Hecla Mining's (HL) CEO Phil Baker on Q3 2015 Results - Earnings Call Transcript

Hecla Mining Company (NYSE:HL) Q3 2015 Results Earnings Conference Call November 4, 2015 10:00 AM ET

Executives

Mike Westerlund - Vice President, IR

Phil Baker - President and CEO

Jim Sabala - SVP, and Chief Financial Officer

Larry Radford - SVP, Operations

Dean McDonald - SVP, Exploration

Analysts

John Bridges - JPMorgan

Anthony Sorrentino - Sorrentino Metals

Garrett Nelson - BB&T Capital Markets

Trevor Turnbull - Scotiabank

Tyler Gately - Wells Fargo

Operator

Good day, ladies and gentlemen and welcome to the Hecla Mining Company Q3 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, this call is being recorded.

I would now like to turn the call over to Mike Westerlund. You may begin.

Mike Westerlund

Thank you, operator. This is Mike Westerlund, Hecla’s Vice President of Investor Relations. Welcome everyone and thank you for joining us for Hecla’s third quarter 2015 financial and operations results conference call. Our financial results news release that was issued this morning before the market opened along with today’s presentation, are available on Hecla’s website.

On today’s call, we have Phil Baker, Hecla’s President and CEO; Jim Sabala, Senior Vice President and Chief Financial Officer; Larry Radford, Senior Vice President, Operations; and Dean McDonald, Senior Vice President, Exploration.

Any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act and constitute forward-looking information under Canadian Securities law as shown on Slide two. Such statements include projections and goals which involve risks detailed in our Form 10-K, Form 10-Q and in the forward-looking disclaimer included in the earnings release and at the beginning of the presentation. These risks could cause results to differ from those projected in the forward-looking statements.

In addition, in our filings with the SEC, we are only allowed to disclose mineral reserves who are ore deposits that we can economically and legally extract or produce. Investors are cautioned about our use of terms such as measured, indicated and inferred resources which are not reserves and we urge you to consider the disclosures that we make in our SEC filings.

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

Phil Baker

Thanks, Mike. Good morning everyone. I’ll start on Slide 3. The third quarter generally met our expectations. Greens Creek continues to have strong production while production at Casa Berardi and Lucky Friday were similar to the second quarter. We saw the impact of operating in a lower price environment on our financial results, including having higher cash cost after byproduct credits. But despite this, we have $174 million in cash on the balance sheet.

At $7.52 per silver ounce, the cash costs after byproduct credits are higher than we've had since I’ve been at Hecla. We believe this unique to this quarter caused principally by lower byproduct metal prices as well as lower than normal production at the Lucky Friday. This really is a testament to the strength of our operations that our highest cash cost quarter is the lowest for many other companies. With Lucky Friday at full production, I am confident costs will decline.

We’ve spent the balance sheet down a bit this quarter as part of our commitment to continuing our investment and capital on exploration programs to support growth of longer mine lives and more consistent operations. We see value in spending this money and it is in part due to these investments that we're looking forward to a stronger fourth quarter and 2016.

So why the optimism? Well, the new ventilation fans for Lucky Friday are installed and our new drift in operating allowing us to get back to the higher grade 16 stope which is expected to increase production and reduce cash costs net of byproduct credits in the fourth quarter. Larry is going to show a picture of 16 stope in a couple of minutes giving us our first glimpse of the high-grade material which is pure galena that is the target of the deeper Lucky Friday. Casa Berardi is also accessing high-grade materials this quarter, including the 123 Zone which we recently discovered reinforcing our belief that Casa will have a strong fourth quarter of gold production.

Greens Creek continues to perform strongly. The increases in recovery are continuing as expected. And we're making great progress at San Sebastian and expect to be mining ore by the end of the year. So we expect strong performance from each four mines in the fourth quarter but I want to focus on two of them: Casa Berardi and San Sebastian, their implications for 2016.

First, Casa Berardi. The fact that we have made discoveries of new high-grade material is not a surprise to us. One of the key reasons we acquired the project was its exploration potential and we’re starting to realize that potential with these discoveries. There remains plenty of underground – I am sorry – there remains plenty of under explored ground around the mine. I think if you look closely at the numerous areas of good widths and very high-grade that will show up in Dean’s presentation, you’re going to agree with me as to the potential that we're now starting to realize at Casa.

