Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Hecla Mining Company (NYSE:HL)

Temporary Care and Maintenance at Lucky Friday Mine Conference Call

January 11, 2012 1:00 pm ET

Executives

Mélanie Hennessey – Vice President, Investor Relations

Phillips S. Baker, Jr. – President and Chief Executive Officer

Lawrence P. Radford – Vice President, Operations

James A. Sabala – Senior Vice President and Chief Financial Officer

Analysts

Trevor Turnbull – Scotia Capital

David Peirce – Royal Bank of Canada

Steven Butler – Cannacord Genuity

Gerald Chase – Pera-Smith Capital

John Bridges – JPMorgan

Chris Lichtenheldt – UBS Securities

Tony Christ – Capital Securities

David Bond – Platts Metals Week

Duff Armstrong – Armstrong Financial

Shiben Zee – RCM Capital Management

Theodore Karl Geoca – Maxout Savings Advisors LLC

David Peirce – Royal Bank of Canada

Operator

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

I would now like to turn the conference over to Vice President of Investor Relations, Ms. Mélanie Hennessey. You may proceed.

Mélanie Hennessey

Thank you, Barack. Welcome, everyone. And thank you for joining us on today’s call to discuss the latest developments at the Lucky Friday Mine. Our news release, which was issued this morning before market opened is available on Hecla’s website. Phil Baker, Hecla’s President and CEO; Jim Sabala, Senior Vice President and CFO; and Larry Radford, Hecla’s new VP of Operations have also joined us on the call today.

Before we get started, I need to remind you that any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act. They involve a number of risks that could cause results to differ from projections.

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 such terms 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 over to Phil Baker, Hecla’s President and CEO.

Phillips S. Baker, Jr.

Thanks, Mélanie. This is Larry Radford’s first call with Hecla. He has been our Vice President of Operations for the past two months and has been dealing with this issue almost all of his time over the last little while has been on this issue. As we announced in the press release, we have been ordered to clean the built-up material in the shaft of the Lucky Friday. This is the silver shaft. This silver shaft was commissioned in 1983 and it’s been in almost continuous operation since then, it’s an 18-foot diameter shaft, and it’s over a mile deep. If you go to the – I guess the webcast, there are some slides available. if you go to the webcast, you can see a slide that shows a picture of the silver shaft at least the bottom, I’d say about half of it, and it shows the place where we’re currently mining on the 30 vein, and the work that we’ve talked about for sometime on the #4 shaft.

The shaft that we have is over a mile deep. it’s one of two ways that we have to get into the mine, the other is #2 shaft and that’s the shaft that was built in about 1960. In order to produce from the mine, it was necessary that we have two entrances to the mine. So we’ve had the silver shaft and the #2 shaft with the order that requires that we clean this shaft. We only have one entrance. So we are not able to operate and produce ore.

This silver shaft is divided into two compartments; the east compartment has two conveyances in it for men and materials and for rock. The west compartment is essentially unused and has been for the past 30 years. Also, within the shaft is, power lines, vent lines, sand lines. The sand lines are a tailings-concrete mix of material that goes back into the mine and acts as the backfill.

Occasionally, these sand lines over the past 30 years have leaked – have leaks in them, depositing cement-like material on the walls of the shaft in various lines. We had a rock burst in – two rock bursts over the course of November and December in the mine. and those rock bursts, if you look at that drawing on the website, we’re on the 5,900 level, and that level is a mile-long tunnel. A mile-long haulage way. And so those rock bursts that we had, we’re well into that tunnel, not quite the full mile distance. But very close to where you see the 30 vein, in fact right at the 30 vein, now that I mention it.

So it is roughly a mile away. So the thing, the inspection that has occurred with respect to the silver shaft were not – was not specifically related to the rock burst, but it was done by MSHA, they’ve come in and done a thorough investigation and inspection of the whole operation, including the silver shaft. And so they issued a – what is called a citation, saying that we needed to clean the loose material, which we cleaned the material, but when they came back in, they concluded that the material needed to be cleaned further and we had not met the time constraint that they had given us, which was 10 days. And so under the order that they issued, we are not able to use the shaft for anything other than the cleaning of it.

Now, we believe that there’s no hazards to miners in the conveyance and any hazards to the miners on the work deck that’s used to inspect and repair and maintain the shafts are mitigated. But MSHA’s belief is that the shaft needs to be cleaned down from the surface to the bottom as the best way to mitigate any hazards that would exist in the shaft. And we’re going to discuss with MSHA, if there’s other purchase that could be better and we will certainly consider if an administrative appeal is appropriate. but in the meantime, we are in the process of planning the clean-downs from the surface, and the release we gave today is an indication of that. But when we think about the financial impact on Hecla at least initially, it’s minimal since the Luck Friday roughly spends the cash flow it generates and investing in the #4 shaft and the other things that it does.

So what this primarily does is delay the access to the higher-grade deeper material. and then of course, there’s the holding costs and the cleanup costs that are associated with this and I don’t know order of magnitude $28 million is probably the best guess that we have at this point. Well, certainly we’ll spend more time working through what our holding cost would be in the cost of the cleanup.

As a result of the Lucky Friday being down, we will only produce 7 million ounces of silver, which will come from the Greens Creek mine. The main point that I guess I want to end with, and then I’ll be happy to take questions is, we have the need to get the silver shaft back up and running. and we are prepared to do this clean-down in order to get that to happen, because we’re very confident in the future of the Lucky Friday, it is a great ore body. It has great employees and it has a very long future in front of it.

