Hecla Mining Co/De/ Q4 FY2024 Earnings Call

Thank you for standing by. My name is Kate and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4 2024 Hecla Mining Company Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I would now like to turn the call over to Anvita Patel, VP, Investor Relations and Treasurer. Please go ahead.

Good morning, Kate, and thank you all for joining us for Hecla's fourth quarter 2024 results conference call. I'm Anvita Patil, Vice President of Investor Relations and Treasurer, and our earnings release that was issued yesterday, along with today's presentation, are available on our website. On this call today we have Rob Krcmarov, President and Chief Executive Officer; Russell Lawlar, Senior Vice President and Chief Financial Officer; Carlos Aguiar, Senior Vice President and Chief Operating Officer; and Kurt Allen, Vice President of Exploration; and Matt Blattman, Vice President of Technical Services. At the conclusion of our prepared remarks, we will all be available to answer questions. Any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act and involve risks as shown on Slide 2 in our earnings release and in our 10-K and 10-Q filings with the SEC. These and other risks could cause results to differ from those projected in the forward-looking statements. Non-GAAP measures cited in this call and related slides are reconciled in the slides or the news release. I want to remind you, if you would like to have a call with management, you can do so by using the link under the section Virtual Investor Event in our earnings release that was issued yesterday. I'll now pass the call to Rob.

Thank you, Anvita, and good morning everyone. When I joined Hecla about three months ago, I began an intensive review of our operations and strategy. I've now visited all but one of our mines. Actually, a winter storm delayed my trip to Keno Hill, which I'll visit in the next couple of weeks. Throughout these visits and my extensive engagement with employees and stakeholders, I've developed a clearer vision for Hecla's future and some of the opportunities that are available to us. What initially drew me to Hecla was its extraordinary legacy, 134 years as a leader in the silver industry with high-quality, long-life mines in premier jurisdictions. Now, having seen our operations firsthand, I'm even more convinced of the company's potential. Our high-quality, long-life mines in premier jurisdictions provide an exceptional foundation, and I have to say the caliber of our management team has really impressed me. Our operating portfolio stands on three key pillars. Our cornerstone operations, Greens Creek and Lucky Friday, continue to deliver strong performance and robust cash flow. Keno Hill represents our primary growth opportunity, although its ramp-up has been more challenging than I had initially thought. However, we have a clear strategy for achieving sustained production there, but it will require time and strategic investment. At Casa Berardi, we've recognized that the mine hasn't yet realized the potential envisioned during its acquisition. While it has future potential, its capital requirements and management bandwidth consumption have really led me to direct our team to evaluate all strategic alternatives to maximize shareholder value from this asset. Looking ahead, focusing on four key strategic pillars and they're all underpinned by our commitment to ESG leadership. First, we're committed to achieving operational excellence through relentless improvement, implementing standard operating systems across all of the sites, investing in automation and advanced analytics, driving continuous improvement in cost control, and building real-time decision-making capabilities. Second, we're optimizing our portfolio to maximize value. We've begun this with our strategic review of Casa Berardi, and we're evaluating extensive portfolio of exploration assets and investments to unlock value. While organic growth at Keno Hill remains our primary focus, we're developing a strategic and disciplined M&A framework that leverages our core competencies to create substantial value. Third, we're intensifying our focus on financial discipline and shareholder returns. We're implementing a rigorous capital allocation framework centered on free cash flow generation and return on investment metrics with clear hurdle rates. This disciplined approach should strengthen our balance sheet and build financial flexibility and deliver consistent returns to our shareholders. Fourth, our strategic focus on silver production in the U.S. and Canada continues to deliver exceptional value. With the largest silver reserve base in North America and operations concentrated in Tier 1 jurisdictions, we're strongly positioned to meet growing demand from green technology and renewable energy sectors. Our expanding footprint in these stable regions, combined with our industry-leading cost structure, gives Hecla unmatched advantages in capturing new opportunities. While providing investors unparalleled security of assets, this distinctive market position really sets Hecla apart and warrants a premium valuation, particularly in today's complex and dynamic global environment. Of course, these pillars are underpinned by our unwavering commitment to ESG leadership in the mining industry, and our success depends on responsible environmental stewardship, strong community partnerships, and deepening relationships with First Nations and all stakeholders. Let me highlight our achievements in 2024, which is detailed on Slide 4. We delivered strong operational performance, meeting our consolidated silver production and cost guidance, while exceeding our gold production targets. Our strategic exploration program successfully maintained our silver reserve position, the second highest in the company's history with particularly strong results at Keno Hill where reserves increased by 17%. We achieved record revenues in 2024 driven by higher metal prices and solid contributions from all four operating mines. Our cornerstone assets, Greens Creek and Lucky Friday, generated $228 million in free cash flow. I think this robust performance enabled us to advance strategic investments in Keno Hill development while implementing targeted improvements at Casa Berardi, and Russell will walk through the financial details in a moment. We've also evolved our approach to shareholder returns. After careful consideration, we're maintaining our base annual dividend of $0.015 while supporting key priorities and that's investing in organic growth, strengthening our balance sheet, and delivering reliable and sustainable shareholder returns. I'll now hand the call over to Russell for a detailed financial review.

