Hecla Mining Co. Q4 2007 Earnings Call Transcript

Feb.22.08 | About: Hecla Mining (HL)

Hecla Mining Co. (NYSE:HL)

Q4 2007 Earnings Call

February 22, 2008 10:00 am ET

Executives

Vicki Veltkamp - VP, IR

Phil Baker - President and CEO

Ron Clayton - Senior VP, Operations

Lew Walde - CFO

Mike Callahan - President, Venezuelan Operations

Dean McDonald - VP, Exploration

Analysts

Anthony Saracino - Saracino Metals

Bill Soleski - August Research

Howard Finkler - Finkler & Company

John Doody - Gold Stock Analyst

Borden Putnam - Eastbourne Capital

Terry Wei - Baratta Asset Management

Operator

Good day ladies and gentlemen, and welcome to the Fourth Quarter 2007 Hecla Mining Earnings Call. My name is Gina, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. (Operator Instructions). As a reminder, this conference is being recorded for replay.

I would now like to turn the presentation over to your host for today's call, Vicki Veltkamp, Vice President of Investor Relations. You may proceed.

Vicki Veltkamp

Thank you, and thanks to all of you for joining us today. As Gina said it's the Hecla Mining Company Fourth Quarter and Year-end 2007 Conference Call. I’m Vicki Veltkamp, Vice President of Investor and Public Relations for Hecla. Our call is being webcast live at www.hecla-mining.com, and it will remain up on that website as a replay for some time to come. Also on our website you can find today's financial news release.

Today's presentation will be made by Phil Baker, Hecla's President and CEO, and he is joined by Ron Clayton, our Senior Vice President of Operations; Lew Walde, Chief Financial Officer; Mike Callahan, our President of Venezuelan Operations and Dean McDonald, our Vice President of Exploration.

But before we start, I do need to let you know that any forward-looking statements made today by our management team comes under the Private Securities Litigation Reform Act. It involves a number of risks that could cause actual results to differ from projections. In addition, to our filings with the SEC, we're allowed to disclose mineral deposits that we can economically and legally extract or produce, so investors are cautioned about our use of such terms as measured, indicated, and inferred resources. We urge you to consider those disclosures and our SEC filings.

And now I'm happy to turn the call over to Hecla Mining Company's President and Chief Executive Officer, Phil Baker.

Phil Baker

Thanks Vicki, and let add my welcome Vicki's. Over the past two weeks we’ve announced three deals that we’ve been working on for the better part of the year, and then I guess in the case of Greens Creek closer to 20. However, the exciting thing to me about these deals is they're already being added or they are being added to an already strong Hecla.

We have operating and exploration expertise this year that's been combined with our strongest financial capabilities in our history. And I think this arguably has given the strongest year in our history. And I guess I can say without a doubt that certainly if you put 2006 and 2007 together, they are the best two consecutive years in our history. And of course, the deals that we have two of them are expanding on where we are already operating; Greens Creek and Lucky Friday. So, what you've seen as accomplished in 2007, we think we'll be able to multiply on that in the future.

The third deal that we've just announced yesterday the San Juan venture, I think adds a new dimension to Hecla that’s really changing quite quickly. However, the San Juan venture is very consistent with what we're trying to do in Silver Valley and Greens Creek, where we're building on past knowledge in order to make new discoveries and to build new mines in places where mining has been so prolific.

What I want to do is stop here, and my colleagues have a number of comments to make. I'd like for you to be able to hear their comments. And they'll talk about things that have happened in the quarter, the year, and they will talk a little bit about the transactions. And so, let me start with Lew and after we've gone through with everyone, it will come back to me and I might have a few closing comments and then we will open it for questions.

Lew Walde

Thanks, Phil. 2007 was another excellent year for Hecla as Phil has already mentioned. And when you look at the financials, we had record revenues and record cash flow provided by operations, and our earnings were the second highest in the company's historic 117 year history, falling just short of the level that we've achieved 2006. While the operations performed exceptionally well with 5.6 million ounces of silver production, and a record low cash cost per ounce of a negative $2.81 per ounce, there were also a number of other events that occurred during the year.

First-off the company recognized a gain of $63 million on the sale of its interest in the Hollister project early on in the year; and the other big factor on the positive side as we recognize an additional $10 million of deferred tax asset value and more on that in a minute. But while our revenues were the highest in the history, earnings were impacted compared to last year because the company updated its environmental accrual analysis and took a charge of about $44 million during the second quarter.

The company also established a charitable foundation in contributing stock worth about $5 million in the fourth quarter, which provides a mechanism for funding sustainable development in the communities in which Hecla and its subsidiaries operate. So after factoring all the above, the company recorded income applicable to common shareholders of $52 million or $0.43 per share for the year.

Focusing on the fourth quarter just for a second, we recognized income of $7.6 million or $0.06 per share, and this was partly benefited from an increased deferred tax asset which resulted in a tax benefit of about $7 million for the quarter, but we also recognized the $5 million of expense associated with the charitable contribution.

Turning a minute just for the silver operations during the fourth quarter, it was another fantastic quarter. We generated over $17 million of gross profit from the silver operations in the fourth quarter, and this is despite the fact that we had $3.5 million of negative price adjustments on provisionally priced metals and concentrate, as metal prices generally trended down during the fourth quarter.

One of the key things that we saw in 2007 was really the transformation of Hecla's balance sheet. We saw great cash flows from operations, the sale of Hollister, and finally the public sale of Mandatory Convertible Preferred shares in December. The end result of this was that our balance sheet was in the best shape that it's been in the company's history. We ended the year with $400 million in cash and short-term investments and the current ratio stood at 8.8 to 1.