And before I – I’ll make one other comment before I take questions and that is with respect to the employees. There will be a reduction in force at the Lucky Friday, I’m not sure exactly what it will be, but between our employees and contractors, I’m sure it will be well in excess of 200 employees that will be, and contractors that will be affected by this. We’ll be actively working with various agencies that the State of Idaho has, to help assist these employees during this difficult time.

We’re confident that many of the employees and we hope all will come back to work at the Lucky Friday when we get through this clean-down period, because the future of the mine is, we think is so bright. This is a very difficult time for us, but we’re confident in the future.

And with that Mélanie, I will be happy to take questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question is coming from the line of Trevor Turnbull from Scotia Capital. Please proceed.

Trevor Turnbull – Scotia Capital

Hi, good morning, Phil.

Phillips S. Baker, Jr.

Hi, Trevor.

Trevor Turnbull – Scotia Capital

Just wondered, have you – do you know of any recent examples of other shafts in The States or Canada, North America that have had to go through similar exercise in cleaning and kind of scaling this material?

Phillips S. Baker, Jr.

We’re not aware of another example of this.

Trevor Turnbull – Scotia Capital

And so because it does sound like a something I hadn’t been aware of as very commonplace, obviously you’re feeling your way a bit here in terms of how long this procedure is kind of take, but is it safe to say that when you talk about 2013 as kind of the resumption of normal operations? Is that in your mind a worst-case scenario?

Phillips S. Baker, Jr.

Well, the answer is yes. We were confident in that period of time, you can scale things down. Certainly, you worry about when a scale it down that what impact is going to have on the material when it hits the bottom of the shaft, so there is that uncertainty. However, we think we have built enough cushion into our estimate. But you just don’t know until you get there. Larry, do you want to add anything to that?

Lawrence P. Radford

That timeframe also includes the construction of the bypass.

Phillips S. Baker, Jr.

Okay.

Trevor Turnbull – Scotia Capital

Okay. And I did hear you mention, you threw out a capital figure at one point, but I didn’t quite catch what you said.

Phillips S. Baker, Jr.

Yeah, all I said was that I would expect that between care and maintenance, and the scale-down work, that $20 million is probably not a bad place to start. And we’re going to do work to confirm that, and figure out exactly what it is going to be.

Trevor Turnbull – Scotia Capital

Okay.

Phillips S. Baker, Jr.

This is all very, very fresh.

Trevor Turnbull – Scotia Capital

Yeah, and I appreciate that. And I guess that my last question, and then I’ll turn it over is – obviously this is something I would assume that you guys keep track of internally in terms of your own maintenance and your own housekeeping, that you would keep an eye on, on these sand lines and material as it builds up. Or is this something that just hadn’t – I mean in your opinion obviously you wouldn’t have expected that this was a significant issue. I’ve just kind of wondering how the situation came that kind of caught everybody off-guard that this had built up. Is it something that you look for or you normally don’t really pay much mind too?

Phillips S. Baker, Jr.

Look, we inspect the shaft weekly, and consistently do that. I think that’s a good practice and probably also a regulatory requirement. We also have had that practice for – I’m not sure how long, but certainly it’s been for a long period of time. In addition, we have on a quarterly basis go through and have it inspected with MSHA. Some of this material was put in place even at the construction of the shaft going back to 1983, certainly not all of it. Some has built up over the years as these sand lines have broken.

I’m not sure when the last time we had a sand line break and I’m not sure if Larry knows, given his – how New Year’s to the company, but it’s not a frequent of that and it’s not something that’s occurred in last quarter or two as far as you’re aware, Larry?

Lawrence P. Radford

(Inaudible)

Phillips S. Baker, Jr.

Okay. So yeah, no, we’re all a bit surprised that this has raised itself as an issue.

Trevor Turnbull – Scotia Capital

Okay. Thank you very much Phil.

Phillips S. Baker, Jr.

Sure, Trevor.

Operator

Your next question is coming from the line of David Peirce from Royal Bank of Canada. Please proceed.

David Peirce – Royal Bank of Canada

Hi, Phil.

Phillips S. Baker, Jr.

Hi, David.

David Peirce – Royal Bank of Canada

Hi, thanks for taking my call. A couple of questions for you, a) is there any – I mean is this such a serious event that there is no chance for an appeal here? Is there any doubt as to the Commission’s identification of this as a real major problem? Is there anybody that you can…?

Phillips S. Baker, Jr.

Yeah, there is an administrative process that you can go through, and we’ll certainly consider whether that is the appropriate thing to do.

David Peirce – Royal Bank of Canada

Okay. And you were saying something about that the operations of the mine itself tend to pay for the expansion of the mine that you’re currently doing. I mean what kinds of impact on cash flows will this have – net cash flows I guess?

Phillips S. Baker, Jr.

So as a result of the care and maintenance, and the clean-down, that will be the negative impact on our cash flows otherwise roughly no other impact.

David Peirce – Royal Bank of Canada

So when you calculate free cash flow, you’re really only basing it off of the – forgive me, the 7 million production minus CapEx on the other mines, because the…?

Phillips S. Baker, Jr.

Yeah, so we have one other mine Greens Creek and…

David Peirce – Royal Bank of Canada

Right.

