Earnings Call Transcript - HL Q3 2024

Operator, Operator

Thank you for being here. I'd like to welcome you to the Third Quarter 2024 Hecla Mining Company Earnings Conference Call. After the presentations, we will open it up for questions. I will now pass the call to Anvita Patel. Please proceed.

Anvita Patil, Vice President of Investor Relations and Treasurer

Good morning, Adam, and thank you all for joining us for Hecla's third quarter 2024 results conference call. I'm Anvita Patil, Vice President of Investor Relations and Treasurer. Our earnings release that was issued yesterday, along with today's presentation, are available on our website. On the call is Cassie Boggs, Interim President and Chief Executive Officer; Rob Krcmarov, Incoming President and Chief Executive Officer; Russell Lawlar, Senior Vice President and Chief Financial Officer; Carlos Aguiar, Vice President of Operations; and Kurt Allen, Vice President of Exploration. At the conclusion of our prepared remarks, we will all be available to answer your 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. Any 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 will now pass the call to Cassie.

Cassie Boggs, Interim President and Chief Executive Officer

Thanks, Anvita. Good morning, everyone. I want to express both my excitement and gratitude that Rob has agreed to join us as the next President and CEO of Hecla. I've known Rob for 19 years, and based on my experience working with him and his proven track record of success, the Board is confident he is the right person to lead Hecla not only at this juncture but well into the future. Rob is a seasoned and successful geologist having worked in the mining industry for three decades. He has broad experience across various geographies and operations. But more importantly, he is a leader who provides vision and fosters collaboration and teamwork by bringing diverse groups together, and that's what Hecla needs. With these opening remarks, I'll pass the call to Rob both to introduce himself and to get some perspective on why he decided to join Hecla.

Rob Krcmarov, Incoming President and Chief Executive Officer

Thank you, Cassie. As Cassie noted, she and I have known each other for 19 years, and I really cannot think of a better leader to have led Hecla over the past six months, and that's one of the primary reasons I've chosen to join this team. As this opportunity presented itself, I evaluated Hecla and confirmed my understanding of the company. The independence, strong governance, and complementary skills of the Board were reassuring. As you know, Hecla has a long and rich history of being a leader in the silver mining space with silver assets that are among the best in the industry when considering all the attributes. Additionally, I'm joining a well-seasoned and talented team. And in fact, let me be the first to congratulate Carlos as Hecla's new Chief Operating Officer. The value of a mining company rests on two key pillars, the quality of the team and the strength of its assets. Hecla is fortunate to have both. Our team is talented and dedicated, and our assets are world-class with reserve lives exceeding a decade in every mine and nearly two decades at Lucky Friday. These silver mines are among the highest grade in the industry, setting us apart from our peers. Equally important is Hecla's culture of innovation. For example, we pioneered and implemented the underhand closed bench mining method at Lucky Friday, and I’m excited to visit there tomorrow to meet the people who pioneered this mining method and to see it in action. We also boosted throughput and recoveries at Greens Creek and integrated generative AI into our drilling programs. This culture extends to our commitment to ESG practices, crucial for maintaining our social license to operate. A standout example is Keno Hill, where a year ago, we prioritized the safety of our employees, contractors, and the environment over production. We remain committed to responsible operations and valuing input and collaboration from the Yukon government and the First Nation of Na-Cho Nyäk Dun. With strong exploration success, we're invested in the long-term future of this operation, and in fact, the entire district, building on our foundation of stakeholder engagement and continuous improvement in safety and environmental practices. Lastly, one of our most exciting attributes is our exploration potential. Beyond our active mines projects like Midas and Aurora in Nevada, and Libya exploration in Montana, they could create lasting value for our shareholders.

Russell Lawlar, Senior Vice President and Chief Financial Officer

Thank you, Rob. I'll start on Slide 5. We previously provided our priorities for capital allocation during the year, and similar to the second quarter, we've made progress on these priorities during the third quarter. Carlos will speak more on our investment in Keno Hill during the quarter, but I want to highlight that we've invested approximately $40 million in capital at the mine this year, with more than $14 million in the third quarter, while producing almost 600,000 ounces of silver this quarter, bringing the total to over 2.1 million ounces, which puts us on track to meet our guidance this year. As we saw an opportunistic market environment, we issued equity under our ATM program to pay down our revolver. At quarter-end, we had $13 million drawn on the revolver and $22 million in cash on hand, giving us a net positive cash balance of $9 million. With the deleveraging from our revolver and an improvement in our adjusted EBITDA, we've also seen our net leverage ratio improve to 1.8x compared to 2.3x in the prior quarter. Moving to Slide 6, we generated strong cash flows from our operations during the quarter, and consistent with our strategic priorities, we invested in our assets with a total capital investment of almost $55 million split almost equally between growth and sustaining capital. Slide 6 shows that we raised $57.3 million under the ATM and paid down $49 million on the revolver further demonstrating our deleveraging. The last point on this slide is our silver-linked dividend. With our realized price of silver last quarter at $29.77, cash used to pay our dividend was $8.7 million, which includes the additional 1 penny per share owing to the price of silver.