So why is this important? Well it's important because that balance sheet played a significant role in our ability to complete the transaction that we just announced, and primarily the transaction to acquire the remaining 70% of Greens Creek. And we'll use about $300 million of our existing cash to complete that transaction. But the strength of our financial position has also allowed us to continue our aggressive exploration program, and we continue to have success in this area as silver resource increased by about 10% during 2007.

[With this] balance sheet, the great cash flows being generated from our operations that will continue to allow us to invest in the exploration programs and the capital programs that are expected to deliver long-term value for our shareholders. We will hear more on the capital and exploration programs by Ron and Dean in a few moments.

I mentioned the deferred tax assets a moment ago, and today on the balance sheet this asset now stands at about $22 million. But it's very important to point out that Hecla has approximately $190 million of net operating loses in the US that are available to offset future taxable income. But only a very small portion of this value has been recognized to date. When we look at today's price environment, the value of these NOLs is quite real, and we can expect to continue to utilize and recognize the value of these NOLs for several years as the current price environment persist.

Focusing for a moment on just on the cash flow, again I'd just reiterate this was a record year for Hecla generating more $65 million of cash flow from our operations. And when we look forward to 2008, before the consideration of the additional expenditures that will be associated with Greens Creek once that transaction closes, we would expect that our CapEx to be range of $50 million to $60 million, primarily Lucky Friday for the underground veins, tailings expansions and equipment upgrades, and at Greens Creek will also have tailings upgrades and our normal sustaining capital at that operation.

We've also budgeted about $25 million for exploration at this point. But on the product side, we expected without Greens Creek 85,000 to a 100,000 ounces of gold at a cost of 490 to 530 per ounce and silver in the range of 5.7 million ounces at a cost of less than a $1 per ounce, which of course is highly dependent upon [byproduct] metal prices. And again, we will update these further once we roll in the impact of Greens Creek owning a 100%.

So to summarize, 2007 was another fantastic year for Hecla, and has positioned the company to take advantage of new opportunities like Greens Creek and the existing exploration of capital programs that are currently underway. Now, for some more focus on operations in the capital program, I will turn it over to Ron.

Ron Clayton

Thanks, Lew. 2007 was a very busy year for all of our operations. We achieved major milestones of each that will allow us continue to maximize our ability to take advantage of the high metals prices. We expect both high metal prices and our strong operational, low cost performance to continue well into the future. One of the most significant and important accomplishments and the one that I am most proud of, is that every one of our operations achieved a higher level of safety performance and results in 2007.

In Venezuela in spite of the challenges we faced during the year and the fact that we closed one mine and brought another in to full production, our safety record improved. Greens Creek and Lucky Friday both took major steps in adding new training programs and dedicated trainers. The results were quite positive. The programs at each operation focus on helping employees, both new and experienced to understand and integrate safe practices in to their daily jobs. Greens Creek and Lucky Friday have both been recognized in our industry on many occasions over the last 20 years for their dedication to safety and excellence in providing a safe workplace. Our people at both operations are simply not satisfied with anything less than perfection.

We have a tremendous opportunity to see continued improvement, and I am very excited about the possibilities that our professionals from Lucky Friday and Greens Creek may achieve in light of the opportunity for them to work together even more closely in the future. As you may know, Hecla has been a joint venture partner at Greens Creek for more than two decades. I've had the pleasure of being Hecla's representative on the joint venture committee for the better part of the last 10 years, and have consistently participated in reviewing and improving plans and budgets for the operation.

We have enjoyed a joint venture relationship during that time, that has allowed us to be active participants in the direction of the operation, and this has positioned us well for a very smooth transition in the coming months. I had the opportunity last week to meet with most of the Greens Creek employees and groups, and many of the management team in person after we announced the deal. In addition I had the opportunity to talk with some of the community leaders in general and some of the agency representatives that work with our team at Greens Creek.

We received a very warm response. The people at Greens Creek have established very high standards for safety, environmental compliance, community relations and operational excellence. We've been supportive of this for over 20 years and intend for Greens Creek and Hecla to continue to improve on this performance for many years in to the future.

Over the last several years as metal prices have risen, we’ve been rebuilding and upgrading the infrastructure of both Lucky Friday and Greens Creek. Both operations achieved financial performances in 2007 that we at or near historic highs. At the same time, both completed major capital construction projects. These projects have positioned each operation for continued performance at the high levels obtain in 2007, and may provide the platform for some incremental improvements.

Both operations have projects and processes underway that are targeted at improving planning, no performance, mine performance, lowering cost, cost and ultimately increasing profitability. While we have always enjoyed the opportunity or the ability to exchange ideas through our joint venture arrangement, the chance to take even greater advantage of the skills and experience and knowledge of the people of these two operations is a tremendous new opportunity that we find to take advantage of.

Although Lucky Friday and Greens Creek are different in terms of orebody character and geometry, there are many commonalities, and I’m look forward to working with these two groups for the benefit of both operations in Hecla. This is going to be fun.

On a final note, I cannot say enough about the performance of our team at the Lucky Friday over this last year. In the mill we achieved the highest throughput ever, and at the same time we improved recoveries of silver and lead to payable concentrates by more than 1%, and zinc recovery to the zinc concentrate by about 10% compared to 2006. We did this in spite of the lower feed grades that were driven by higher prices and our ability to mine lower grade profitably. By taking advantage of this opportunity, we’ve added mine life and increased the value of this asset.