We also expect the drilling efforts this year will continue to expand reserves and resources. At Casa, we are considering how to bring the first of the surface pits into operation in order to increase our flexibility and relying on the underground ore and more fully utilize the mill. This work is ongoing and we’re encouraged by the potential for these pits to be brought in quicker and with significantly less capital than originally expected. We will have more to say about this early next year when we announce our plans.

And going to Slide 4. At San Sebastian, we are working to bring this mine into production quickly. We recently completed the PEA and on October 30 we filed the technical report in Canada and a summary of it is shown on the slide. At prices close to today’s, the project should generate $43 million of free cash flow over 18 months from 8 million silver equivalent ounces requiring roughly $6 million in capital for an internal rate of return of above 400%. We see this is the right project right now. We believe the combination of these strong potential economics, our previous experience mining on the property and the small pit size and proximity to surface makes mining this high-grade material a low risk proposition. And we're pushing forward full speed ahead.

As I mentioned earlier, we are in the midst of our planning for 2016. To date we've kept our powder dry on measures other companies have taken, measures that I generally characterize as reducing expenses that will need to be made up in the future. But if pricing conditions worsen, we can still pull these levers.

On Slide 5, we look at our expectations for the year. On October 20, we announced that we have increased our estimate for Greens Creek’s gold production to 59,000 and decreased our estimate for Casa Berardi to 126,000, keeping our overall gold production estimate at 185,000 ounces for the year. In addition, we expect to be at the higher end of our 10.5 million to 11 million ounce estimate for silver.

Now I will turn the call over to Jim for the third-quarter financial review.

Jim Sabala

Thank you, Phil. The third quarter of 2015 was as we expected. We continued to achieve consistent results with estimates earlier in the year despite lower metals prices. So let’s start with production.

On Slide 7, you can see our silver production decreased 10% to 2.6 million ounces due entirely to the temporarily reduced production at the Lucky Friday mine which was partially offset by increased Greens Creek production. Our gold production also increased 3% to almost 44,000 ounces primarily as a result of higher recoveries at Greens Creek.

While in typical quarters we say production drives the financial metrics, in the third quarter they were driven by the weakness in metals prices, with average realized prices for silver, gold, lead and zinc down 22%, 12%, 24% and 22% respectively, compared to the third quarter of last year.

On Slide 7, we summarize the key financial statistics for the third quarter of 2015 compared to last year's comparable quarter. You can see the impact of lower prices on revenue down 23% to $105 million and non-cash cost after byproduct credits per silver ounce which increased to $7.52 primarily as a result of lower lead and zinc prices and higher costs associated with the lower throughput at Lucky Friday, the result of the Q3 ventilation issue that has now been fully corrected. Our cash cost after byproduct credits per gold ounce of $793 is a reduction of 12% over Q3 2014 principally due to the weaker Canadian dollar versus the US dollar.

Operating cash flow increased $25 million due to the fact that in 2014 we had the final payout of the Basin settlement that was not repeated this year as that matter was permanently put behind us.

In spite of lower prices on Slide 8 and the resulting high cash costs which remained at the lower end of the spectrum for our industry, we continued to report excellent margins. As shown on Slide 8, silver operations delivered a cash margin in the third quarter of 48% sales or $7.02.

And as shown on Slide 9, Hecla continues to offer the investor a truly diversified revenue stream, with 42% of our revenue from gold, 29% from silver, 19% from zinc and 11% from lead. We also have diversification among three distinct mines with 52% of our revenue now coming from Greens Creek, 13% from Lucky Friday and 35% from Casa. The charges are bit skewed this quarter due to the lower production at Lucky Friday and Larry will talk about how it is going to get back to normal operations in just a moment.

With the lag down on prices this quarter, we’ve opted to optimize substantially all of our base metal forecasted contracts. This is a continuation of our strategy from the second quarter adding an additional $4.4 million of cash for the quarter, bringing us to $16.5 million year-to-date in additional cash from early base metals contract settlements. When we see the base metals prices rise, we expect to begin putting on forward contracts again. We continue to use contrast to predict [ph] revenue from the time of shipments to settlement, also known as provisional sales for all of our metals.