Thank you, Rob. I'll start on Slide 6. Our 2024 strategy delivered on three key objectives: strengthening our balance sheet, reducing leverage, and growing production. We achieved these goals despite operational challenges, which Carlos will detail later. Looking ahead to 2025, we're taking decisive steps to enhance our financial flexibility. The key strategic decision was the elimination of our silver-linked dividend. While this wasn't an easy choice, we believe reinvesting in our organic growth opportunities will create substantially more shareholder value than dividend distributions. These freed-up cash flows will also accelerate our deleveraging initiatives. The strength of our core assets is evident in the $228 million of free cash flow generated by Greens Creek and Lucky Friday during the year. This performance continues their remarkable track record, having delivered over $800 million in free cash flow. This robust cash generation and associated EBITDA enabled us to significantly improve our net leverage ratio from 2.7 times to 1.6 times while simultaneously investing $215 million of capital across our portfolio. Turning to Slide 7. As Rob mentioned, we achieved record revenues of over $900 million during the year, with 44% of that revenue coming from silver, 34% from gold, and the remaining from base metals. Additionally, we received a small amount of revenue from copper during the year, the first time Hecla has received revenue from copper in decades. We also saw our realized price of silver appreciate nearly 23%, while our outstanding cost per ounce only increased by 11%, helping our margin per silver ounce expand from 50% in 2023 to 54% in 2024. This additional silver margin and higher revenue generated record adjusted EBITDA, which continued to improve our net leverage ratio. As noted on this slide, we've made significant progress on strengthening our balance sheet and deleveraging the company. However, we're not satisfied with the progress made; over time, we expect to delever fully from the revolver while also adding cash to our balance sheet with the intention of bringing our net leverage ratio to 1.6 times. Over a longer horizon, we expect to continue reducing our debt on a growth basis to free up cash flows to invest in organic growth within our operating portfolio. With our strong asset base and the growing silver demand, I'm confident that 2025 will prove to be another successful year in our strategy of strengthening our balance sheet, investing in our assets, and generating free cash flow. I'll now pass the call to Kurt.