In addition, we completed more capital construction projects in the mill and in the mine in 2007 than in any other single year in the history of the operation. We added reserves and resources again in 2007, and are well along the path of completing THE engineering for the shaft that will access ore to the 8,000 level and extend the mine life out past 2025.

The capital projects completed in the mine have positioned us to repeat our 2007 production performance, as well as begin developing our new reserves and resources in [depth].

Drilling in the gap area from both surface and underground coupled with work we are doing on the expansion pre-feasibility study will be completed later in 2008 and may provide the opportunity for an additional expansion at Lucky Friday. 2007 is one of the best years in the history of our operations. With the addition of the rest of Greens Creek and the opportunities we have for collaboration between our new and longer-term teams, I am convinced that we're set for another strong year in 2008 and a very bright future.

At this point, I would like to introduce Dr. McDonald, who will update you on our exploration programs.

Dean McDonald

Thank you, Ron. In 2007, the overall silver resource for the company has increased by 10%, bringing Hecla's total reserve and resource base to more than 184 million ounces of silver and 3.5 billion pounds of lead and zinc. We have a long project pipeline with drillings programs in the Silver Valley, Lucky Friday, Mexico, Greens Creek and Venezuela during the fourth quarter. These programs, which represent the most aggressive exploration program in our history, resulted in steadily increasing resources at our mines and opportunities for new resources within our large strategic land packages.

In Mexico, the 340 square miles San Sebastian property has been focus of intense exploration over the last - past few years, and we are making progress on the number of targets. Drilling at the La Roca in the North Eastern part of the property has intersected a number of silver bearing breccias and veins that are localized along two regional structures that extend for many kilometers.

The intense alteration at La Roca, combined with old Mercury mining activity indicate the whole epithermal system is preserved and that one can anticipate precious metal veins coalesce at depth. Drilling at La Roca in the fourth quarter includes some narrow high grade intersections, but these results also will also provide critical data used to vector in to the most prospective portion of this very large silver-gold system. We've gotten some very interesting result at La Roca and really are zeroing in on the price. Also at San Sebastian, core NRC drilling have been completed in the first evaluation on eight different early stage perspective areas. Complete assay results are pending on most of these targets.

Moving off San Sebastian, but staying in Mexico. Rio Grande which is 50 kilometers south of San Sebastian consists of a series of high grade [rezneal] style epithermal veins and breccias that extend for over 15 kilometers. Drilling at the Rio Grande property has provided new high grade intersections in the Soledad and Concepcion and Arcangeles veins including grades up to 25.2 ounces per ton of silver.

The Rio Grande vein system is large and well developed and has been shown locally to have appreciable silver grade development. Techniques such as fluid inclusion systematics and geophysics will vector future drilling towards [fluid up] flow zones within the vein systems. We continue to be very excited about this project, and we've really just begun to drill these veins and identify the broader high grade portions.

At the Silver Valley in Idaho, surface drilling was initiated on the important gap directional drill program to evaluate the potential for additional silver resources in the 25 foot area above where mining is currently occurring. This is the beginning of a nine-hole directional drilling program and results will emerge over the next four to five months. Six drill holes tested the strike extend of the near surface western extension of the Gold Hunter, [Yoland] and American Commander veins. All holes penetrated vein mineralization that range from narrow stringers to multiple vein zones.

Partial assays indicate that silver bearing mineralization continues to the west of the old workings. With the extrapolation of regional folks and stratigraphy in 3D space, we have identified three regional structures that are the focus of our current exploration activities in the Silver Valley. Detailed 3D modeling and resource assessment is underway on the Star mine, with remodeling of the Star Phoenix infrastructure from 1990s to provide an assessment of the economic viability and exploration potential of the upper resource blocks in this historic mine.

In addition to looking on our own 25 square mile property position, Hecla recently signed exclusivity agreements with 33 companies, that adds up to another 11 square miles of property. The integration and evaluation of the exploration data from these claims has begun with an emphasis on the past producing Golconda mine and surrounding area. Continued additions to our land position in the silver valley make Hecla mining company the largest land broker in the valley. The silver resource at the Lucky Friday has increased by over 13 million ounces, and now totals about 130 million ounces. Infill and definition drilling was completed in the 5900 east area below and east of the current identified silver resource and is the main contributor to this increase.

Drilling from the 5900 level in the fourth quarter, has defined the western extension beyond the resource to the 6900 elevation and will extend the 30 vein resource modeled deeper and to the west in the future. This drilling has also returned significant assays on the intermediate vein called the [nani] vein.

In the coming year, we anticipate both an increase in overall resources at the Lucky Friday and in places an upgrade in the confidence of the resource quality. Drilling has shown the 30 vein to extend down to 8,000 feet, and that likely goes even deeper than that. Fourth quarter drilling from the newly developed western spurge rift in the Gallagher area of Greens Creek intersected 12 feel of sulfides that may correlate with the previous surface holes, defining a possible new resources.

Another hole targeting the upper plate, North Northwest ore zone had one significant intercept of 3.6 feet of massive sulfides. These results are further indication that reserves and resources continue to be identified in close proximity in the Greens Creek mine infrastructure. Results from surface and underground drilling during the year at Greens Creek have identified mineralized mine contact rocks, both close to the mine infrastructure and along the full extent of this large and perspective property.

Of great significance is an intersection from the surface drill hole, northeast of the current mine working that identified multiple "mine horizon" intervals. This intersection could open up an entire new area to explore for mine extensions in close proximity to the current mine infrastructure. Follow-up drilling of this target for the summer has being designed. Drilling at the Isadora mine in Venezuela has identified high grade gold shears below the current mine infrastructure and drilling along straight to the west has identified in new footwall shear with impressive gold values.

