Hecla Mining Co/De/ Q4 FY2021 Earnings Call

Thank you for your patience. This is your conference operator. Welcome to the Alexco Resource Corp. Full Year 2021 Results Conference Call. I will now hand the conference over to Paul Jones, Senior Vice President of Corporate Development. Please proceed.

Good morning, ladies and gentlemen. Today is Monday, March 21, and I welcome you to the Alexco Resource fourth quarter and full year 2021 results conference call. This call is being webcast and a recording can be accessed through the Events and Webcasts section of our website later today. Our website also contains our most recent news releases and our financial statements for the quarter ended December 31, 2021. All amounts referenced today are in Canadian dollars unless otherwise indicated. Today, our Chairman and CEO, Clynt Nauman will discuss our most recent results and he will be joined by our President, Brad Thrall and our CFO, Mike Clark during the question-and-answer period. Please be reminded that some statements made today may constitute forward-looking information within the meaning of applicable securities regulations. Past performance discussed today is not indicative of future results and our business involves several risks that could cause results to differ from projections. Investors are encouraged to review the disclosures pertaining to risks that can be found in our most recent regulatory filings available on our website.

Thank you, Paul. Good morning, good afternoon and thank you to those who are joining our call today. I’m going to keep my comments brief this quarter. Our performance in Q4 and into the early parts of 2022 has been well short of expectations, as you have seen from our news release earlier this month. However, in a short time today, I want to assure you that we have weathered the most challenging issues, and we are cautiously optimistic that we will post improved operating conditions and performance as we move into the balance of 2022. Firstly, from a purely pragmatic viewpoint, while the impact of COVID was significant at the site in December and extended into January, we were further impacted by serious supply chain issues with respect to critical spares in February, leading to reduced equipment availability and much slower underground progress. The fact of the matter is that we can and must do better, anticipating and overcoming these types of problems. As mentioned at the outset, I'm cautiously optimistic that the challenges we face recently are in the rearview mirror. And then we are well-positioned to deliver Canada's only primary silver mine to full production. Due to Bermingham and Flame & Moth, we’ve completed more than 2,300 meters of lateral development and are now in or at various deposits. Specifically, we currently have four ore headings on two levels available at our Flame & Moth deposit, and we continue with long-haul retreat mining at our first large stope in the Bermingham deposit. Our upgrades and investments in the district mill have been completed. And when we’ve had sufficient ore available, we’ve had several campaigns at and above our design capacity of 400 tonnes per day, all while meeting or exceeding our metallurgical model or silver recoveries. However, we are running approximately 3 to 4 months behind our schedule, which originally aimed for achieving design capacity in Q1 2022. Clearly, this has put pressure on our balance sheet. And in that regard, we have available to us a US$10 million prepayment revolving credit facility with concentrate off-taker from which we have currently drawn US$5 million and can access the remaining US$5 million, if necessary. Accessing additional working capital is simply a function of our success in being able to deliver the targeted oil volumes to move to generate revenue offsets. As we speak today, we do see improved ore availability and improved cycle times underground and improved delivery of ore to the mill. It is on us to maintain and increase this ore delivery in Q2 2022. Meantime, we are rescheduling our mine plan and anticipate being in a position to provide guidance for 2022 production in May, a couple of months from now. Meantime, we have onboarded and trained our own complete underground mining force as well as filled out with a team of highly motivated and skilled operators. I commend our team for their dedication and steadfast commitment to the project. As a team, we have overcome a great number of obstacles, and improving results I expect to see over the next few months is directly related to their efforts. Today, we also announced some short-term production guidance for Keno Hill. We now expect to produce between 75,000 and 100,000 ounces of silver in Q1 2022 and between 450,000 and 550,000 ounces of silver in Q2 2022. Furthermore, as I’ve previously mentioned, we anticipate being able to provide second half 2022 guidance in conjunction with our Q1 financial report on May 12. I would be remiss if I didn't take a brief moment to comment on the success that we've had on the exploration front. Specifically, after completing approximately 17,700 meters of drilling focused on the Bermingham Deeps, on January 18, we announced a 43% increase in Bermingham's indicated resource and a 70% increase to its inferred ounces. Bermingham now has over 47 million ounces of indicated mineral resources at a grade of 939 grams per tonne silver, with inferred resources up nearly 20 million ounces at a grade of 735 grams per tonne silver. By any measure, this is a stellar result. In 2022, we will be conducting an additional 15,000 meter program to identify test areas exhibiting geological mineralization signals similar to our Bermingham discovery, starting with targets adjacent to the current reserve area. Meantime, we’ve previously mentioned that as part of rescheduling 2022 production at Bermingham, we will be looking at longer range development alternatives to reach the deeper levels of this deposit and potentially accessing these new deeper discoveries sooner rather than later. We made a lot of progress over the last 18 months, and I expect the next few quarters will be critical for Alexco and Keno Hill. Lastly, I wanted to take this opportunity to thank our shareholders also for their patience and support of Alexco as we delivered Keno Hill back to full production. With that brief statement, I'd like to ask the operator to open the call for questions.

