bit because of lower electricity prices, so if you could just explain that.

Phil Baker

So volumes are not impacted by lack of electricity, so if we gave that impression that’s not the case. What we do have is the availability of hydro and it looks like it will be through the third quarter and that is a function of how much water is in the dam. We’re the last recipient at hydro power, so when the water runs low then we’re removed from the system. So that's what we're trying to say that we think we'll continue to have that lower cost hydro in the third quarter. But it does not affect our volumes, I mean if we don't have hydro, we just diesel, generate diesel power.

Jorge Beristain - Deutsche Bank

Okay. So then what was the main driver then for your lower outlook for costs in 2014?

Phil Baker

Well, as we go forward with the third and the fourth quarter, you see just lower costs, realize that we had some one-time cost that related to employees bonuses from the prior year that hit in the second quarter, we won't have that in the second half for the year and there are some other cost of that sort, that will allow just the actual cost to be lower in the second half of the year and we'll have slightly higher production.

So those two things will is what's allowing the cash cost per ounce the guidance to be $3 for the second half for the year, for the whole year, on average for the whole year.

Jorge Beristain - Deutsche Bank

Got it. Okay. Thank you.

Phil Baker

Okay. Thanks Jorge.

Operator

Your next question will be from the line of Garrett Nelson, BB&T Capital Markets.

Garrett Nelson - BB&T Capital Markets

Hi, everyone.

Phil Baker

Hi Garrett.

Garrett Nelson - BB&T Capital Markets

Hi. Congrats on being able to lower your full year silver cash cost guidance, it's definitely good to be a low cost producer in this price environment. As the largest U.S. silver producer, I'm curious to hear your perspective on silver market fundamentals, it seems to be just supply overhang which is why prices continue to hut around $20 ounce plus or minus. When do you think prices will finally breakout of this range that they are in right now and does it feel like fundamentals are improving on the demand side specifically?

Phil Baker

Well yes, I think in the short-term silver will track with gold to a large degree and so the same factors that caused gold to move will drive silver. In the longer term and the longer term being sort of a two to three year time frame, it really becomes I think the silver price gets tied to economic growth worldwide. And as we see that occur as people are consuming more of the products that have silver in them, I think you will see silver disconnect from gold and move higher and substantially higher overtime.

As far as -- it sure seems like the economy is improving in the United States, it’s not quite as clear and around the world, so it’s a little bit of a mix bag and sort of in the short term. Jim do you want to add anything to that, no.

But we are very, very optimistic for the price of both gold and silver, both short and long-term because you’ll look at all of the things that are happening around the world, things seem to be getting politically more difficult, yet at same time you are seeing better economic growth in certainly certain regions of the world.

Garrett Nelson - BB&T Capital Markets

Okay, great. Thanks for those thoughts. And then I wanted to ask about uses of cash, your cash balance increased by about $16 million sequentially again good to be a low cost producer, have you given any thought to increasing the dividend, buybacks or is your strategy to keep plenty of cash available on the balance sheet for acquisitions which you talked about a bit at the investor day. And then on that front have there been any developments or are you still looking at acquisitions?

Phil Baker

Yes. So with respect to our cash, remember that the warrant proceeds will be used to make the final payments on the Coeur d'Alene Basin litigation that was settled a number of years ago. So, we'll take those warrant proceeds and do that both, the warrant proceeds that we received in the second quarter as well as those in the third.

So, that's number one. Number two, we made a commitment to spend within EBITDA and we will do that. To the extent that we have additional resources, I think our first priority are some additional capital programs and additional exploration programs. And so we'll be evaluating whether we can increase those programs and still meet the commitment to spend within EBITDA.

Then beyond that, we're certainly looking at acquisitions and spending fair bit of time of evaluating these opportunities. They are frankly few and far between defined assets that you really believe are properly valued in the market.

So, we don't have to stretch, we think we have assets that provide consistent operations, consistent production, consistent cash flows and we think we have growth in those assets. I mean, the Lucky Friday is going to move to be a 5 million ounce provider. We are very excited with what we see at San Sebastian, there is more work to be done, but we think that will be a growth asset for us.

And San Juan and other assets that we're evaluating could fall into that same category overtime. So, we'll continue to look at trying to acquire assets, but we don't feel compelled to have to do something to improve the outlook for the company. Guys anything you all want to add to that?

Garrett Nelson - BB&T Capital Markets

Okay. And then could you remind us a bit the quarterly settlement amount and the specifics regarding that?

Phil Baker

Yes, Jim go ahead.