Finally, on Slide 10 we show our liquidity trend. We have $174 million in cash and equivalents. Consequently we have over $270 million in total liquidity available to the company.

On a personal note, I have decided I will retire at the annual shareholder meeting in May of 2016. I started my working career at the Lucky Friday mine in 1972 and it’s only fitting that I retire with the same company. I take comfort knowing that I am leaving Hecla the stronger than when I joined. I enjoy the work and more importantly the people of Hecla but the time comes in all our careers to turn over the rein to next generation of managers and that time has come for me. I will certainly miss it.

With that I will turn the call over to Larry for a review of operations. Larry?

Larry Radford

Thanks, Jim. On the operating side, Lucky Friday’s production was light and per ounce cash costs after byproduct credits were higher [indiscernible] the ventilation booster fans. But when it came up with the plan to resolve this issue, we needed to replace the fans as you see on Slide 12, with more robust units. We installed them in parallel rather than in series as they were before which means we shouldn’t have the risk that one fan will affect the other, and if we need to do maintenance on one of the units, the other can continue to operate as normal. The new fans have been running since October 1. That is now behind us and we are moving into the higher grade stope and expect our silver production to jump up in the fourth quarter.

Regarding the 4 Shaft project on Slide 13. On September 30, we were at the 8244 level. We have made the decision to take the final depth to 8600 feet rather than 8800 feet previously planned. With this depth, we meet our goal of having access to the bottom of the existing resource at 8300 and the ability to explore and mine below this established resource. The shaft is more than 89% complete. We are on track for completion of this $225 million budgeted project in 2016.

On Slide 14, you can see a photo of the mining face in the 16 stope. Taken at the 6300 level, this photo shows the high grade that has been the justification for the 4 Shaft and deep in the mine. We are just entering the high grade area. They [ph] cut a 10 feet tall and the width is about 9 feet and they ran for about 35 to 40 feet at this level. The grade at this face is 97 ounce per ton silver and 47% lead. Everything you see outlined in red is the mining face and it is all galena.

This is what the future of Lucky Friday looks like and this is why we are investing in the 4 Shaft project. On Slide 15 is a graphic showing increasing net smelter revenue times thickness. The green oval shows darker shades of green which is a rich part of the ore body and at its maximum it’s about 500 feet long. The small red star at the top of the oval where we are currently mining in the 16 stope and how it is just touching the upper limit of the high grade material. We expect the silver grade will increase about a half ounce per ton each year for a number of years as we move deeper. Now at every face looks like this when I just showed you. But it is encouraging to see the 30 Vein transitioning into higher grades.

Moving on to Greens Creek on Slide 16, you can see it had another consistent quarter producing 2 million ounces at a cash cost after byproduct credits per silver ounce of $4.82. The increase in silver ounces produced is mainly due to higher recoveries that have resulted from changes we’ve made in the plan. Construction of the planned expansion of the Greens Creek tailings facility continues to progress.

On Slide 17, you can see that Casa Berardi produced 29,259 ounces of gold in the third quarter at a cash cost after byproduct credits of $793 per gold ounce. We expect stronger production particularly in the fourth quarter and into 2016 with the planned addition of higher grade stopes. Dean will talk more about the exploration successes we are having and I can tell you from an operations perspective we are very excited.

On Slide 18 is the graph representation of the design of the couple of these high grade stopes from the 123 Zone. For example, on the top left, you can see 1700 tons at 20 grams per ton and then on the bottom right there is 3500 tons at 16 grams per ton. As you can see they are fairly small but they provide a nice injection of high grade ounces into our mine plan.

Phil mentioned that we are taking a hard look at the surface pits at Casa. We recently received a permit to operate the pit. We are looking at how to bring the pits into production in this low price environment and the results were encouraging. But it is premature to go into details until we have a plan that is approved by our board.

Our San Sebastian property is advancing rapidly towards producing ore by year end. On Slide 19 is the photo of the stripping which is begun on the Middle vein and East Francine vein pits. Photos are from about a week ago and we now have exposed the Middle vein. We recently completed a preliminary economic assessment and last week, the technical report was filed to Canadian regulators.