Phillips S. Baker, Jr.

That mine is not in the same sort of expansion phase that the Lucky Friday has been in, and so it’s generating the majority, if not all of the free cash flow. Jim, do you want to add anything?

James A. Sabala

No, that’s exactly at our business plan, and I think we have communicated was that we were going to take the money that we are making from the Lucky Friday and plow it back into capital, particularly the #4 Shaft project. Now, obviously the #4 Shaft project is an underground project, so that doesn’t look forward. So given the mine was operating on a cash flow basis and slightly above break-even if we terminate the capital and we don’t have operations for a period of time, then the net impact is, as Phil indicated, is the cost of the cleanup.

David Peirce – Royal Bank of Canada

Is the cost of the cleanup?

James A. Sabala

Yeah.

David Peirce – Royal Bank of Canada

And just seems to be having, if that were the case, it seems to be having an inordinate impact on the price of your equities today [done]?

Phillips S. Baker, Jr.

We would agree with that.

David Peirce – Royal Bank of Canada

Okay. Okay, all right. Thank you so much.

Phillips S. Baker, Jr.

Sure.

Operator

Your next question is coming from the line of Steven Butler from Cannacord Genuity. Please proceed.

Steven Butler – Cannacord Genuity

Phil, yeah, it’s certainly unfortunate news, sorry to hear…

Phillips S. Baker, Jr.

Yeah.

Steven Butler – Cannacord Genuity

The news that you’ve released this morning.

Phillips S. Baker, Jr.

Thanks Steve.

Steven Butler – Cannacord Genuity

The Mine Safety and Health Admin group or representatives in their investigation, I guess is the investigation done? Are they completed their exercise? And it seems as though they have maybe used this as an excuse to shut down the mine. I’m not sure if there’s pending more investigations of the rock burst activity, which is obviously of more concern, I guess, in my view. Was the shaft itself operating in an unsafe way? Or I mean, it seems a little extreme and sort of – you said sort of unrelated. But it seems to be like a cleanliness issue, I mean, if you could otherwise elaborate?

Phillips S. Baker, Jr.

Look, Steve, I guess I will say as emphatically as one can say, we believe that we have operated that shaft in a completely safe manner, and have been for an extended – since it has been in operation. If you go back and look at the shaft, we have had a very few incidence over the course of its 30 year history of any sort of injury at all or any sort of event or incident. And certainly, in the 11 years, I’ve been at Hecla, that has been the case.

So we think its record has been very good. We would not suggest to you that the rock burst is anyway related to this specifically in other words, it doesn’t have anything to do with the geotechnical aspects of that shaft; that shaft is very stable. And when you say, you’re concern with the rock burst, the rock burst incident only happened because we had a haulage way that was going through the 30 vein, which we had mind around and had created the pillar. And it was known that pillar would have the potential to burst.

Steven Butler – Cannacord Genuity

Okay.

Phillips S. Baker, Jr.

And the thing that ended up happening was we ended up not being able to predict when that burst might happen. So hence why we are have a plan to build a bypass around the pillar where the stresses have built up, so now I don’t have any concerns about the long term viability of the Lucky Friday and the rock burst thing. This is not the same rock burst issue that one would have seen 30 years ago that the ground that we are in the Gold Hunter, the 30 Vein area is very good ground to mine within.

With respect to attributing some larger intend to MSHA, I would know why I suggest that they have any intention to do anything other than, what they think their mandate is as to make sure we have safe operations and while we might disagree with their assessment we wouldn’t suggest that there is some bad intend on their part.

Steven Butler – Cannacord Genuity

Did they make any other recommendations still in terms of the mining practices or rock building et cetera, et cetera?

Phillips S. Baker, Jr.

Well they don’t make recommendations.

Steven Butler – Cannacord Genuity

Okay.

Phillips S. Baker, Jr.

They issue citations and give orders and so yes, there are certainly other citations and what the process that you do is when you receive the citation you go and you clear that citation you what they call either as you to terminate the citation, and that’s the process that we’ve been in since the rock burst and there will be a period of time when we do that in 2012. Every quarter MSHA comes in and inspects the mine that’s under the Mine Act but they do that I believe is where the authority for that comes from, and so every quarter we’ll receive citations that tell us to do certain things and we comply with those and we engage with MSHA as to how to get those things done.

Steven Butler – Cannacord Genuity

Right. And Phil, €1 is your best estimate right now for the time involved to basically clean the shaft?

Phillips S. Baker, Jr.

Yeah, look I’m optimistic that there is the potential to go faster than that, but I would hesitate to suggest to you or any one that we’ll see production in 2012, so I think it’s I think our best position is to say, we’ll be back into production in 2013 and we hope we’ll be sooner than that.

Steven Butler – Cannacord Genuity

Okay, thanks very much.

Phillips S. Baker, Jr.

Okay sure, Steve.

Operator

Your next question is coming from the line of [John Alan from Future Oak]. Please proceed.

Phillips S. Baker, Jr.

Hello John Alan.

Operator

Mr. Alan your phone maybe on mute?

Unidentified Analyst

I’m sorry.

Phillips S. Baker, Jr.

Hi.

Unidentified Analyst

Okay. The question I have is, it looks to me like this is going to represent about 25% of your production, is that correct?

Phillips S. Baker, Jr.

Yeah, that’s about right.