Carlos Aguiar, Vice President of Operations

Thank you, Russell. I will start on Slide 9, Greens Creek flagship mine. Greens Creek produced 1.9 million ounces of silver. Throughput of 2,314 tons per day was lower due to five days of unplanned SAG mill maintenance. The team's quick response helped address the issue, and we broke forward a portion of scheduled maintenance for the fourth quarter due to the downtime. We had seven days of unplanned downtime in total, five of which were in the third quarter. Silver grades were lower in the quarter, but are expected to increase in the fourth quarter. Despite lower production in the quarter, revenues were higher compared to the second quarter at $117 million as we drew down on the prior quarter's silver and zinc concentrator inventory build. While production cost at Greens Creek remains stable, cash cost and all-in sustaining cost per silver ounce increased to $0.93 and $7.04 respectively, due to lower silver and byproduct production. This quarter, as Russell previously mentioned, we added copper as a payable metal in our silver concentrates, which yields better economics in the long reserve mine life of this operation. The strong metal prices and higher sales, coupled with stable cost, resulted in strong free cash flow generation of $47 million. Year-to-date, the mine has already generated more than $100 million in free cash flows. Primarily because of the unplanned mill shutdown of seven days, we are lowering our production guidance slightly to between 8.6 million to 9 million ounces. Guidance for cash cost and all-in sustaining cost per silver ounce is also revised lower, as high prices for zinc and gold are expected to more than offset lower metal production. While the unplanned SAG mill maintenance has impacted our production slightly this year, I am very proud of our team for handling the repairs quickly. Greens Creek is a premier silver mine, our flagship operation, and is positioned for a strong finish to the year.

Rob Krcmarov, Incoming President and Chief Executive Officer

Lucky Friday produced 1.2 million ounces of silver with 3.6 million ounces produced over the nine months of the year. Our production over the first nine months was the highest recorded in the past 23 years. Production was lowered quarter-over-quarter due to lower mill throughput and lower grades. While the mill throughput was 3% lower over the last quarter, it was the second highest throughput in the mine's history after a record last quarter. Lower mill throughput primarily stemmed from the installation of new cyclones, which should help us consistently achieve a higher throughput in the future. Cash cost and all-in sustaining cost per silver ounce were $9.98 and $19.48 respectively, trending higher due to higher maintenance costs for parts and mobile equipment and a higher use of contractors in the quarter. We expect contractor costs to trend lower in the fourth quarter as we expect to achieve the forecast headcount. Costs year-to-date have also been impacted by repairs and infrastructure upgrades this year after the fire last year in the secondary gateway. Capital investments in the quarter totaled $11.2 million and included significant developments in pre-production drilling, a key requirement for the underhand closed bench mining method. The mine generated free cash flow of $23.2 million in the third quarter, with $69 million generated year-to-date. We completed the $50 million Lucky Friday insurance claim, collecting the remaining $14.8 million during the quarter. We are revising our production and cost guidance for Lucky Friday to reflect the strong, but lower-than-expected production and higher costs incurred in the third quarter. Our revised production guidance is 4.7 million to 5 million ounces, with all-in sustaining cost now expected to be in the range of $14.50 to $15 per ounce of silver. Our capital guidance for the mine is affirmed at $45 million to $50 million, with $37 million invested year-to-date. Lucky Friday is our second cornerstone asset, and while the quarter was impacted by lower throughput and grades, we expect improved grades and throughput in the fourth quarter. Our investments in the mine over the past three years, including the new mining method, the service hoist to increase our hoisting capacity, and the coarse ore bunker to decouple the mill from the mine, have established a foundation for this mine to be a 5 million ounce producer over the next decade. Casa Berardi produced 21,000 ounces in the third quarter at cash cost of $1,754 per ounce and all-in sustaining cost of $2,059, both higher than the guidance range, primarily due to lower production than planned, reflecting lower mill grades. Production cost at Casa Berardi has remained stable, as the team remains focused on cost containment. The team has continued the detailed stop-by-stop analysis to review further extension of the waste mine underground stops. Given the current strain in gold prices, we expect the underground operations to cease in mid-2025. We are reiterating the production cost and capital guidance of the mine, but our work at Casa Berardi is not done. We have made significant progress in transitioning the mine to a surface-only operation, where we moved 62% more surface ore and waste tons during the first nine months of this year compared to last year. Currently, approximately 70% of the mill feed comes from the 160 pit. In the second half of 2025, we expect the 160 pit to supply the mill. The pit should continue production until 2027, with production levels of the mine expected to decline once the underground operation sees production next year. We expect long-term value creation of the mine with a higher grade principal and West Mine Crown Pillar pits. Given the timelines around permitting, stripping, and the development of the pits, we expect the production hiatus of the mine to be above five years. The mine has a long reserve life ahead of it, and we have more work to do at this mine as we evaluate its fit into our overall portfolio and other potential strategic alternatives.