Jim Sabala

Yes. The first tranche which we have which ties to the series one ores, that were exercised is approximately 14 million. And that was just remitted within the last day or two. And then final payment which will occur during the course of this quarter is around $41.5 million.

Phil Baker

And that was part of I think $253 million settlement, $263 million sorry, $263 million that was entered into back in 2010. And this is the final payment over the course of those four years. We're very glad to get this behind us, it shows our commitment though to managing our environmental liabilities, most of the other players in the silver valley that were subject to this liability went bankrupt and they were not able to fulfill their commitment we've been able to do that. So lot of money and it's pretty amazing that a company of our size has been able to generate the cash flows to be able to do this.

Jim Sabala

And just to clarify that final payment we will expect to come from the exercise of the warrant proceeds.

Garrett Nelson - BB&T Capital Markets

Right. Okay, thanks a lot Phil and Jim.

Phil Baker

Thanks Garrett.

Operator

Your next question is from the line of Joseph Reagor, Roth Capital Partners.

Joseph Reagor - Roth Capital Partners

Good morning guys.

Phil Baker

Hi Joe.

Jim Sabala

Hi Joe.

Joseph Reagor - Roth Capital Partners

Hi. So, I am so sorry if you touched on, but I noticed that you guys combined your exploration discussions of Fayolle and Opinaca in the press release and then you’ve found two additional new structures near Fayolle. Are you looking at these as kind of a joint project now and is that something to do with those new structures kind of create a potential for camp there?

Dean McDonald

Joe, this is Dean. The two projects are quite distant from one and other. So, Fayolle is fairly close to Casa Berardi and in time, we may find some synergies there. Opinaca is quite a bit further north in the vicinity of the Eleonore project of Goldcorp’s. So, there is no expectation that Fayolle and Opinaca will be worked in any kind of form together.

Phil Baker

And we just put that information together just to be talking about our Quebec activities. That sort of how we manage that. We have a team of explorationists who are working on both of these projects.

Joseph Reagor - Roth Capital Partners

Okay. That’s fine. And then on those two new structures, when could we expect some result on those and you mentioned the discovery of them, but I don’t know, do we have any asset results there yet?

Dean McDonald

With Fayolle, we’ve completed the program for this year. With Opinaca, there is crews in the field right now. That work is primarily field work trenching, sampling. Once we’ve digested those results, that may lead to some drilling at Opinaca later this year.

Joseph Reagor - Roth Capital Partners

Okay. And then just kind of a big picture question, with the issues with the Mexican tax litigation kind of putting a damper from Mexican projects and it sounds like the other projects that you have are earlier stage. Are you guys considering maybe putting some of the cash or if your valuation improves compared to some of the smaller companies out there that are cash trapped; are you guys look at acquisitions?

Phil Baker

Yes, Joe, we are. And that's one of the things that we think we bring to investors as a company with the strong enough balance sheet to be able to come in and gauge on projects that are attractive and projects that we think we can generate good returns on. So we’re spending a lot of time evaluating smaller things that we can use cash to be able to do.

Joseph Reagor - Roth Capital Partners

Okay. That covers it for me. Thank you.

Phil Baker

Thanks Joe.

Operator

(Operator Instructions). Your next question is from the line of Trevor Turnbull, Scotiabank.

Trevor Turnbull - Scotiabank

Hey guys. I had a quick question on some of the operations. Looking at Lucky, you had pretty good grades in the quarter, silver grades. And it looks like they were about as high as they've been going back-to-back 2011. And I was just wondering if that's the trend we should think about for the second half of the year or it should be closer to the kind of the Q1 2013 grades which weren’t quite as high as Q2?

Phil Baker

Go ahead.

Dean McDonald

Yes. I think our grades have plateaued and what you see is pretty much rolling out for the rest of the year. Our guidance is still maintained and we believe will come in a little bit above guidance.

Phil Baker

Yes, the 3 million ounces is the right number.

Trevor Turnbull - Scotiabank

Okay. And then I have pretty much the same question but kind of from the opposite perspective at the Greens, grades were just slightly below where they have been for the last little while on the silver side at least. And I apologize, I did miss the very opening comments, so if you addressed that. But just wondered again, are we kind of where we should be for the second half looking at Q2 or is there a bit of a rebound on grade?

Phil Baker

Well we produced a little more silver in the second half of the years and that’s why our costs are going to be lower. So grades are -- I don’t remember if it’s tonnage or grade.

Dean McDonald

We are running at Greens Creek at 2,200 tons a day and it’s pretty consistent, so what’s varying is just the grade and that’s just varying according to the mine sequencing. Our guidance is as Phil did.