Unidentified Analyst

Any opportunity for ramping up production in any of the other mines that make up for the shortfall.

Phillips S. Baker, Jr.

These are big underground operations with lots of constrains on your ability to do ramp ups, lots of development necessary for that to happen, so no, and what we’ll do is just continue to operate the Lucky Friday, I’m sorry Greens Creek as planned and we’ll produce the 7 million ounces from there.

Unidentified Analyst

Okay, thank you very much.

Phillips S. Baker, Jr.

You’re welcome.

Operator

Your next question is coming from the line of Gerald Chase from Pera-Smith Capital. Please proceed.

Gerald Chase – Pera-Smith Capital

Good morning, good afternoon. I would like to know, because of the shortfall that we will be experiencing in 2012, where their dividend policy has mandated by the board of directors will still be in tact to be competitive with your sister miners dividend wise.

Phillips S. Baker, Jr.

We haven’t discussed that of course is a decision for the board, but I at this point do not see any reason why we would change that policy.

Gerald Chase – Pera-Smith Capital

Even though you’re going to have less revenue and less earnings?

Phillips S. Baker, Jr.

Why have less revenues earnings wise it will be a minimal sort of impact and go ahead Jim…

James A. Sabala

From a revenue standpoint or from an income standpoint, we are going to take a hit there just because we’re not selling.

Gerald Chase – Pera-Smith Capital

Right.

James A. Sabala

Selling metal now, but you’ve got to follow that all through, way through the bottom line to determine the impact on dividend policy and it’s still correctly stated earlier when we take the capital expenditure that we should be able to differ out of this, the impact on our cash flow is the $20 million and so given that all pretty supposed what the board will say, but we’ve added $20 million change in our plan from a cash flow perspective and the company can certainly and the board can certainly consider keeping our dividend policy in place?

Gerald Chase – Pera-Smith Capital

Could you please tell me my self and my fellow hedge funds individuals, I’ve been pretty well discouraged by the continuous problems, we’ve had with Hecla’s stock, which caused a great deal of under-valuation on the stock itself. Could you please tell me, if you feel that the enormous hit the stock has taking this morning is valid from an equity point of view?

Phillips S. Baker, Jr.

Look it’s not valid in my estimation for a number of reasons first; we thought that the stock was undervalued even before this.

Gerald Chase – Pera-Smith Capital

That’s right.

Phillips S. Baker, Jr.

It’s been occurred, number one. Number two, this is a delay of the future of the Lucky Friday by a year, and the Lucky Friday we think will operate probably 20 plus years going forward with the infrastructure that we’re putting in, so we see huge amount of value in that mine and of course Greens Creek continues to be one of the great Silver mines in the world both in terms of production and costs and longevity. And then we’ve got these properties that we’re in the process of advancing Star, San Juan, down in Colorado, San Sebastian in Mexico and you look at those three properties and you see the potential for further growth in the company’s production. So now it’s unfortunate that we had this event, we are going to deal with it, we’re going to move forward, but we in no way see that this sort of reduced value from an already under value position is justified.

Gerald Chase – Pera-Smith Capital

One more question please, thank you. Could you please tell me with the enormous amount of cash and very little or no debt, is there any way you can possibly consider an acquisition of one of the Junior Silver miners to shall we say increase your position equity wise from a horizontal point of view.

Phillips S. Baker, Jr.

I’m sorry the horizontal point of view, what?

Gerald Chase – Pera-Smith Capital

In other words, I’m sorry, I mean will you be considering in the future based on your substantial cash position, an acquisition possibly?

Phillips S. Baker, Jr.

Yeah, look we do consider acquisitions all the time and we’ll continue to do that, we would consider using cash for that purpose, I will say and there will certainly be a lot of reluctance in using equity for that purpose given the valuation that we’re.

Gerald Chase – Pera-Smith Capital

Right.

Phillips S. Baker, Jr.

Talking about, but yeah, we’re actively investigating acquisition opportunities, having said there is a limit of good quality assets to acquire.

Gerald Chase – Pera-Smith Capital

Right. Will you be issuing press releases on the progress of this situation going forward?

Phillips S. Baker, Jr.

Certainly as we issue normal releases, we will issue releases, but we’ll let folks know about this, it’s probably not going to be much news other than we’re just making progress moving down the shaft, it is really all I would anticipate?

Gerald Chase – Pera-Smith Capital

Will you be amenable to an offer, if any sister company makes one, because of the absurd low equity price?

Phillips S. Baker, Jr.

It is unlikely given our valuation that we would welcome that for a number of reasons. One is, our valuation into would their valuation, the risks of their assets et cetera. So, but look, we will evaluate it should that occur.

Gerald Chase – Pera-Smith Capital

Okay. Thank you.

Phillips S. Baker, Jr.

You’re welcome.

Operator

Your next question is coming from the line of John Bridges from JPMorgan. Please proceed.

John Bridges – JPMorgan

Hi, Phil, Jim.

Phillips S. Baker, Jr.

Hi, John.

John Bridges – JPMorgan

I’m really sorry to here the news. Just wanted in operationally, if you are going to put in place different safety procedures and so on to time and things up?

Phillips S. Baker, Jr.