Thank you, Russell. On Slide 9, Greens Creek is the cornerstone mine foundation of our future. Greens Creek provides the stability and consistency in our cash flows and production. The mine produced 1.9 million ounces of silver in the fourth quarter and 8.5 million ounces of silver for the year. Fourth-quarter production was impacted by equipment issues and limited access to high-grade areas. But improvements in equipment and backfill rates in the fourth quarter are expected to improve silver grades in early 2025. The mine operates across six zones and 45 areas yielding five payable metals, maintaining consistent annual silver production of 8 million to 9 million ounces. For 2025, production is projected to be between 8.1 million and 8.8 million ounces, driven by planned mine sequencing with lower precious metal grades and higher zinc content. Cost per ounce is expected to increase as it is impacted by higher labor costs, a trend we are seeing across all our operations and industry-wide, as well as higher power costs as the hydropower utility that provides power to the mine undergoes maintenance and lower snowpack and precipitation levels necessitate the use of diesel power for tons. We are also increasing the capital guidance as we commence engineering and construction for the next dry stack tails expansion to extend capacity through 2040. Our exploration program has sustained the mine's 12-year reserve life. The mine generated $147 million in free cash flow in 2024, contributing to its impressive $2 million in free cash flow since production began in 1986. With over 30 years of operational success and substantial reserves ahead, the future of Greens Creek looks strong for continued growth. Moving to Slide 10, Lucky Friday had a record-breaking operational year in 2024 with the highest ton mined and milled, the most zinc produced in its 80-year history, and the highest silver and lead production since February. Notably, these achievements were made while maintaining the best safety all injury frequency rate of 1.4 for a full production year. The mine produced 4.9 million ounces of silver in 2024, with four quarters delivering strong results of 1.3 million ounces of silver produced at 1,180 tons per day due to favorable mining sequence and higher grades. The all-in sustaining cost for the year was $16.50 per ounce, higher than guidance due to increased labor costs and contractor use. However, contractor costs are expected to decrease in 2025 as positions continue to be filled. Free cash flow generation in 2024 was $82 million, including $50 million from insurance receipts. As we look to 2025, we expect the mine to produce 4.7 million to 5.1 million ounces of silver, with all-in sustaining costs similar to 2024. The company is increasing planned capital investment to enhance the mine surface cooling infrastructure, a key project to support consistent throughput as mining advances deeper into the ore body over our 17-year reserve life and to help with the mine's zero discharge goal. The mine's record-setting performance after the 2023 secondary escape way fire highlights the strong management team and their ability to navigate challenges. As our second cornerstone operation, the mine is well-positioned for another solid year in 2025. With robust fresh cash flow, stable production, and ongoing improvements, this strategy combined with smart capital investment and favorable geology positions the mine for long-term success. Turning to Slide 11, Keno Hill met its 2024 production guidance, producing 2.8 million ounces of silver, despite facing operational and social challenges. In the fourth quarter, the mill truck averaged 250 short tons per day, but production was impacted by a 25-day mill shutdown related to the dry stack tailings facility permitting and 10 days of power curtailments from DuPont Energy Corporation. Power constraints are expected to continue into the first quarter and resolve mid-2025 when repairs to the hydroelectric turbine are scheduled for completion. We have developed a clear two-phase strategy to achieve sustainable profitable production at Keno Hill. Phase 1 focuses on reaching and maintaining 440 short tons per day throughput by advancing critical infrastructure projects, including the cemented tailings backfill plant, water treatment facilities, dry stack tails, and mine development. Despite permanent delays, these investments are key to future production growth. Phase 2 targets increasing the throughput to approximately 600 short tons per day, which is crucial for profitability at this remote operation due to the mine's high fixed costs. This phase requires additional infrastructure investment and new permits. Beyond technical execution, our success depends on continuing to strengthen our partnership with First Nations and the Yukon government as a responsible long-term partner. We are encouraged by the