As Phil mentioned earlier, the PEA demonstrates the strong financial opportunities we have at this project. The mill refurbishing and hiring of mill employees is proceeding as expected and we do not see any road-blocks to producing ore this quarter.

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

Dean McDonald

Thanks, Larry. During the quarter we had active exploration drill programs at Greens Creek, Casa Berardi and San Sebastian. All three locations continued to show strong results that should translate into new high grade reserves and resources in the future. A series of tables are provided at the end of the Q3 press release that shows impressive intersection at each of the sites.

At Casa Berardi, we have up to seven drills operating underground and on surface in key areas as shown in the longitudinal section on Slide 21. Strong drilling results have upgraded resources in the core 118, 123 and 124 zones and identified new mineralization in the 117, 123, 124 and Lower Inter Zones in the West Mine on the left side of the image. And in the East Mine, the 150 zone, 57 zone on the right side. The continued strong drilling results during 2015 have confirmed our expectation of the great exploration potential at Casa Berardi.

A detailed isometric view in Slide 22 of the West Mine shows the location of selected drill intersections in the quarter. From near surface at the 124 zone, along the down plunge trend to the deeper 118 and 123 zones, you can see that significant portions of the resources are being upgraded or added with intersections of over half an ounce gold with good mining widths. This stacked lens is defined in almost constant down-plunge mineralization or 5000 vertical feet and many lenses within each of these zones are open along strike and open at depth.

A detailed isometric view in Slide 23 of the West Mine shows the location of drill intersections in exploration target areas. Recent drilling of the Lower Inter zone defined two high grades gold veins east of the southwest zone that may link with the 109 and 113 zones. Deeper drilling of the 100 zone on the left side of this slide has defined broad mineralized zones have encompassed some high-grade shoots that can be traced for 50 feet vertically -- 500 feet vertically.

Exploration drilling on the 117 zone shown near the bottom of the slide has outlined two distinct gold bearing zones on either side of the Casa Berardi fault that are open in all direction. After an almost 15 year hiatus, the first drilling from surface of the East Mine on the 157 zone, on the right side of the image, intersected some high-grade gold intervals in a couple of veins. This drilling is the start of a reevaluation and exploration program of the East Mine that historically had some very high-grade gold production. The recent successes in both surface and underground drilling should allow us to expand the reserves and resources with increases in overall grade. The identification of significant new resource trends could prolong gold production for many years.

Moving on to the very exciting San Sebastian project. Slide 24 shows the longitudinal section of the three most prominent veins in the PEA study, the East Francine, middle and north veins at comparable scale. What is immediately apparent in the top right of the image is the small size of the East Francine resource relative to the others. But its significance is that it packs a big punch as the grade of this small pit could exceed 100 silver equivalent ounces per ton during production.

It is also important to note how small the pits are compared to the overall resource. The key takeaway is that there is a lot of material left for potential future mining.

While the PEA study was advancing, we continued with aggressive infill and exploration drill programs confirming the continuity of these high-grade veins and upgrading the confidence in near surface resources to measured and indicated categories. These near surface resources in all the veins are all oxide or super gene enriched and cyanide soluble. Infill drilling of the middle and north veins have defined additional near surface high-grade silver gold resources that are wider and of comparable or better grade to the resources that are the basis of the PEA study. At the middle vein, at deeper high-grade resource was infill drill and this could potentially be mined from underground in the future.

Successful exploration has identified new resources in all three veins as shown in the longitudinal since the last resource estimate in the first quarter. Based on these drilling results, revised resource models are in progress for each vein and these new resource models are expected to be the basis of new open pit designs and mine schedules before the end of the year.

Slide 25 shows the planned view of the veins at San Sebastian project in red and location of the proposed open pits in yellow. Exploration drilling in the past two quarters has extended resources along strike and at depth. More recent drilling has identified a western extension to the north vein and a possible extension of the East Francine vein to the east past the series of faults. A new vein that may be parallel to the East Francine has also been identified to the south in this area. Our active exploration program continues with the goal of further increasing the resources and extending the mine life.

Finally at Greens Creek we continue to draw high grade intersections that should add resources along the lower Northwest West, West Wall and Deep 200 South zones as shown in Slide 26. Exploration drilling has identified new high grade mineralization at the Northwest West 9A and Upper Southwest zones. Continued definition and exploration drilling in these areas should boost reserves and resources along the red arrow trend shown in the diagram and continue to extend mine life.