Assay Intersections of the new footwall shear are over one ounce in varying thickness from one half to two meters. Significant potential exists to depth and on straight to the east. The newest exploration acquisition is the San Juan Silver mining joint venture that represents the consolidation of the Creede mining district in Colorado in to a 25 square mile land package. Included in the package is Homestake's Bulldog mine that produced 25 million ounces until closure in 1985. A detailed review of Homestake Creede properties in 1988 identified a measured resource of 48 million ounces of silver at the Bulldog and North Amethyst mine. Drilling around the mines outlined an additional 50 million ounces of silver in inferred resource category.

We believe that this land package with it's over 30 miles of projected vein structures will provide many opportunities to expand the resource well beyond these numbers. Although Hecla continues to expand on its property holdings in Mexico in the silver valley, we are currently developing the mineral deposit database for Southeastern Alaska and Northwestern British Columbia in order to take advantage of exploration and acquisition opportunities from our basic Greens Creek.

We also continue to evaluate exploration and corporate development opportunities to enhance our broadening activities. And with that I'll pass to Mike Callahan.

Mike Callahan

Thanks Dean. I'll keep my comment on Venezuelan operations quite brief today. We saw some very positive results in the fourth quarter so we ramped back up to full production. We saw some very high grades out of Mina Isidora which average over 30 grams per ton for the quarter. On the flipside, production was hampered by a labor dispute in December and some low equipment availability.

One significant issue I guess regarding the equipment availability was not related to the operations, but a result of the agency that oversees the currency controls for the importations of good that were not functioning during December and the transactions cannot be performed. The issue was resolved and the agency was functioning again in January.

Even with these events and a blockade earlier in the year, the cash flow from operations out of Venezuela was $16 million in 2007. On a political front, the focus in the country during the fourth quarter was really on the 69 new constitutional reforms that President Chavez had proposed. The proposed referendum was voted down by a narrow margin, and this arguably the most significant election event in the last 9 years. It demonstrates that democracy still exists in Venezuela, that people don't want one leader for a life time and it brought life back in to the opposition party.

And the reason that this is important is because in December of 2008, elections are going to be held for Governor and Mayor positions throughout the country, and it separated some of the political parties that had previously supported President Chavez. The strategies for Chavez and the opposition party have yet to be unveiled and the significance of these if any will unfold in the coming months.

And with that I guess I'll turn it over to Phil for closing comments.

Phil Baker

Just a couple of things, thanks Mike. The charitable foundation that we've formed and the idea behind this is to have the ability to consistently have charitable activities in the communities that we operate in; in good economic times for mining industry [and bad]. And certainly one of the things that we've seen is the need to have that consistency and we think that by forming the foundation like this, we'll be able to do that.

The other thing that will happen is, as we close Greens Creek, we will at that point update our production estimates, our exploration expenditure estimates, our capital expenditure. And I guess with that Vicki

Vicki Veltkamp

Gina we would ask you to give some instructions for the question-and-answer period please.

Question-and-Answer Session

Operator

Okay, thank you. (Operator Instructions). And your first question comes from the line of Anthony Saracino, Saracino Metals. Please proceed.

Anthony Saracino - Saracino Metals

Good morning everyone.

Phil Baker

Hi, Anthony.

Anthony Saracino - Saracino Metals

Hi. With regard to the pre-feasibility study at Lucky Friday, are you still using hatch and do you intend to double check their work?

Phil Baker

Yeah we are still using Hatch engineers and look, we have a process of peer reviewing not just the work Hatch does, but our own work and work of others. So we will be quite careful. Ron do you want to add anything.

Ron Clayton

You hit it dead on. We've got back checks and double checks only to make sure everybody is on track.

Anthony Saracino - Saracino Metals

Okay, that’s good to hear. You had said that exploration spending right now is estimated at $25 million for 2008. Would you break that $25 million down by property?

Phil Baker

Yeah, someone has it. You got it right there, okay. Greens Creek 1.3 million, I'm sorry $5.7 million Lucky Friday; $1.3 million, the Silver Valley. So not Lucky Friday specific, but there's silvery valley is 5.7; Mexico 4.3, and Venezuela 3.8. Not sure what that adds up to. That’s about right. And whatever the balance is to get 25 will be unallocated. We will as we successful movement around.

Anthony Saracino - Saracino Metals

Okay, fine. Thank you very much and congratulations on a good 2007 and a great start to the New Year.

Phil Baker

Okay, thanks Anthony.

Anthony Saracino - Saracino Metals

You're welcome.

Operator

(Operator Instructions). And your next question is from the line of [Bill Soleski with August Research]. You may proceed.

Bill Soleski - August Research

Thanks. Good morning guys and congratulations on a good '07 and positive start in to 2008. I just had a quick question as it pertains to Venezuela with respect to your operations there. I know the political environment there is potentially changing. But I know the government had formally come out and said some rhetoric to the degree where they want to diversify some of their revenue sources by actually expanding the mining industry.

I was wondering if there's been any contact you've had with them recently, whereby they've given any indication as to changes forthcoming with reference to that. Has there been any commentary with you to them, with reference to any potential changes going forward, even in light of a potentially changing situation over the next few years.

Phil Baker

Generally speaking, no there hasn’t been any changes from what they've expressed over the course of the last couple of years. There has been a change in the Minister of Mining in January. And may be there'll be some things forthcoming. But at this point things have - in terms of what they've said, it has not changed pretty much, nor have the actions. Mike you want to add anything.