Thank you. The first question comes from Jake Sekelsky of Alliance Global Partners. Please go ahead.

Yes. Hey, guys. Thanks for taking my questions. So, you’ve obviously mentioned the ramp up has been delayed a bit due to COVID restrictions. I’m just curious if this has had any impact on your plans to work towards an updated mine plan around midyear. I mean, I’m just thinking working with consultants and other vendors. Have you seen a delay in that as well?

Yes, hi Jake, thanks for the question. I will let Brad comment on this as well. However, it's still our intention to develop a new life of mine plan. In the meantime, we are focused on rescheduling production for the remainder of 2022, which is our top priority. From there, we will proceed with reformatting the life of mine plan.

Yes. Maybe a little bit more, Jake. I mean we've actually started a little bit both internally as well as with some external consultants just starting that process of an updated plan incorporating the Bermingham Deep. So, yes, it will be ways out still, but we have started some of that work.

Okay. Fair enough. And then on exploration, I saw that you guys outlined the 15,000 meter surface program. Is any of this in the targets that you've talked about in the past? Or are these all truly new adjacent targets to Bermingham?

The plan is to initiate a reconnaissance program. Over time, we’ve drilled approximately 150,000 meters in the district, and only about 20% of that has tested new targets, while the remainder has focused on infill drilling. We currently have a substantial number of ounces ahead of us from both reserves and resources perspectives, providing us the opportunity to explore many other targets in the district. A significant portion of the 15,000 meters will be allocated to this. We know that the Bermingham Excalibur trend is productive, so we will continue to explore further west along that trend. We'll also begin work on the Husky Silver King trend, which is high grade and has not been tested. Additionally, we plan to visit Lucky Queen, where there are obvious targets next to existing development. We will also revisit the road area, which has potential for a smaller, high-grade, accessible deposit. This reconnaissance program is based on the idea that if we conduct 12,000 to 15,000 meters each year, over time, we will uncover more discoveries similar to Bermingham or Flame & Moth, allowing us to drill them out, infill drill, permit, and eventually bring them into production. This marks a change in our approach, leveraging our past successes to pinpoint where the next large deposit may be.

Okay. That’s helpful. And then just lastly, you’ve obviously seen a strong increase in base metal prices over the last few quarters. Looking toward the end of this year, has there been any consideration of hedging some of that exposure at these prices once the ramp-up is complete? I’m just curious.

I mean it's a good point, and we haven’t actually been focused on that. I will draw your attention to the fact that ironically, there are deposits at Keno Hill, which have more base metals, and sometimes we’ve kicked around the possibility of taking another look at those. But I mean, it's a good point, something that certainly we will take into consideration as we get back onto the production up here.

Got it. Okay. That’s all for me. Thanks again.

The next question comes from Joseph Reagor of ROTH Capital Partners. Please go ahead.

Hey, Clynton and team, thanks for taking my questions. I guess, first thing on the ramp up. You guys are pretty confident that in Q2, there's going to be a pretty sharp uptick in underground mining rates and then ore to the mill. I guess, one, is there anything different that you're going to do in Q2 other than just hopefully not having to have more core problems? And then two, if you do have any other recurring issues, are there any external options you guys could look at to get that ramp up done?