Phil Baker

Yes. So it’s going to be slightly higher grades.

Trevor Turnbull - Scotiabank

Right, okay. Because you have that mill runs pretty much on that 2,200, it seems like, doesn’t seem like there has been a lot of variability there. So yes I would expect it to be the grade. That’s really all I had. Thanks Phil.

Phil Baker

Okay, thanks Trevor.

Operator

Your next question will be from the line of [Christopher Alex], Private Investor.

Unidentified Analyst

Good morning.

Phil Baker

Hello Christopher.

Unidentified Analyst

Hell there. My question is kind of just regarding your investments in the small junior companies and more specifically Brixton Metals and how it fits into the growth profile for Hecla?

Phil Baker

Well look we look at some of these investments as junior companies as an opportunity to come into them in a weak price environment for junior is their access to capital is fairly limited and we're very, we have a positive view of both the asset and the management of Brixton, we think they've done a good job up there, we have both the technical team, technical involvement as well as being involved on the board. And so we're quite supportive of what they are doing.

And we look at it as something that we see needs to develop and we'll continue to be as supportive as long we see an opportunity for this thing to turn into a mine. I mean that's ultimately what we're focused on.

Dean, is there anything you want to add?

Dean McDonald

Yes, just with Brixton. It's been a very challenging market for juniors. My feeling is Brixton has managed their money well, they've run programs technically that we think are very sound. And we still believe that property holds the potential for a large discovery.

Unidentified Analyst

Excellent. Thank you. So I got it's safe to say that you would participate in future financings of Brixton?

Phil Baker

It just depends on everything else that's going on with us, remember we've made a commitment to spend within EBITDA. So that's the first…

Unidentified Analyst

Yes.

Phil Baker

..thing that has to be achieved. And then there is all sorts of other considerations. So I'm not going to make any promise with respect to any future financings. What I can tell you is where the things are right now which is we are quite supportive.

Unidentified Analyst

Sure, great. Thank you very much for your time.

Phil Baker

Alright. Thanks Christopher.

Operator

Your next question is from the line of David Bond, Platts Metals.

Phil Baker

Hi, David.

David Bond - Platts Metals

Hi, Phil and Jim and everybody else there.

Phil Baker

How are you? Good morning.

David Bond - Platts Metals

Well I am great. I wanted to ask you guys if the class of the London silver fix is going to have an impact on your smelter settlements and maybe your larger thoughts on that event?

Phil Baker

Look I -- it will not impact our contracts. We have renegotiated all of the contracts with utilizing what will be the new standard and that will become effective next month. So I think it's a non-event the changing of how this is done and I think in fact it will be better that it will be more transparent than what we’ve had with the existing silver fix. Jim, anything to add?

Jim Sabala

No, I can tell you that I had participated in a number of seminars between CNE, Thomson Reuters and they’ve done a very good job of putting together a platform. They will provide the information that still serves. We've concluded that we'll use the current fix through roughly in the middle of the month and then it will take over and we will average the two and then will be on the new platform going forward.

David Bond - Platts Metals

Alright, Thank you gents.

Phil Baker

Thanks David.

Operator

Your next question would be from the line of Davis [Schecter], Private Investor.

Unidentified Analyst

I am sorry I was going to ask you about the silver fix as well you just answered the question.

Phil Baker

All right thanks Davis.

Unidentified Analyst

Good bye.

Phil Baker

Okay. I think that concludes the questions. There just a couple of things I want to say in conclusion, and this is what I hope you take away from the conference call is that the financial operational and exploration performance is consistent system with the expectations we set earlier in the year. We said at the beginning of the year that we would spend within adjusted EBITDA and we’re going to produce ounces that have great margins and we are going have exploration success at our large prospective land packages and we’re going to maintain a strong balance sheet. That’s what we said we were going to do and we think we’ve done all of that. And for the remainder of the year, we expect to keep delivering on these promises and start the mine optimization there both medium-term impacts and that would be the sort of work that we’re doing at Casa for example and long-term which would be the sort of work that mark forwardly. We think that zinc and lead prices will continue to be strong and with our limited hedge program, we’re going to benefit both now and in the future. And we think this is something that sets us apart from our peers. So, I look forward to talking to you again at the end of the third quarter to update the progress on all these items.

With that, we’d like to end the conference call. Thanks so much for participating.

Operator

Ladies and gentlemen, that concludes today’s conference. We thank you for your participation. You may now disconnect. Have a great day.

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