Mike Callahan

The only other thing that I would add is the fact that there has been some talk over the last 18 months of modifying the mining laws, but there has been nothing concrete that’s been delivered to anybody.

Bill Soleski - August Research

Okay. Great, thanks. Appreciate that.

Mike Callahan

Sure.

Operator

Your next question comes from the line of [Howard Finkler with Finkler & Company]. You may proceed.

Phil Baker

Hi Howard?

Howard Finkler - Finkler & Company

Hi guys. What are your actual shares outstanding before you diluted at the end of the year, not the average? If you include the convertible and preferred.

Phil Baker

We will look that up to see what the exact number is.

Howard Finkler - Finkler & Company

While you're doing that I have a second question. May be

Phil Baker

Sure Howard.

Howard Finkler - Finkler & Company

In your total cost in La Camorra, it is something like 750 or whatever the number 730, 780 - I don't remember. Does that include loses on 760 to 783 in the fourth quarter. Does that include losses on foreign exchange where an (inaudible) government gives you about half of market is?

Unidentified Company Representative

I mean, when we do our calculation, it is being done based at the official rate.

Howard Finkler - Finkler & Company

An official rate.

Unidentified Company Representative

We are having the disadvantage of having cost of equipment, whether it is in priced bees (inaudible) or it is an U.S. dollars having to get currency at the parallel rate. That is all getting reflected in that cost number.

Howard Finkler - Finkler & Company

And when you sale gold, do you sale at a dollar price or do you sale their price in, (inaudible) bullion bars.

Unidentified Company Representative

We sale it priced in bullion bars.

Howard Finkler - Finkler & Company

As they define the bullion bars.

Unidentified Company Representative

Yeah, that's right.

Howard Finkler - Finkler & Company

And I think they define the bullion bars that probably two or three times, basically they are probably two or three times with the market. Is that correct?

Unidentified Analyst

What's the difference between its.

Unidentified Company Representative

While the official rate is 2.15 and.

Unidentified Company Representative

Around 5, fluctuating rate is around 5.

Howard Finkler - Finkler & Company

Just one and half. So are those expenses melting that into your cost or they are separate in the category of revenues? Because if you are getting 2.5 and it is really 5 to 1, you are really getting 2/5 of the market price for gold. You have to sell the gold to the central bank, do you know?

Unidentified Company Representative

No, we don't. You (inaudible) central bank refuses to buy gold at this point.

Unidentified Company Representative

Essentially, the revenue, the U.S. dollar price of gold converted bullion bars. It is a local currency at the at the official rate.

Howard Finkler - Finkler & Company

At the official rate?

Unidentified Company Representative

Yeah.

Howard Finkler - Finkler & Company

Let me think about that. If you get $800 at the official rate but the real market rate is two-fifth of that, you're ending up a lot less than $800, aren't you?

Unidentified Company Representative

That's correct.

Howard Finkler - Finkler & Company

Okay, and net difference is accounted in your revenues, but not in your cost, correct, because I just want to understand?

Unidentified Company Representative

That's right.

Howard Finkler - Finkler & Company

Okay.

Unidentified Company Representative

The vast foreign exchange is included in the foreign exchange loss.

Howard Finkler - Finkler & Company

Okay, and I'm kind of surprised that you didn't made that much money if you exclude all the unusual items in the fourth quarter and why is that, I saw some reasons but I'm not sure, I'm clear about this?

Unidentified Company Representative

Not following you Howard, in terms of not making much money or specifically, what are you referring to?

Howard Finkler - Finkler & Company

Well, I'll read you the number, where is that income statement, stay with me, I've -- income from operations fourth quarter, $1.4 million other than the tax benefit which came from all the years of losing money. So, the price of silver was up, the price of gold was up, the price of lead was up, the price of Zinc goes down and I'm excluding the foreign exchange losses, I'm not even charging you for that.

Unidentified Company Representative

(inaudible) the $1.1 million income form operation also included the $5 million charitable contribution.

Howard Finkler - Finkler & Company

Yeah, I see that.

Unidentified Company Representative

It also included the impact of the negative $3.5 million of negative price adjustments on provisionally priced metal and concentrate during the quarter so, that sort of fluctuates from quarter-to-quarter as the metal price change. In the fourth quarter with the drop in zinc and lead prices

Howard Finkler - Finkler & Company

Well, you can make an excuse about the negative price adjustments, but the fact is you sold it at a lower price, you decided that was a good price, I'm not arguing with that decision. That's part of your cost. If you sold it at $0.10 less than what the price is, that’s the price. And still if you add back the $5.1 million for the charity, you still end up with $6.5 million, which is half of what you made last year. And last year prices of commodities were much lower. So, what would it take for you guys to make a lot of money?

Dean McDonald

Well, as Lew has said, you've got the negative price adjustment; I don’t remember what the price adjustment was in the fourth quarter of 2006. I suspect that it was positive. See, you've got a big swing that occurred year-on-year, so

Howard Finkler - Finkler & Company

What is the positive number in the income statement for '06?

Phil Baker

We had half the production in gold well in the first quarter. We’ve produced 22,000 ounces of gold

Howard Finkler - Finkler & Company

That’s essentially Venezuela, right?

Phil Baker

That’s right.

Ron Clayton

It was produced at a physically higher cost.

Howard Finkler - Finkler & Company

Okay. I didn’t really get an answer but I did get an answer.

Phil Baker

(Inaudible), kind of going back to your first question on the fully diluted share.