Joe, I'll address that. There are several factors we are focused on that strengthen our position. Equipment availability is crucial, and we're proactive about capital spares and the maintenance group. For the first time, we have a fully staffed maintenance team and a complete underground mining crew. It has taken us a long time to achieve this in terms of recruitment and retention. Having qualified miners underground is essential for daily operations, along with the specialists available for maintenance and equipment. Additionally, we have fully developed two sublevels at Flame & Moth, the 835 and the 815, which will continue to expand. We are also deepening the ramp at both mines, which will allow us to access more levels. This focus on opening up more levels leads to more ore phases, providing us with flexibility. If we encounter issues at one phase, we will have alternative locations to draw from.

Okay. And any external options if you need them? Is there any contract miners that you could hire in the area?

We have looked at contractors before. And actually, we did employ a contract miner for a shorter time period to help us get over a hump. That certainly is an option. We are just finishing; we are about 45 days away from finishing our second major project to surface using a contractor. But you're right, that is an option. That’s all is on the table and is available, but we haven’t made that decision yet.

Okay. Thanks. I will turn it over.

The next question comes from Nicolas Dion of Cormark Securities. Please go ahead.

Hey, guys. Glad to hear that things are looking up. I’m wondering if you can maybe provide what the development or the advance rates are in March, so we can kind of see how those are improving into Q2?

Yes. In terms of both the mines, again, we are just now resuming the main access ramp and that was intentionally put on pause because we had multiple faces of access at Flame & Moth as well as a number of infrastructure projects that had to be still completed. So, our objective at both Flame & Moth and Bermingham is to shoot for 2.5 meters per day, which we think is a pretty reasonable achievable target. So, at Bermingham, the main access ramp is underway, and those are the type of numbers that we see sustainable as we finish up March and go into Q2. So, that would equate to essentially 75 meters per month of primary waste development.

Okay. Do you have more to add?

Yes, that would be 75 meters per month per mine.

Got it. And do you have a target on the number of ore phases you want available at Flame & Moth in order to achieve your run rate?

I believe we are nearly at the 815, 835 level and as Clynt mentioned, we are reworking our plan for that level. There is potential for an increase in tonnes in that area due to some previous infill drilling we conducted last year. Once we start the ramp again, we will move down to the next sublevel, which is 795. At Bermingham, we are less than 70 meters away from the 1120, which is among the highest grades in the mine. I anticipate that by the end of Q2, we will have 4 or 5 phases of ore at Flame & Moth, and we will also have the 1120 ore product from Bermingham.

Okay, perfect. And then maybe just one more question on the balance sheet. Is there any additional flexibility in terms of noncore assets you can monetize? Or do you have any remaining equity positions that you could monetize?

Yes. Hi, Nicolas. We are obviously looking at all the alternatives that we have at the present time. So, yes, we have offloaded our investment in Banyan up to this point and still have a significant retained interest there. So, yes, we are doing all the prudent things to focus our efforts 100% on getting to sustainable throughput here at Keno Hill.

Okay, great. Thanks. That’s it for me.

Our next question comes from Martin O'Malley of O'Malley Investments. Please go ahead.

Gentlemen, my question is your head grades fell dramatically in the fourth quarter of 2021, and I just wondered what was going on there?

Yes, that was intentional. We are currently in a transition period as we move away from Bellekeno and work on building up the remaining stockpile tonnes, transitioning to almost entirely long-haul tonnes at the Bermingham mine. Long-haul operations do come with a higher level of dilution. This is our first long-haul operation at Bermingham, and we are learning as we go. As a result, we are experiencing a level of dilution greater than our original target of 33%. Given the transition from Bellekeno and the start of long-haul operations, I expect this trend to continue for a while in Q1 due to the ore drives at Flame & Moth. We are approaching the end of the first ore drive at 835, which typically results in lower grades toward the end of these drives until we reach the higher grades in the middle. This outcome is not unexpected.

Thank you.

This concludes the question-and-answer session. I would like to turn the conference back over to Clynt Nauman for any closing remarks.

Thank you, operator. I look forward to keeping you all updated on our progress and look forward to speaking to many of you again soon. Thank you.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.