And with that, I will pass the call back to Phil.

Phil Baker

Thanks, Dean. Overall the third quarter was as expected and we see the four quarter as being even better.

As Jim mentioned that he will be retiring. I want to thank Jim for the strong contribution he’s made to Hecla as a leader, a mentor, a friend and my partner and together Jim and all of the management team and the board I think has transformed Hecla into a stronger company, positioned to grow and to prosper in the future. And that's really Jim's legacy with Hecla.

So with that, operator I'd be happy to open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from John Bridges of JPMorgan.

John Bridges

And I’d like to add my congratulations to you, Jim, thanks for your humor, thanks for your great – and just wondering on – congratulations also on San Sebastian, that’s nice news. I was just looking at the stuff and just wonder how you control – they were all controlled in that stuff, it all looks the same.

Larry Radford

The vein is actually distinct from the wall rock, we’ve actually exposed it in the middle vein, and it is very distinct but it is going to be a challenge to do ore control -- obviously we’re mining a narrow vein in an open pit. So we will have to be very selective and we’re talking about a very high great vein as well. What we’re going to do is we will start off with reverse circulation drilling to better define the vein and then as we expose the vein we will do a very detailed channel sampling. So we will only do this on day shift and we will have a very tight control. We will ship the ore to five stockpiles where it will sit and resample again before we ship it to the mill.

Phil Baker

Yes, as Larry has described it internally that we’re basically underground mining from surface.

John Bridges

Just coming back to the ventilation issue, maybe it’s Monday morning quarterbacking but you had the outage -- longer outage a year or ago, was ventilation something that you could have spent lot of time working on during that period or was this just a bolt from the blue that you had the problem with the fan?

Phil Baker

That is Monday morning quarterbacking. I guess I would say a few things and then Larry can jump in. I mean if you go back in time to when we had the mine shutdown, we didn't have access in lots of places for a long time and then when we did have the access our focus was on bolting and ground control. We did not recognize that there was a particular issue with these fans. And so we were surprised when we had the issue but -- and then when we brought in the experts to give us advice on how to move forward, we took the long path which was to develop a larger drift to be able to fit these things and in parallel rather than the narrow sort of configuration that the existing ventilation had so.

Larry Radford

Yes, another factor was that as we restarted the mine and as we go deeper, we’ve been ramping up for cooling systems, so it’s a bulkier cooling system and basically the fundamental premise is to send the heat up our exhaust gap and what that resulted in as we ramped up the system is water droplets going through the system and that threw our fans off-balance. So it was kind of an unintended consequence of cooling the mine better with the new system. That said, I mean Lucky Friday as you say since we’ve gone down, we’ve been rebuilding it ever since, part of the lower production in the quarter was due to basically putting in new gear into the silver shaft hoist, that was a part of it as well and we’ve been rebuilding Lucky Friday for three years. We have rebuilt the shaft, the hoist, the electrical systems. We’ve rehabbed 12 miles of tunnel and put in 50,000V. We certainly have gone down the path of rebuilding Lucky Friday and this was another leg of it.

Operator

Our next question comes from Anthony Sorrentino of Sorrentino Metals.

Anthony Sorrentino

Are the new discoveries at San Sebastian likely to increase its life or increase its production per year or both?

Phil Baker

If it does anything it’s probably the extension of mine life, it’s still too early to say what sort of increase it will be. It's probably quite small at this point but we’re encouraged. Dean, anything to add?

Dean McDonald

No, outside of the fact Anthony that we continue to find things near surface and so it may come a point where we’re just adding on additional pits which allow us some flexibility. I think the other component is that we’re finding very high-grade material further at depths and in time I would expect it to become at least partly an underground mine.

Operator

Our next question comes from Garrett Nelson of BB&T Capital.

Garrett Nelson

Hey, on the Lucky Friday number 4 Shaft project, can you talk about the impact of the decision to reduce the final shaft depth from 8800 to 8600 feet? It doesn’t look like you’re expecting that to change the project’s total CapEx at all but would have any impact on the expected production or cash costs of the mine upon the completion of that project?