Let me say that as the year has rolled on and it’s on the back of a 25 year history of a great safety record at the Lucky Friday, we have been surprised that we’ve had these incidents that occurred during the course of the year. And so, we have said, how do we improve to prevent the sorts of things that have happened plus other things and so, we are very focused on that. On other thing is Larry is very engaged on is, making sure that we make what improvements we can to improve upon what we think was already a good safety history that we’ve had. So, we’re going to add more safety personnel to the organization, we’ll add more specific expertise in areas that well might not be safety related have a safety element associated with them. Yeah, we’re going to get back that same record that you’ve seen have in the past.

John Bridges – JPMorgan

How big are these accumulations on the side of the silver shaft that you're going to have to chisel off and let fall to the bottom of the shaft?

Phillips S. Baker, Jr.

Yeah. Larry, you want to comment? Because it varies, clearly varies as to what it might be.

Lawrence P. Radford

Yeah. It varies depending on the section in shaft. Generally it’s not huge, but its there.

John Bridges – JPMorgan

But even though few hundred pounds falling a mile, that can do a lot of damage.

Phillips S. Baker, Jr.

That’s right.

John Bridges – JPMorgan

I just wondered if you've spoken to your counterparts at Teck with respect to the concentrate contract and maybe your shaft sinkers? Presumably those guys are going to have costs as well.

Phillips S. Baker, Jr.

Look. Yeah, we certainly are in the process of communicating with all of those folks, and in fact that communication is happening this morning – in some cases, probably as we speak. So, yeah, we’ve got that obligation.

John Bridges – JPMorgan

Do you think this can be considered a force majeure with respect to the concentrate agreement?

Phillips S. Baker, Jr.

Presumably, yes, and that is certainly the nature of the discussion that we're having with them.

John Bridges – JPMorgan

Okay. Okay, thanks guys. Best of luck.

Phillips S. Baker, Jr.

Thanks, John.

Operator

Your next question is coming from the line of Chris Lichtenheldt from UBS. Please proceed.

Chris Lichtenheldt – UBS Securities

Good afternoon, guys.

Phillips S. Baker, Jr.

Hi, Chris.

Chris Lichtenheldt – UBS Securities

Hi. I just wanted to go back quickly to the MSHA, the review that MSHA is conducting. Are there other citations outside of the rock burst that haven't been terminated as you say, or could there be others? I just wanted a little more clarity on what the potential for them to discover something else that could delay further or add further cost to any resolution.

Phillips S. Baker, Jr.

Look, there is lots and lots of things that they go and they inspect and they’re being very thorough. But I guess, I would characterize them as horizontal access, which is in some respects much easier to deal with than a shaft that is vertical. And a shaft that is our primary entrance and exit from the mine. So, yes, there are other things. And we have citations happen periodically, and we go through and we clear them. And it is a process that we're – we and MSHA are both used to being engaged in.

Chris Lichtenheldt – UBS Securities

Okay. So, there is no telling how long the review will take at this one.

Phillips S. Baker, Jr.

Well, look it happens every quarter.

Chris Lichtenheldt – UBS Securities

Okay.

Phillips S. Baker, Jr.

So, is there an additional review that’s happening as a result of the rock burst? Yes, there is. Special emphasis on the review of the mine. And we welcome that, because it gives us the opportunity to identify places where we can improve the condition of the mine and that’s a good thing. Ultimately, it means the safer operation for us and our people.

Chris Lichtenheldt – UBS Securities

Okay. Two more quick questions. I think you sort of answered this, but in the past, over the past 20 years or however long the shaft has operated. Has there ever been a point where some of this concrete-like substance on the walls of the shaft has broken free unprovoked and caused any damage.

Phillips S. Baker, Jr.

To my knowledge there was one incident, where there was some material that fell and it cut someone’s hand or someone’s face, but that’s the only one that I’m aware of.

Chris Lichtenheldt – UBS Securities

Okay. Just lastly, there are 7 million of production and that will all be produce that Greens Creek, there is no inventory or anything left that Lucky Friday to sell though?

Phillips S. Baker, Jr.

There is, we’ll have stopped in the pipeline Chris. Well, the settlement that we shift from when we were operating in December, but that’s nominal.

Chris Lichtenheldt – UBS Securities

Okay.

Phillips S. Baker, Jr.

As goes, but in terms of production there is no new elms’s. Right, okay.

Chris Lichtenheldt – UBS Securities

Okay that’s it from me. Best of luck guys.

Phillips S. Baker, Jr.

Okay.

Operator

You next has question with the line, Tony Christ from Capital Securities. Please proceed.

Tony Christ – Capital Securities

Thank you. It’s Christ. Anyway.

Phillips S. Baker, Jr.

We know who it is, Tony.

Tony Christ – Capital Securities

Thank you. I feel a little bit. Hi, how are you? Now, I want to ask something, a corollary to what the older gentleman speaking from a hedge fund said. What I would suspect and what do you feel about this, we would be a little vulnerable to a takeover because we've had the huge court settlement and this we have a vet that had us priced below the market now, for well maybe arguably 24 months, maybe longer for other reasons. But what prevent somebody from coming in and buying us at these prices. We’ve got some appreciation that makes us less attractive.

Phillips S. Baker, Jr.

Well, I think look that’s the – the key thing is to get the appreciation and the stock and that’s what we’ll be focused on.

Tony Christ – Capital Securities

Well, I mean even with the numbers we’re showing with the cash we have even to pay a premium. Even to pay $7 to $8 and take us over even though the potential might be in the team. Somebody might view that, view the assets we have is an easy to way to go more production themselves.