Howard Finkler - Finkler & Company

Oh yeah, Thank you. Right, I forgot.

Phil Baker

I 'm going to say this is a little bit rough, but.

Howard Finkler - Finkler & Company

Okay.

Phil Baker

It was about the 121 outstanding in the mandatory convertible, that’s about another $16 million and then there is probably about another $4 million or $5 million in options. So you are probably looking around a 100 and

Howard Finkler - Finkler & Company

$141 million, $142 million, including $4 million or $5 million in options?

Phil Baker

Yes, sir. The other thing I guess I would say Howard is we're pretty committed, not pretty committed, we are very committed to the exploration effort that we are putting in. We think these are mining districts that deserve that level of exploration. So on a relative basis to at least some of our peers you would see us spending more on exploration.

Howard Finkler - Finkler & Company

Okay thank you.

Phil Baker

Your welcome.

Operator

Your next question comes from the line of John Doody with Gold Stock Analyst. You may proceed.

John Doody - Gold Stock Analyst

Hey good morning guys congratulations on a good year.

Phil Baker

Hi John. Thank you.

John Doody - Gold Stock Analyst

Three questions really. Following upon the number of shares outstanding, I guess that total a roughly $140 million does not include the recent deals announced and the shares that will be issued with each of them.

Phil Baker

That’s the number at the end of the year Howard. Not Howard, John.

John Doody - Gold Stock Analyst

Yes. Okay, good. I would like a more color on the Colorado and the purchase of the independent lead mine, what’s that about? You are spending roughly $70 million for that operations is that in production, is it - tell me why that makes sense for $70 million?

Phil Baker

Sure we realize what independence lead is. Despite its name it's actually one of the original land holders of the Lucky Friday. So it owns 18% of the land that are Lucky Friday expansionary is mining from today. In addition to that it has land adjacent to our mine. And we lease from them the land. We lease that 18% interest. And so we though it was, and when the opportunity came to acquire that 18% interest and take - just reduce some of the complications that you have from having an owner besides ourselves on that land package, realized that when a -- where there is a reimbursement account which at the end of 2006 was $30 million at roughly and at the end of 2007 was about $15 million, realized that when that reimbursement account goes to zero, then we would have to depend up on Independent Lead should they elect to have an operating interest to come up with the capital for the expansions of the Lucky Friday going forward.

So just complicated how you would finance and operate these new capital expenditures that we're anticipating to have there. So we thought when the opportunity came to clean up the whole land package, we thought it was worthwhile to do that.

John Doody - Gold Stock Analyst

So, you were paying them -- you essentially funded their share of the expansion cost and they were ruining that off with annual royalty applied against what they owed you for their share of the expansion?

Phil Baker

Yeah, they got a small royalty and then what we got were all of their share of the proceeds until the reimbursement account goes to zero.

John Doody - Gold Stock Analyst

Okay, so they would have had 18% of output effectively.

Phil Baker

At some point in the future, we don't know when, it all becomes the function of the metals price and the amount of capital that we're spending and we're not sure that we would ever in the short-term have gotten to a point where we would be relying upon them to contribute their capital in the future. But we just didn’t want to get there in the short-term given the large programs that we’re anticipating we'll have.

John Doody - Gold Stock Analyst

So I could think about it this way, since you are expecting to do about 5 million ounces a year in the fully expanded mode. They would have been entitled to roughly 1 million ounces a year of the production and you prepaid for it, you bought them on.

Phil Baker

That’s right, we would hope that we would, we could go to 5 million. We’re going to make any projection at this point, until we completed all of our studies. But yes, using that has a hypothetical. That would be right.

John Doody - Gold Stock Analyst

Okay, good. So, it looks like a good deal?

Phil Baker

Thanks, we think so, I mean -- we think it’s a fair deal for both of us.

John Doody - Gold Stock Analyst

Now, are there any -- can we sell those shares anytime they want, once they get there?

Phil Baker

In fact it’s a [sea] reorganization under the internal revenue code and as a result, they will have to liquidate the company in very short order. So, what will happen is those shares will be distributed to their shareholders. So, its not going to be a big block of stock John, that one person has, but that will hit the market. It's going to distributed among their thousand shareholders.

John Doody - Gold Stock Analyst

Okay. So there's over 1,000 shareholders.

Phil Baker

Yes, I am not sure the exact numbers, its…

John Doody - Gold Stock Analyst

Let's not count.

Phil Baker

Exactly, it’s a public company. It's been around since 1932 is that my recollection yes, since 1932.

John Doody - Gold Stock Analyst

Okay, good. And the other question had to deal with Colorado, and it seems like a very interesting acquisition. What’s the current environmental situation at this formally mined site and also what's the permit situation in Colorado now. Permitability.

Phil Baker

Well I guess there is two things that I would comment, and I'll let one of my colleagues jump in here. But first of all realize that a large, well not a large portion, but a reasonable portion of the veins that have been identified sit on patented ground that Homestake had. So with respect with permitting, doing things on patent ground will certainly be much easier. With respect to permitting on the unpatented ground, there is a real interest in seeing mining activity in that region. We think the process will be as good as you can have it in Nevada or any other sort of mining friendly place. So we feel good about that. In terms of existing environmental issues or even other permitting comments Ron, I guess I will let you..

Ron Clayton

You actually hit the permitting comments perfectly. I mean we have done the research, the homework. We've worked with people and talked with people and we expect it to be very similar to what you would see in Nevada and other places. And there is a community there that's very supportive of the starting. In terms of current environmental liabilities that I would characterize that as pretty typical for a mining camp there is nothing particularly of stark interest there.