Yukon Premier's commitment to create efficiencies in the permitting process and support established mining partners. We are seeing positive momentum in our partnership with the Yukon government. The Premier has demonstrated strong support through working on allocating resources to address power infrastructure needs, working on developing a charter with major mines department, and a collaborative approach to operational solutions. While challenges remain, including permitting for the Phase 2 expansion, positive momentum is building. For 2025, Keno Hills expects silver production of 2.7 million to 3.1 million ounces and quarterly production costs of $15 million to $17 million. Production growth is anticipated in 2026 as we approach the Phase 1 target of 440 tons per day. A significant milestone in 2024 was an increase of 17% in reserves to 65 million ounces, highlighting the district's exceptional potential. Kurt will elaborate on this exploration reserve shortly. While we face short-term challenges, our systematic approach to infrastructure development, stakeholder relationships, and growing resource base are building a solid foundation for Keno Hills' long-term success. Turning to Slide 12, Casa Berardi produced 87,000 ounces in 2024 at an all-in sustaining cost of $1,990 per ounce. By mid-2025, the mine will complete the transition to a surface-only operation focused on the 160-pit, which is expected to improve economics and generate stronger free cash flow as the strip ratio decreases. Looking ahead, Casa Berardi's current production plan extends through 2027, followed by a planned five-year development period, focusing on permitting, infrastructure, dewatering, and pre-stripping to develop two new open pits, the Principal and the West Mine Crown Pillar. While these future pits have significant free cash flow potential, the extended production gap has prompted the company to evaluate strategic alternatives for the asset as announced previously in November. The review process is ongoing, and an update will be provided this year. I will hand the call over to Kurt to discuss our exploration results. Thank you, Carlos. As you can see on Slide 13, since 2018, we have produced 99 million silver ounces and increased our silver reserves by 49 million ounces to 240 million, the second highest silver reserve in our 134-year history. As we mine more ounces every year, we can pull the silver reserve base through focused drilling. During the year, Keno Hill increased reserves by 17%, Greens Creek nearly replaced mining depletion, and Casa Berardi replaced production plus a small increase. Moving to Slide 14, our exploration efforts at Keno Hill continue to demonstrate significant potential through both underground and surface drilling campaigns. At the Birmingham Deep target, we intercepted the widest silver-bearing zone to date below the Northeast ore zone. Evidence suggests proximity to a newly identified ore chute where the structure appears to be controlled by an interpreted vein intersection. I'm really quite excited by these results. At the Inca Vein, we delineated over 800 feet of mineralized strike length. Outstanding drill hole intercept results include 26.1 ounces per ton silver, 20.9% zinc, and significant indium credits, all for an impressive 14.3-feet width. These results further validate our exploration model and continue to demonstrate the district's exceptional mineral potential. Slide 15 presents compelling evidence of our latest discovery at depth in the Birmingham system. The slide shows two key views, a cross-section of the vein system and a longitudinal section of the Footwall Vein. Both sections are contoured to show silver grade times thickness values, highlighting the robust nature of the mineralization. At the Birmingham Footwall Vein, we've identified a significant new mineralized chute that extends down plunge from high-grade zones in the upper part of the vein, runs parallel to the Arctic Fault, and dramatically exceeds previous expectations for the area. Intercepts received during the quarter show significant silver grades and widths in areas that were previously thought to contain lower-grade stringer mineralization and include up to 53.8 ounces per ton silver over 15.3-feet. Our latest drill hole located 140-feet deeper in a long plunge intercepted a wide zone of stringer mineralization over 55-feet that contains two strong veins with galena, sphalerite, and variable amounts of tetrahedrite. While assays are pending for our latest intercept, the observed mineralization suggests further extension of the high-grade chute at depth; the structure remains open for expansion, and significant potential for resource growth. These results continue to enhance our geologic understanding of the district and reinforce our confidence in its substantial mineral potential. And with that, I will pass the call back to Rob.