Phil Baker

No, it will have no impact on any of the economics of the project. Everything done really below about 7800 was just positioning the mine for further development deeper and creating a platform for doing exploration quite deep out away from the mine. So it was at this -- it was optional if you will to go as deep as we had planned to go and we’ve just decided in this price environment that it makes sense to shorten it slightly where we are going to end – to put the level below where the current resource is. So we will be able to use it to mine efficiently the deepest part of the mine and will still be able to reach deeper should we see that the ore body continues which is what we expect.

Garrett Nelson

And I realize you are probably in the budgeting process right now but can we assume that Hecla’s 2016 CapEx will be a little lower than the 150 million you’re expecting to spend this year with number 4 Shaft spending winding down here?

Phil Baker

Well 4 Shaft will continue through the end of the year so – and we have not completed our budgeting process and we will be very mindful of what we see the prices to be. So I can't say at this point whether it will decline substantially from where we are now. I don't think it will increase though. I think I can it’s fair to say that.

Operator

Our next question comes from Trevor Turnbull of Scotiabank.

Trevor Turnbull

Just to follow-up a little bit on the Shaft’s question. So you wouldn't be able to see any CapEx changes relative to the original budget despite the fact it's going to be a bit shorter than originally planned?

Phil Baker

The impact, Trevor, will be minimal, we’re talking about 200 feet of excavation. So I'm not anticipating – there’s maybe a little the savings but it's pretty small probably less than $5 million sort of savings from that. Don’t count anything major.

Trevor Turnbull

And there's no major change to the – you don’t have to reconfigure the engineering significantly to do any of that?

Phil Baker

We just moved the level up from 85 to 83.

Trevor Turnbull

And then with respect to the number 16 stope that you were showing where you're just starting to get into the end of this really a deeper material and some of the very high grade, when would we start to see a meaningful contribution from those higher grades? It looks like you obvious have some of it faced up now, but is that going to start to actually creep into the head grade and are we going to start to see a positive impact as early as next year?

Dean McDonald

Slightly, we’re indicating on average about a half an ounce increase in grade per year for the next three or four years. Grade will go up more later than at the early time because we have a more of that 500 feet or so of high grade mineralization that you'll be able to access as we go deeper so.

Phil Baker

So it will build up but we will get to where we will be unit on a regular basis over what three years four years from now.

Trevor Turnbull

And then I had a quick question for Dean with respect to San Sebastian. I was just looking at the slide I think it's slight number 25 and you show how the veins have been well-defined, I think I am looking to the West, it looks like it goes through bit of a structural corridor were you got those blue lines and then there's been very little drilling off kind of to the East where you now got that East Francine extension. Is there anything to note about how the geology or the mineralization in the grades change, moving from the Western area to that middle structural zone and then off to the east?

Dean McDonald

As head into those fault structures primarily what happens is the orientation of the vein appears to be rotated. You do seem to get a bit more super gene enrichment in those faulted areas but I can't say we have enough information to characterize it that way. The intersections to the east what we’re calling East Francine extension, those are oxide mineralization. At this point we haven't seen that high grade super gene enrichment but I would say what’s characteristic of all these veins is how similar they are, they virtually look the same and it's really that super gene enrichment near surface that seems to enhance everything. And you see that particularly in the East Francine.

Trevor Turnbull

East Francine in the fault zone there?

Dean McDonald

That’s right, yes. But remember we had produced in the Francine vein 10 years ago and certainly near those faulted areas we saw a very similar type of super gene enriched ore.

Larry Radford

And with the East Francine extension as you're going to the east, it seems to have been down – it seems to be deeper, is that.

Dean McDonald

Well what’s happened with each of these faults is that it's been down dropped but it’s also been rotated, the vein has and so the vein seems to be shallower as you go east with these different fault blocks.

Trevor Turnbull

So the veins are actually getting a bit shallower to the East but you're not seeing as much super gene just because it maybe hasn’t been as structurally dyestuff over that direction?

Phil Baker

That's certainly one interpretation, Trevor. The other part of this is that we don't have a lot of drilling yet in that area and as you recall it took us a while to find East Francine. So give us some time, I'm confident that we’re going to see some higher grade in that what we are calling the East Francine extension.