Phillips S. Baker, Jr.

Sure. And sure enough that’s certainly possible but I think you’re absolutely right. The valuation is in the teams at least and given that it would make sense for the shares to turn over to someone for less than that.

Tony Christ – Capital Securities

Yeah. There is not much stopping somebody from coming in and just entering with their stock, because others don’t seem to have this problem in the silver business that they undervalued in the recent markets. Few others don’t. Imagine I can’t speak for everybody. Thank you.

Phillips S. Baker, Jr.

You’re welcome. Good to talk to you, Tony.

Tony Christ – Capital Securities

Good to talk to you.

Operator

Your next question is a follow-up question from the line of Trevor Turnbull from Scotia Capital. Please proceed.

Trevor Turnbull – Scotia Capital

Yeah. I just wondered also with respect to what you’re doing over at the star, especially up at the higher levels at the start. Is it possible to accelerate anything you’re doing there potentially given that you’re going to have not as many people dedicated to Lucky Friday at this point.

Phillips S. Baker, Jr.

Yeah, Trevor I’m glad you mentioned that because we are in fact hoping to take some of our employees from the Lucky Friday in on a temporary basis, put them at not only the star, but Greens Creek and down in (inaudible) at the bulldog in the equity same one project, and I don’t know order of magnitude maybe between the three, maybe 40, 50, we’re hoping that we can put to work there. With the aim of doing exactly what you’re saying accelerate work that needs to be done with experience capable people.

Trevor Turnbull – Scotia Capital

Great, all right.

Phillips S. Baker, Jr.

Star is certainly one of the places, I will say Greens Creek is probably, well, definitely, it’s a place where there is the most opportunity.

Trevor Turnbull – Scotia Capital

Okay. It sounds good, Phil. Thank you.

Phillips S. Baker, Jr.

Thanks, Trevor.

Operator

Your next question is coming from the line of David Bond from Platts Metals Week. Please proceed.

David Bond – Platts Metals Week

Yeah. Happy New Year, Phil.

Phillips S. Baker, Jr.

Thank you. Hi David.

David Bond – Platts Metals Week

Hey. Just I think this was kind of touched on, but you can unequivocally say that you don’t think politics was a factor in this shutdown order.

Phillips S. Baker, Jr.

But MSHA’s responsibility is for mine safety. So I’m not sure how that would enter into. Thanks.

David Bond – Platts Metals Week

Okay, very good. Second question, couldn’t this shaft cleanup occur during the graveyard maintenance shift and not interrupt production, and are you approaching MSHA with maybe that in mind?

Phillips S. Baker, Jr.

Well, the order from MSHA is that you can only use the shaft to cleanup. So production is not a possibility or any work in the shaft through any work in the mine through the silver shaft. We are limited. our access is limited through the number two.

David Bond – Platts Metals Week

All right. Thank you very much.

Phillips S. Baker, Jr.

Sure, David. Thanks for calling.

David Bond – Platts Metals Week

Okay.

Operator

Your next question is coming from the line of Duff Armstrong from Armstrong Financial. Please proceed.

Duff Armstrong – Armstrong Financial

Hi gentlemen, I guess my question was answered. It seems like there are some other citations from the MSHA, but they’re being handled and I guess there is no other major thing that this is associated with these rock bursts and whatever it is, will be conducted along with this cleanup in 2012. Is that pretty much correct?

Phillips S. Baker, Jr.

Yeah, that’s accurate. And again, the rock burst on the 5,900 haulage way, I view as a result of the geometry of the way that a haulage way went through that created that pillar. By putting in the bypass, you completely eliminate that hard, brittle, host rock and now you are going through a previously mined material that is sand like material that will compress without bursting. Is that a fairy characterization, Larry? Larry is shaking his head, yes. So...

Duff Armstrong – Armstrong Financial

Okay. And just you kind of stated this, but just with these recent events of this year after so long of the time or nothing really of any consequence safety wise happened at Lucky Friday, I mean can you just state even – well, as much as you can, just eliminate any doubt or as much as you can that this is going to impact the expansion of Lucky Friday, I mean I guess that’s something that is in the air when you have these incidents, that is it unrelated, it seems like it’s unrelated, but then, can you just speak to that as much as you can?

Phillips S. Baker, Jr.

Sure, sure. I guess what I can see is look at one mine.

Duff Armstrong – Armstrong Financial

Right.

Phillips S. Baker, Jr.

And so, we want – it’s got to be, well, it’s unrelated. we’ve got to make sure the whole mine is as safe as we can make it and we’re doing that and we’ll get back to that sort of standard of, that we’ve had over the last 25 years and I – and we think that these events that have happened are unusual events and then – but we’re going to make sure that we’d learn from them and we improve on the way the mine functions and as we develop the #4 shaft, we’re going to go into material that is very similar to what we have been mining. So we have lots of knowledge, but we’re going to improve our knowledge and operate in even a better fashion if you can do that. So we’re paying attention to what happen to us and it’s not a situation where we feel like we’ve done anything inappropriate or we could have done anything better. but we’re learning from it and we’re going to make things better regardless.

Duff Armstrong – Armstrong Financial

Okay, thank you.

Operator

Your next question is coming from the line of Shiben Zee from RCM Capital Management. Please proceed.

Shiben Zee – RCM Capital Management

Hi, Phil. This is Shiben.