John Doody - Gold Stock Analyst

So there is an old tailings there?

Ron Clayton

There is actually some old historic workings and some mine dumps and things like that. The historic tailings stand from the Homestake days has been reclaimed.

Unidentified Company Representative

Okay. Good.

Phil Baker

One other John about this is. This is a, this is a, it was a very nice mine for Homestake in fact Ron actually worked there. So it's is a property we know something about first hand knowledge. And the unique thing that's happened much like what's occurred in the silver valley is that, what was broken into a number of different companies properties have now all been consolidated into one, and we think that makes for a huge difference for us to come in and put together 100 million plus resource that we could some day turn into a mine.

John Doody - Gold Stock Analyst

Alright, good, well, it's exciting to see these, all these actions you guys are taking.

Phil Baker

Okay, hey thanks John.

Operator

(Operator Instruction). And the next question is from the line of Borden Putnam with Eastbourne Capital. You may proceed.

Phil Baker

Hi Borden.

Borden Putnam - Eastbourne Capital

Good morning guys, how are you?

Phil Baker

Good.

Borden Putnam - Eastbourne Capital

Good questions and good discussion so far, lots to follow up on. I’m curious about the reserve additions at Lucky Friday, Ron, if I could talk to you about that. You've changed your price tag reflecting the improved prices, but you haven't gone obviously all the way up to the current prices. I’m just wondering how much of the reserve increase at Lucky Friday relates to price versus drilling intersection or if I can say so mechanical conversion of resources to reserves.

Ron Clayton

Borden, I’m not going to be able to answer your question directly, but there's certainly a portion of it. I think you are aware that we calculate the previous three years average for prices as you're generally guided by the SEC and use that for our prices for reserve calculations and we do the bulk of that calculation actually comes at mid year before budget time and then we deal with production in the second half of the year, so that's -- its backed by reflective. I can't -- I don't want you to hold me to the numbers, but I would

guess that something on the order of roughly 40% or 50% of that maybe price related.

Borden Putnam - Eastbourne Capital

Okay.

Ron Clayton

But I can get back to you, it's not over that, I don’t believe. I mean we added some because of the drilling that we both deep and along, and I think long strike.

Dean McDonald

Borden this is Dean and certainly, and I don’t have the number either, but there was significant new additions to the resource at debt, and so my number maybe a little bit high that I gave you.

Phil Baker

That’s okay, that was actually was wondering that exactly, whether it was, you are extending it debt based on conversion of resource. And what about say the thickness of the body. Did it changed with reflecting these price implements? On a certain level, does it embrace more tonnage?

Ron Clayton

If it did that change is pretty minuscule skill on the ground scheme of things here.

Borden Putnam - Eastbourne Capital

So, you still have the opportunity to make a decision to take extra not in reserve tones, why you're mining when you intersect some of these intermediate?

Ron Clayton

And frankly at Lucky Friday and Greens Creek both, every single year there is tones that come in to that production that are outside of the plans because of the delta between prices and…

Phil Baker

No one outside plan, but outside the resources.

Ron Clayton

Outside the resources, right because of the delta between the actual prices and the reserve price, the resource price that we used to calculate for resource. And that’s an opportunity that we take every time we get a chance. Our people are real good at this.

Borden Putnam - Eastbourne Capital

Exactly, Dean you talked about an additional horizon at Greens Creek. I wanted to make sure you said that the same does outcropped and you intersected it, you think in some deeper drilling. Is this not a horizon that has been historically mined or help me understand the --?

Ron Clayton

As you know Borden, the mine horizon really reflects that submarine accumulation of sulfite. The question that always occurs not only at Greens Creek but with most of the VMS deposits, are we looking at more than one of those horizons and there isn’t an answer for that.

Borden Putnam - Eastbourne Capital

I see.

Ron Clayton

What we do know is that what we have intercepted in the drilling that. I described is a rock package, an alteration package that are a replication of what we see in the mine.

Phil Baker

But it is physically, apart from the mine. I mean this isn't and actually physically apart it is close enough to reach from the mine. But I mean this is not an area that we have previously known of.

Borden Putnam - Eastbourne Capital

Yeah.

Ron Clayton

But why we are excited about it, Borden is that when we drilled in the past it had been presumed that it was all footwall argillite. What this drilling shows is that in fact the repetition of that mine [stratography] is in the footwall. That may, it maybe related to folding, it maybe related to faulting. At this point we don’t know.

Borden Putnam - Eastbourne Capital

Okay.

Ron Clayton

But it's done is said no that's not simply a big argillite package, in fact there maybe quite a bit of mine horizon in that area?

Borden Putnam - Eastbourne Capital

And how far distant or at depth is this from the existing area of workings?

Ron Clayton

Depending on what level it is, it's certainly within three-quarters of the mile.

Borden Putnam - Eastbourne Capital

Okay. Ron, on the staff up at Greens Creek, what does it look as far as your ability to retain versus attrition losses? It's a tough time for the industry to find talent and you've got a lot of experienced guys up there. Are they wanting to stay with the project, what's the general?

Phil Baker

Borden, I think the general answer is that we have the intention of trying to retain every employee that's at Greens Creek, and we’ve gotten a very positive reception to Hecla being the company that is acquiring Greens Creek. They know us, it's not a situation where they think they're going into the unknown. And we do not have an intention of making dramatic changes there. So, the intention is to keep as many of people as we can. There are few peoples that just of handful, less than handful that Rio might like to see stay with them, but we'll see if we can retain even those people.