Trevor Turnbull

And I take it that you’ve got lots of room in terms of plan position if you can chase this thing to the East, there's no constraints in terms of –

Phil Baker

If you look at the upper left-hand corner of that slide 25 you can see.

Operator

Our next question comes from Mark Mahajavik [ph] of RBC Capital.

Unidentified Analyst

So again obviously still early in the planning stages but I know you guys have been basically the most conservative out there but wondering if you had a sense of where you want to go on in terms of reserve gold and silver prices for the new year?

Phil Baker

We haven't finalized that but so we’re certainly interested in hearing what -- where the market is, so any insights are appreciated but at this point we’re roughly at the same place we were a year ago.

Unidentified Analyst

And you guys have now taken basically all of your base metals hedging ahead of the provisional pricing ones. Just I guess two-parter on this, do you have a sense of what levels you'd like to see before you’d start to put those back on, and whether you got any thoughts on hedging the currency exposure?

Phil Baker

With respect to putting them back, it really becomes an issue of where the market is and our perception of where it might go in and the benefit that we -- or maybe describe it as the risk that we perceive should prices go lower and at these levels we don't think there's a lot of downside risk to the metals but we’re constantly in the market trying to understand that. Certainly there is some risk but we just don't see it as being as great as the opportunity on the upside. So we will continue to monitor things then what we think is the appropriate time we will put in some new positions.

Certainly on the currency side of things it is a topic of discussion and one that we are prepared to do because we do think it would make some sense to provide some protection on the currency. Jim, anything to add to either of those?

Jim Sabala

The only thing I would add is any levels that we have is proprietary, we wouldn’t want people on the other side of the trade know where we are going. Our practice has been – and we would use the same practice for currency that we do for base metal hedging is that we set targets and then we have scale up selling as it moves through those targets, so that you naturally do more when prices increase and less when prices are low. And we would expect to follow that same policy and if you look at it historically while there is volatility quarter to quarter as a result of the goofy accounting that it plays for this, overall it has added value to the bottom line and substantial value, and so we would continue the program that has worked –

Unidentified Analyst

And I had to bounce a couple – earlier part of the call, just not sure if I missed it, but you guys had said you are expecting to be producing ore by the year end at San Sebastian, just wanted to see your timeline on actually getting the mill refurbished and ready for to be producing that ore?

Phil Baker

The mill refurbishment is in process as we speak and so before the end of the year it will be operational. That might be the last week of the year, we will see how it all goes but we do expect to be able to put some feed through the mill, as you will see in our guidance we don’t give any guidance on San Sebastian because whatever we think will be minimal but we do think we will be able to move it forward.

Operator

Our next question comes from David Deterding of Wells Fargo.

Tyler Gately

Tyler Gately on for David today. You’d mentioned in the past silver to hit that $15 mark that you looked to maybe pickup some assets for inventory. Can you update us on your M&A thought process, probably at these levels for some time now?

Phil Baker

Well, just to be clear there is no price that I say we’re going to acquire an asset. We don't really look at the market that way, we really look at the quality of the asset and it’s fitting in with what we’re trying to achieve operationally, the exploration potential that it has, can it fit into the mix of assets. We did earlier this year acquire Revett and we think that's a acquisition that fits what Hecla is looking for, it’s a long lived low-cost property, it’s one that requires permitting that we think we’re uniquely suited to be complete because of our experience at Greens Creek and their similar issues.

With respect to other things we have got a team of people that, that's what they do all the time and just stay tuned is all I can tell you.

Tyler Gately

Following up on the CapEx question earlier how you guys think about kind of a base level maintenance going forward?

Phil Baker

Well each of the mine’s sustaining capital is order of magnitude 25 million plus or minus depending on the mine and so we will constantly try to spend that and to the extent we can spend more that generates returns we will do that and to the extent we spend more that reduce risk we will do that and the amount of those things that we will do will be function really of the metals price.

End of Q&A

Operator

There are no further questions. At this time I’d like to turn the call back over to Mr. Phil Baker for any closing remarks.

Phil Baker

The only thing I will offer up is that if you have any questions, further questions feel free to give Mike or I a call. We’re excited about where things are going for Hecla Mining Company and be glad to talk more about it. Thanks very much.

Operator

Ladies and gentlemen thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.