Thanks, Kurt. As we look ahead to 2025 and our guidance on Slide 16, we anticipate our silver production profile to remain generally consistent with 2024, with production of 15.5 million to 17 million ounces, while gold production is anticipated to decrease as Casa Berardi transitions to only open pit mining. We anticipate a modest increase in consolidated cost per ounce, driven by higher labor costs both at Lucky Friday and Greens Creek, and power generation costs for a couple of months. Finally, our capital investments position us to maintain stable production at our core assets while advancing our growth initiatives. Our capital spend should slightly increase compared to 2024, and that's largely to sustain our production profile at Greens Creek and Lucky Friday, while at Keno Hill and Casa Berardi, our investments are anticipated to bring future growth in production and cash flows. With that, Kate, I'd like to open the call to questions.

Your first question comes from Nick Giles with B. Riley Securities. Please go ahead.

Thank you, operator, and good morning everyone. Congratulations on the nice progress here in Q4. My first question was at Casa. Obviously, we're looking towards lower strip ratios and some stronger free cash flow in the second half. But I was wondering if you could outline the strategic review process? Is there a targeted timeline in place? Would you look to an outright sale versus a stake sale? What are the considerations? Thank you very much.

Thanks for your question, Nick. We're looking at all options, and that does include a potential divestment in whatever shape or form. We're also really looking at improving our operating plans. As you're aware, right now we're anticipating about a five-year hiatus between the completion of production from the F160 Pit and the commencement of production at the Principal pit. That is a long lead time, and we don't really know what the gold prices are going to look like in five years. But at current gold prices, the Principal pit actually produces some very, very healthy cash flows. So, it's really a trade-off between bringing value forward through a potential divestment or waiting it out, improving our operating plans, and looking at harvesting cash flows a bit further down the road. I expect we'll have a better, more coherent view in the second quarter.

I appreciate all that color. My next question was just the net leverage ratio has declined pretty dramatically, on the back of some stronger earnings and I think I heard you reference a new target, but I just didn't quite catch it. Assuming metal prices continue to be robust and you're able to pay down the revolver. How should we think about the chances of increased capital returns versus maybe building some additional dry powder for some of the organic growth opportunities you mentioned?

Yes. Good morning, Nick. This is Russell. As it relates to the new target, what we've said in the past is that we have a ceiling essentially at 2 times the net leverage ratio. We've reached that ceiling. We've been able to bring ourselves back in line, where we're below that now, and we've made significant progress on that deleveraging. We've always wanted to be under kind of a target of less than 1 time. So, I don't think there's anything new there necessarily. I think we're just approaching our target. As it relates to cash generation, clearly, getting off of the revolver and building some cash on the balance sheet will be one of our strategic priorities. But we also need to continue to invest in our business, both the capital, and you see that in the guidance that we put out yesterday, as well as in exploration because that is the future of our company. So, there's a bit of a balancing act between paying off the revolver, building cash, and what as well as investing in our business. But I would suggest we would build up a cash balance while we're making those investments. You saw us, we removed that silver-linked dividend because we think that we have better opportunities internally than with the cash that we generate.

Got it. Well, Russell, Rob, and the entire team, continued best of luck.

Your next question comes from the line of Joseph Reagor with ROTH Capital Partners. Please go ahead.

Hey guys, thanks for taking the questions, and it's a breath of fresh air to hear words like return on capital investment instead of growth. So, on that note, the talk around Casa, is there an outcome that you would prefer? You're talking about possibilities, but is there a preferred outcome? Is an outright sale more favored because it's helped you delever the balance sheet? Or is it something where if you were to sell it that kind of hurts production in the future, so you prefer to keep it?

If we were presented with a compelling offer for an outright sale, we would use the proceeds to continue to delever; that is important to us. Forecasting future cash flows, as I said, that's potentially more than five or seven years out. While that's attractive right now, we'd be gambling on what the gold price would look like out then.

Yes, fair enough. And on that five-year gap, I think it used to be more like a three-year gap. Is that just permitting that's pushed it back another two?

Correct. Yes. Yes, it's permitting. Permitting has been more challenging than our previous assumptions. We are planning to get back on track, but that's the main reason: permitting.

Okay, fair enough. And then, over on Keno, with the power challenges to start the year, and I know, Rob, you haven't been there yet, but it's on the to-do list. Any thoughts about what needs to change there to get the asset to be cash flow positive? Are there any really big things you've already identified?