Phillips S. Baker, Jr.

Yep, thanks for calling.

Shiben Zee – RCM Capital Management

So a couple of questions. first, regarding your employees. So for this 200 miners at the Lucky Friday property, do you have any of retention policies, because there are some of your competitors may grab them even after you know resuming the production and you may not find the labor force that you need. Have you guys done anything to retain miners?

Phillips S. Baker, Jr.

Yeah, that’s a great question. I guess the comment I would make is, if you look at the demographics of our workforce at the Lucky Friday, the lion’s share, if not almost all, have deep roots and connections to the Silver Valley and North Idaho. This is where they want to live. And you have an operation that has had a great history and has a long future in front of it and people are going to, while they will leave, they will come back at least we believe so. and we’ve certainly seen that in the past. We’ll have our challenges, no doubt. I’m under no illusion, but I feel very good about our ability to have the workforce that we need at the property. Larry, do you want to add anything to that, Larry is actually originally from the Silver Valley.

Lawrence P. Radford

Again, we’re going to trying to retain as many employees within the company that we can, obviously that won’t extend to everybody. But most of these guys do want to live in the Silver Valley; many of them have a vested interest in their seniority in the mine, and trying to regain that.

Shiben Zee – RCM Capital Management

Okay.

Phillips S. Baker, Jr.

Do you have another question?

Shiben Zee – RCM Capital Management

Yeah. My another question is, okay. If you guys think your security is so undervalued, that currently I lend up September you have $400 million plus cash on the balance sheet. You guys think about to buyback some of your shares?

Phillips S. Baker, Jr.

Certainly, that’s a consideration that the board will – again, it does and will continue to consider. So it’s not something I can guess how they would come out, but that’s a consideration just as dividends are.

Shiben Zee – RCM Capital Management

Okay, thanks.

Phillips S. Baker, Jr.

Sure, thanks.

Operator

Your next question is coming from the line of Ted Geoca from Maxout Savings Advisors. Please proceed.

Theodore Karl Geoca – Maxout Savings Advisors LLC

Well, I have two questions, one of them is of course, I think in this situation, we want to manage for earnings. but I think you’ve touched on this somewhat, but could you expand on the possibilities of maybe speeding up some of the exploration or some of these other projects we have?

Phillips S. Baker, Jr.

Yeah. I look at it’s – there’s been a – people have alluded to the fact that it’s a competitive market for people. And so, certainly on these other projects that we have, including Greens Creek, you can find holes in our workforce, in our manning table. So what we’re doing is we’re looking at this is an opportunity to fill those holes as well as looking ahead, additional projects that we might do that can advance projects within those properties. So this is new – the fact that we’re having to deal with this is new. So we don’t – we haven’t developed those ideas very far, but we will be over the course of the next few weeks and looking for how we can move those projects forward.

Theodore Karl Geoca – Maxout Savings Advisors LLC

Okay. The other question is as far as the rock bursts and the bypass, why can’t – since you’re repairing this already, why can’t they let this is an order, let you repair that rock burst at the same time?

Phillips S. Baker, Jr.

It really is an access question. To get to where we need to get to, we got to do it through the silver shaft and at least in large measure through the in silver shaft. And it’s down. they won’t allow us to use it to do that. So, we're going to have to wait until the silver shaft is complete to do that bypass work.

Theodore Karl Geoca – Maxout Savings Advisors LLC

Is there any chance that that you basically take care of, I'm assuming maybe some bigger cement problems there, and then go back to them and say, look, can we at least use this for some repair work elsewhere in the mine at this time?

Phillips S. Baker, Jr.

You’re saying do some removal within the silver shaft and then come back and start to operate from it before the whole thing is done, is that…?

Theodore Karl Geoca – Maxout Savings Advisors LLC

Well, maybe not operate, but at least work on the bypass?

Phillips S. Baker, Jr.

Look, I will say that we will be in discussions with MSHA, kind of every step of the way and if there is a opportunity to do things to accelerate our ability to use that shaft, we’ll certainly propose them to them. And hopefully we’ll come to a way that we could do that. And at this point, I don’t know what those might be, but we’d certainly will look for those opportunities.

Theodore Karl Geoca – Maxout Savings Advisors LLC

Okay. Thank you.

Phillips S. Baker, Jr.

Sure.

Operator

Your next question is coming from the line [Chris Christiansen] from Rossport Investments. Please proceed.

Unidentified Analyst

Hi, Phil.

Phillips S. Baker, Jr.

Hi, Chris.

Unidentified Analyst

How you’re doing?

Phillips S. Baker, Jr.

Well, that’s the wrong question you’d asked, but…

Unidentified Analyst

Sorry, to hear the news. I just want to get a little bit more detail on this cleaning process. Besides the power washing, are you going to be using any other methods there?

Phillips S. Baker, Jr.

Larry, anything that you’re aware of that we would use?

Lawrence P. Radford

Well, we're putting together the plans now as we speak. And the pressure wash is the obvious tool that we tend to use. But there will be mechanical barring, no doubt, and whatever other tools that we need to use.

Phillips S. Baker, Jr.

But it’s not very complicated process.

Lawrence P. Radford

I don’t think this is complicated. As we go down or as we encounter any defects in the shaft, we will stop and repair them. But no, I don’t…

Phillips S. Baker, Jr.

And anything that’s in the shaft that we’re not using, we’ll remove?