Borden Putnam - Eastbourne Capital

Back on Venezuela for a second, I don't want to get too bogged down on this again. But when you are receiving two-fifths of the current gold price and your cost are not reflecting favorably that way and you've got difficult foreign exchange. Is that really where you want to spend a significant portion of your exploration budget, I’m a little confused of the allocation of capital to that region.

Phil Baker

I guess the way I'd put it Borden, given the geologic prospectivity, you would typically spend a hell of lot more than what we're spending.

Borden Putnam - Eastbourne Capital

Right.

Phil Baker

So this amount that we're spending we view as sort of the minimum amount in order to try to continue to extend mine life, in order to continue to operate their. But it's not as much as the geology would suggest should spend. Is that a reasonable way of characterizing it Dean.

Dean McDonald

Yes, the amount that we're spending on exploration in Venezuela really is very much focused around the Isadora and on parallel shear zone. So, we're not doing grassroots exploration or anything like that. It's very focused, it's very much on the drilling end of the exploration spectrum. So the figure that Phil mentioned really covers probably 15,000 meters of drilling and a bit of additional work, and so to my mind that’s probably bare bones exploration project if you want to stay in Venezuela and have a viable operation in the future.

Borden Putnam - Eastbourne Capital

Okay. Thanks.

Phil Baker

Thank you, Borden.

Operator

Your next question comes from the line of [Terry Wei with Baratta Asset Management]. You may proceed.

Terry Wei - Baratta Asset Management

Hi, that's Carry Wei, Baratta Asset Management.

Phil Baker

Hi, Terry.

Terry Wei - Baratta Asset Management

I wanted to ask just the number of shares outstanding post all these transaction. What would that be?

Phil Baker

Well, at this point it would be the $140 million plus. Yeah I guess 148 to 149, call it a 150 at this point.

Terry Wei - Baratta Asset Management

Okay, $150 million. And do you have an estimated cash flow for 2008, if you could just book in something. I think you've thrown some numbers post the Greens Creek acquisition announcement? Do you have numbers for that company as a whole?

Phil Baker

Of course it all becomes a function of price assumption that you make, but order of magnitude, cash flow from the properties before our sort of corporate and exploration spend would be order of magnitude $230 million I would guess. That sounds about right.

Dean McDonald

Yes.

Terry Wei - Baratta Asset Management

And my understanding was that your average price that you were using in those, in the initial estimate from just from Greens Creek acquisition was a number lower than current market for gold, silver and I don’t know what number were for lead, zinc. But do you have a range for those, are they embedded in your assumptions for '08 or your guesses for '08?

Phil Baker

Well you know look our guess as far for the prices for our metals frankly, I think silver is going to be well over 20 bucks. I think you will see lead continue and zinc continue to be strong and possibly see gold over a $1000. So the sort of price assumptions reviews have been, have been very conservative relative to where I think the prices could go for the year. And that has just been sort of the pattern that we've operated on you know for the last six, seven, eight years. It is trying to use lower prices than we think we'll see in order to truly control the cost side of this picture. And I think we have done a good job of that of maintaining our cost structures.

Terry Wei - Baratta Asset Management

Okay. And the last thing was, what would be your plans for your cash flow, let us say you are ending 2008 in these cash flow projections are largely realized. What would be your uses for the cash?

Phil Baker

Well certainly we will be paying down debt, but in addition to that we will be in the midst of these capital programs, particularly for the Lucky Friday. We would anticipate post to Greens Creek closing that you'll see the exploration spend would be somewhat higher than the 25 million that we're at today. So they would be those sorts of things and then of course we're looking for another -- other assets that we might be able to bring our mining expertise to.

Terry Wei - Baratta Asset Management

Okay, great. Thanks a lot.

Phil Baker

Thank you, Terry.

Operator

Your next question is a follow-up from Bill Soleski with August Research. Please proceed.

Bill Soleski - August Research

Hi, just a quick questions for Phil, as it pertains to Greens Creek. I know you've guys had a long relationship with these with Rio, with reference to this and it seems basically I know branded for the acquisition. Could you add any more color as to the whole negation process, I can see it from the Rio point of view obviously with where they are going so and can you talk about any trust issues, I wouldn’t expect any but may be could you comment on that?

Unidentified Company Representative

Look, we’ve had a 20 year relationship with Greens Creek and I can say that its been a particularly close relationship with them going back to certainly since I have been Hecla going back to 2001, in fact I would characterize Rio as having been quite helpful to us when we are in very difficult times in 2001 and '02, so the trust is that we have with one another I think is as high as two companies can have and so we feel quite good about both of us following through on the transition that needs to take place with our acquisition. It was the discussions of the transition came quite early on in negations with them. So, think its as good as you can get.

Bill Soleski - August Research

Okay. And do you foresee any trust issues, I wouldn’t expect any at all. But can you just talk about that for a sec?

Unidentified Company Representative

Do I foresee any trust issues. No.

Bill Soleski - August Research

(inaudible)

Unidentified Company Representative

And high trust, I am sorry. I misunderstood. No, we're not anticipating any. We have done the filing and we don’t see any issues.

Bill Soleski - August Research

Okay. Great, thanks.

Operator

That was the final question, this concludes the Q&A session. I would like to turn the call back to the Vicki Veltkamp, for final remarks.

Vicki Veltkamp

Well, I just like to thank everyone for joining us. This has been the Hecla Mining Company fourth quarter and year end 2007 conference call. If you have any further questions, you can call me at Vicki Veltkamp, at 208-769-4144. And I would like you to have a great day. Good bye.

Operator

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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