Yes. So, the main thing is to continue our investments in the infrastructure. Right now, we have a permit limit capped at 440 tons per day, but that's not really the endgame. We need to get to 600 tons per day, which is largely because of the high fixed costs that Carlos was talking about. It's a remote location, the costs are higher than we anticipated, so really the ultimate goal is 600 tons per day, but to get there, we need to make additional infrastructure investments. That's in the mill, water treatment plant, tailings, power, camp space, and all that sort of stuff; they all rely on new permits, and permitting has been a bit of a constraint, but we do see a pathway to getting to 600 tons per day.

Okay. Have you guys kind of run an internal trade-off of potentially shutting it down temporarily until you get those permits versus continuing to operate it?

Yes, we're always evaluating our investments, and if it makes sense to put it on care and maintenance and pick up the ball on another day, we'll certainly consider that. But right now, we've been encouraged by some of the discussions we've had with the Yukon government, and again, if we expect to see continued delaying in permitting, we'll reevaluate our position.

Thanks. I'll turn it over.

Your next question comes from the line of Kevin O'Halloran with BMO Capital Markets. Please go ahead.

Hey, Rob and team. Thanks for taking my questions. Maybe just picking up at Keno, kind of similar to the last one, but on the permits, what's right now your expected timing of receiving those permits? And then, maybe once you do have those permits, what is the timing to get those infrastructure items built like the water treatment and the backfill facilities?

Let me just start out by talking about the permits, and then I'll defer to Carlos about the infrastructure. We've made progress on the permitting, but challenges remain. We met with the Premier and his team in January, and the Yukon government has acknowledged the need to keep the permitting on track and have responsible companies like Hecla. He understands that we've been in business for 134 years and have a fantastic environmental record over at Greens Creek, and that we have the social license to be serious producers in the Yukon. That commitment has been demonstrated through several key initiatives. He's undertaken that we'll develop a charter with a major mines department, and there'll be an allocation of resources to address power infrastructure needs. Really, he instructed his department to have a more collaborative approach to finding operational solutions and create efficiencies in the permitting process for established operators. Things paused last year because of the heap leach failure at the Eagle Gold Mine, which we obviously don't own. While we're encouraged by this positive momentum in the partnership with the Yukon government, we're going to continue to engage with the First Nations. Permitting still remains a significant risk in getting to 600 tons per day that I spoke about, which is the critical threshold for profitable production. However, with the Premier's demonstrated support and his encouraging words and the actions that he will about to take, we believe that we should be making steady progress towards our goals this year.

So, related to projects, we are prioritizing the execution of projects in the next two years, which will improve and sustain the Phase 1, which is the 440 tons per day. After that, of course, we are going to reevaluate, which is probably going to take another two years to go up to the 600 tons per day mark.

Okay. Thanks. Appreciate the color there. And maybe just on the costs at Keno, can you give us a sense of the proportion of fixed costs? Like of the costs you reported this quarter? What percentage, roughly speaking, do you consider fixed versus variable?

To give a specific percentage, it would be a challenging thing. But they are primarily fixed because if you think about the site itself, being a remote operation, you have a charter, a camp, and rotation of employees. As a result, you will see higher fixed costs, and as Rob mentioned, the way for us to overcome those will be higher throughput.

Okay. That makes sense. And then final one for me on the Lucky Friday capex. About how much of that is being allocated to the cooling project? Is that all the growth capex? And then maybe as a follow-on, how much of that is the mine development, just in terms of trying to get a sense of kind of what the normalized capital spend would be in future years?

The mine development of the Lucky Friday is close to $20 million, and the surface cooling system is about $13 million next year. Once we complete this project in the coming years, there will be a reduction in capital for Lucky Friday.

Okay, sounds good. Thanks for taking my questions. I'll pass it on to the next caller.

Thank you, Kevin.

Your next question comes from the line of Heiko Ihle with H. C. Wainwright. Please go ahead.

Hey, Rob and team, thanks for taking my questions. Lucky Friday seems to be running pretty well on all cylinders here. But I mean, ignoring the numbers for a second, can you maybe provide a bit of color on what changes you expect to have at site in this quarter and beyond that could further improve efficiencies and production? And maybe you can quantify how much you expect those individual factors to impact your production? I mean, we're essentially halfway through Q1 at this point.