Lawrence P. Radford

Yeah, anything that’s kind of an old vestige of construction or something will come out, but it isn’t complicated.

Unidentified Analyst

Is it too early to know that how the sequencing of this is going to take place?

Lawrence P. Radford

Yes. We have several options that we’re analyzing right now.

Unidentified Analyst

Okay. Okay, great. Well, best of luck guys.

Phillips S. Baker, Jr.

Thanks.

Operator

Your next question is a follow-up from the line of David Peirce from Royal Bank of Canada. Please proceed.

David Peirce – Royal Bank of Canada

Hi, Phil, I’m sorry to ask you again, I thought of a couple of other things I just wanted to ask you. And I've heard, others have obviously commented on this, but I do know that you sit on the Board and so you theoretically have a vote. But would you in fact advocate for some sort of share repurchase, I’d say because as the long-term holders have just been underwater for so long, and frankly the press release followed by a five hour gap with the conference call is really, I mean if you have had this conference call, I think at 8:30 or 9’o clock in the morning, I think the stock would be much better off. Because it just doesn’t sound like earnings are going to have any impact other than the $20 million annual cost or $5 million a quarter approximately if you break it down that way?

Phillips S. Baker, Jr.

So that’s on cash flow, not on earnings.

David Peirce – Royal Bank of Canada

No, well, correct. But I mean it…

Phillips S. Baker, Jr.

There will be a larger earnings impact in that on us, but cash flow wise you’re right.

David Peirce – Royal Bank of Canada

Well, I mean assuming that you produce revenues out of the Lucky Friday mine, and CapEx comes out of the cash flow of that mine. If they’re equal then how does that impact your – forgive me, but how does that impact your actual net earnings in the negative way other than the $20 million?

Phillips S. Baker, Jr.

Go ahead, Jim.

James A. Sabala

Well, because all other work we do on the silver shaft and all of the capital is not charged against earnings. It’s capitalized for the balance sheet.

David Peirce – Royal Bank of Canada

Okay, I see. But as earnings go though, this shouldn’t…?

Phillips S. Baker, Jr.

And look, most silver companies don't trade very much on earnings so…

David Peirce – Royal Bank of Canada

No, they don’t. But this is a rare event and unfortunately we’re subject to these wins.

Phillips S. Baker, Jr.

I think you’re absolutely right that there should not be as big of an impact as this has had on the announcement of it. Just sort of going back to your original premise, look as far as my position is, we're going to do everything we can to improve the valuation of the company. Certainly, I will make sure that we advance the Lucky Friday as fast as we can safely do it. And if there is things we can do to enhance the shaft will consider those things.

We’ll look to get that thing back into production earlier than 2013, and hopefully that going to occur and I’ll certainly focus lots of my attention on that. But I also will be out telling the market with about the future of the company because from my perspective we have a very long-term view of things and this is unfortunate, this is something we're having to deal with, but the future of the company is, just like it was a month ago may just delayed a year, and a little bit of care and maintenance cost and a little bit of clean-up. But it is not fundamentally changed and it is – I think the best in the silver space in light of the production growth that we can generate, in light of the cash flow that these properties will generate, in light of the expansion of operations that will have. And I want the market to hear that and see the share price reflect that, and I guess I’ll commit to you that I will be out and as will my colleagues, singing the song.

David Peirce – Royal Bank of Canada

Okay. And someone may have asked this, I’m not sure. But I know that one of the goals has been to go back to some of those uneconomic mines that you had in the past, and re-examine them. I assume that might be more of focus this year, given that the extra manpower that you suddenly find yourself having?

Phillips S. Baker, Jr.

Well, yeah I mean we have plans and we had needs within those plants anyway. We now can put these people into them, is there additional work that we can do on those things. I’m not able to point to it today, but we will be working on that and maybe over the course of the next quarter, two quarters for the second half of the year, maybe there would be more things that we would be able to identify and we will do. Clearly, we were already on the path of moving them forward as fast as we possibly can, but we won’t just slow that down.

David Peirce – Royal Bank of Canada

Okay. And cash on hand that you have right now post payment to the government for the clean-up that you had to do in the Idaho Valley. I know at end of September, I think you had around $400 million plus in the bank that’s, however,…?

Phillips S. Baker, Jr.

The pro forma, it was call it roughly 250 on a pro forma after a payment.

David Peirce – Royal Bank of Canada

That’s what you currently have.

Phillips S. Baker, Jr.

Well, no, that's what we pro forma had at the end of September, if you include to the thing...

David Peirce – Royal Bank of Canada

If you include after the payment, I understand.

Phillips S. Baker, Jr.

Yeah.

David Peirce – Royal Bank of Canada

Okay. Okay, very good. Thank you sir.

Phillips S. Baker, Jr.

Thank you.

Operator

At this time, ladies and gentlemen, this will conclude today's Q&A session. If any investors need any additional question’s answers, you may look up Ms. Melanie Hennessey’s contact information of the press release today.

I will now like to turn the call back over to Mr. Phil Baker for any closing remarks.

Phillips S. Baker, Jr.

Thanks for joining us on the call, and certainly if you have any other questions, please give Melanie a call and I will be happy to help you in anyway we can. Thanks.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Hecla Mining's CEO Presents at Temporary Care and Maintenance at Lucky Friday Mine Conference (Transcript)
This Transcript
All Transcripts