So, Heiko, I think I restate your question. Lucky Friday had a very good 2024, especially coming out of the fire we had. We've mentioned on the call that the Richmond Group I'll highlight is a very good qualified group. We do expect Lucky Friday to continue to be successful out into the future as a kind of a base and consistency out into the future. I guess, where I'm struggling to pick up what your question was in relation to what we expect kind of in the near-term.

That's going to be a challenging one. As you know, as we go deeper and farther away from our primary access, it's going to be harder and harder to find efficiencies and improve costs. This is going to be continuous improvement; slow, steady, let's make sure that we see improvements from every change. Also remember, Lucky Friday hit record production last year; trying to beat your own record every year gets harder.

Fair enough. In your press release, it states that the costs at Casa or in the second half are going to be a little bit lower. But could you provide a bit of color on where you expect us on a quarterly basis? By that I mean sort of where should the analyst community model Q1? I guess we'll be halfway through the quarter effectively tomorrow. And maybe even Q2 versus the remainder of the year in numeric terms and in quantifiable terms?

Heiko, I'll start and Carlos can jump in and supplement where necessary. Clearly, Casa Berardi right now is both an underground operation and a surface operation. By mid-2025, what we expect is for the underground to come to a completion because at that point what we expect is that the surface mine will be able to fill the mill. When that happens, we'll remove the cost from the underground, and then from the surface perspective, we're expecting that for the stripping ratio to come down as well. Thus, we should see fewer expenses from the surface. What I would say is we don't give quarterly guidance intentionally because as we move through 2025, just like through 2024, things change, and we'll manage those as they come. As a result, I would say from a quantification standpoint, we wouldn't be able to give you any quarterly numbers necessarily, just that we would expect for costs to come down in the second half of the year as we see that underground come off and as we see the surface expenses reduced.

Yes, that's exactly right. The two conditions we need to meet in the second half of the year are that the open pit will be capable of fitting among the mill at maximum throughput.

I'll try to question a touch differently then. If one goes to an open pit-only operation, how long do you think it has for the cost savings to be fully reflected in the numbers?

I would suggest as we see the underground come off, if we see the underground come off in the middle of the year, there will be some carry-on expenses while we're determining how to go forward with the underground. Those decisions will continue to be made. I would say you'll probably see a fourth quarter that should be better than a third if you look at it from that perspective.

You got exactly where I was going with this. Thank you very much.

Thank you.

Your next question comes from the line of John Tumazos with John Tumazos Independent Research. Please go ahead.

Hey, Rob. Good to see you onboard.

Hey John. Thank you.

As you're aware, the state of Montana passed a Special Purpose Law related to your predecessor trying to delay the progression of Montana ore and Rock Creek. Have you had a chance to meet with Montana officials? What's the outlook for expediting those two projects? I've been admiring them my entire adult life.

Good question, and you're right to admire them. I was immediately drawn to the phenomenal mineral endowment: 300 million ounces of silver, 3 billion of copper at 0.7%. The size of the prize has really got my attention, for sure. In terms of the updates, we're basically going through a permitting strategy at the moment. The Forestry Services Draft EIA for the Libya exploration project is in the final week of public comment, and there have been about 1,500 comments received. The next steps will involve 30 days for the Forest Service to respond to the comments; then there will be a decision on the final EIA issuance. If approved, a fund fee will be issued, followed by a 45-day objection period, and a 30-day objection response period. Depending on the nature of objections received by the Forestry Service, the updated plan of operations for the project could be approved in Q3 2025. I haven't met with them personally, but we've had our team meeting with regulators frequently, so we're in that comment period at the moment, John.

Concerning Casa Berardi, there's a great deal of exploration activity as you know on the East-West trend maybe extending from Cochrane and Detour Mine in Ontario, all the way toward Fénelon, Wallbridge, and other companies. Do you think in our lifetimes, there might be a major East-West Highway from Cochrane through the trend or North-South Highway to improve access, which would lower the cost of operation at Casa Berardi? Is it worth maybe idling the mine to wait for the better times when the neighbors catch up and it becomes a more thriving mining district?

It's an interesting concept, and if we continue to hold Casa Berardi, we'd certainly welcome that outcome. I don't really know, John; I don't know whether there'd be an infrastructure investment, who would do it, and what the timing would be. But I certainly like the way you're thinking about it.

If I could ask one more, I'm not trying to take a swipe at the planning a year or two ago, but the camp and fixed costs in the Yukon were well known before the Alexco buyout and the Wheaton Precious Metals buyout of the stream. Are the camp costs and the mining costs twice as much as expected? Also, the silver price is better, obviously, like $10 an ounce. So, it surprises me that we need 600 tons a day and that 400 tons a day can't do the job.

John, again, I'll jump in and Carlos can supplement as well. As we looked at the project, we knew that there would be a high fixed cost. I think Rob had made the comment, too, that the ramp-up has been more challenging than we expected. The infrastructure investment that we've made and continue to make has included some things we didn't realize we needed to do. So, from the cost perspective, that is one of the things that we could have dialed in a bit better.

So the $10 an ounce good surprise on the silver prices?

Keep in mind, we're still currently in that ramp-up phase, right? We're still currently building our infrastructure and putting those types of things in place. Certainly, the increase in the silver price is helpful, but right now, we're not even at that 400 tons a day. We have to get things in place for us to get there.

Your next question comes from the line of Mike Parkin with National Bank. Please go ahead.

Thanks guys for taking my questions. You kind of touched on it with the Rock Creek in terms of the huge mineral endowment. Rob, are you thinking, you want to get your feet a little bit more wet on the exploration potential of the American portfolio of exploration projects before you kind of review any potential sale there? It seems you've got a plethora of projects and a phenomenal market to be selling into. Just your initial thoughts as you're a few months into the new role?

Yes, thanks for the question, Mike. We're definitely not going to be throwing the baby out with the bathwater here. I do intend to spend some time down in Nevada in the spring and summer when the rocks are exposed, and I am excited by some of the opportunities. Our exploration budget for this year is going to be constrained, and let me just explain that a little. We've basically intentionally maintained our exploration spending below what I think are the industry averages for companies of our size. This is really a deliberate strategy and it's not a limitation. We've got a pretty robust pipeline of quality targets across our portfolio, and many of them are in Nevada, as you point out. But we're taking a measured approach to exploration investment and it really comes down to strategic capital allocation. Our mines have substantial existing mine lives, which gives us the flexibility to time our exploration programs. Given our current financial parameters, we prioritize capital for other critical investments like Keno Hill, but this doesn't diminish the quality of our exploration targets. The key point is that our exploration drilling levels reflect careful capital allocation rather than constraints on opportunities. As I said, we have numerous high-potential targets and we'll systematically evaluate them as our capital priorities evolve. When we start generating more free cash flow, I think there's a compelling argument for increasing our exploration investments and advancing our best projects through stage gates and key decision points. So, yes, I'm proud of the projects in our portfolio. There are others we've already identified that we probably won't be keeping, but really the game is to constantly upgrade the portfolio and not just have a cupboard full of dormant projects.

Great. And then just recently we've seen BC announce a fast-track permitting process. So, are you getting any indications that Quebec might adopt something similar through their government that could serve as a tailwind for Casa regarding the timeline there as the future open pit land?

I don't know the answer to that question, Mike. We are in the process of hiring a VP of Sustainability, and that person has extensive permitting experience. We'll have a better answer for you soon.

Great. That's it for me guys. Thanks very much.

Thanks, Mike.

I will now turn the call back to Rob for closing remarks.

Well, thanks everyone for joining us on this call, and we look forward to keeping you updated with our story as it evolves next quarter. Thanks and have a good day.

Ladies and gentlemen, that concludes today's call. Thank you, and have a great day.