Carlos Aguiar, Vice President of Operations

Keno Hill produced approximately 600,000 ounces in the third quarter, with year-to-date production of 2.1 million ounces. The mill throughput for the first nine months of the year was 314 tons per day, while it was 3,260 tons per day in the quarter, as the mill was not operational for about 35 days due to delays in receiving authorization for construction and permitting for the dry stack tail facility as a result of the heap leach pad incident at the Eagle gold mine in late June. Ultimately, all authorizations were received, and we completed the related design and construction work at the facility, allowing the mill to restart operations on October 26th. While the mill was not in operation, we continued mining activities, and as of October 26th, we have mined 2.5 million ounces of silver, including an ore stockpile of nearly 0.5 million ounces. During this downtime, we also made upgrades in the secondary ball mill and the filter presses. For the quarter, expenditures on production costs, including ramp-up costs, were $25 million, within our guidance range of $25 million to $27 million. Capital investment of $14.4 million was related to construction of the dry stack tailing system, development, and equipment purchases. Due to permitting delays, construction of the cemented tails batch plant, which is instrumental in changing the mining method from overhand to underhand, has been delayed and is now expected to be completed by mid-2025. The transition to underhand mining, which will improve safety and productivity at the mine, is now expected in 2026. I want to congratulate the Keno Hill team for making significant improvements in safety, environmental, and mining practices. Keno Hill's 12-month rolling all injury frequency rate was 2.82, a 27% decline over 2023. Keno Hill currently has a reserve life of 11 years. Our ability to successfully operate in Yukon for the next decade depends on, among other factors, a strong relationship with the Yukon government and the First Nation of Na-Cho Nyäk Dun. These relationships and continued investments are critical to operate and deliver long-term value at Keno Hill.

Kurt Allen, Vice President of Exploration

Slide 13 contains plan maps of our underground and surface diamond drilling target areas at Keno Hill. Underground drilling is focused on extending mineralization and resource conversion in both the Bermingham Bear and the Flame & Moth vein systems. This drilling continues to intersect high-grade silver mineralization over substantial widths and highlights the significant potential for high-grade silver mineralization in the district. At the Bermingham Football vein, you can see the high-grade intercepts received during the quarter show significant silver values and widths in areas that were previously interpreted as containing lower grades. These intercepts include 63.8 ounces per ton of silver over 10.2 feet. At the Flame & Moth drilling in vein 1, we have intersected wide and high-grade silver mineralization in areas that were previously interpreted to be barren and include intercepts up to 71.6 ounces per ton of silver over 14.8 feet. Drilling in both veins will positively impact resource models and is providing more geologic information and confidence in our resource base. Three surface drills were also active on the property and are continuing to test multiple targets, including the Bermingham Deep, the Bermingham Townsite, Elsa17-Dixie, Silver Spoon, and Inca target areas. These target areas have the potential for the discovery of large high-grade silver deposits. With each new exploration intercept, we continue to add to our understanding of the structural geology of our target areas and continue to demonstrate that the mineral potential of this highly prospective district remains significant.

Cassie Boggs, Interim President and Chief Executive Officer

Thanks, Kurt. Before I speak about guidance, I'd just like to spend a few minutes discussing our strategy investment and why we are in the Yukon. The geologic environment at Keno Hills specifically and in Yukon more generally is world-class. And while each generation has its challenges, the Yukon government, the First Nations of the Na-Cho Nyäk Dun, and all other external stakeholders have historically been supportive of mining. But now, given the tragic events in June at the Eagle gold mine, which like Keno Hill is within the First Nations' traditional territory, some of the local community are questioning the emphasis on increasing production. We value the perspectives of the First Nations and the Yukon government, and our ability to successfully operate in Yukon is premised on environmental stewardship, responsible mining practices, and sustainable mining for the benefit of all stakeholders. As such, we are prioritizing stakeholder outreach in the near term, and we expect our 2025 production at Keno Hill will remain at 2024 levels. We plan to use this opportunity to strengthen community ties, advance permitting and improvements to infrastructure, including the new water treatment plant at Bermingham and the new cemented tails batch plant. With this base, we are on a long-term mission of building value at Keno Hill and in the Yukon. The strong geologic potential of the operation in the district is a critical driver of why we see Keno Hill potentially joining Greens Creek and Lucky Friday as cornerstone assets in our portfolio. With the exploration success we're seeing, we remain confident that Keno Hill's reserve mine life will continue to grow. Moving on to Slide 15 and talking about guidance. As Carlos described before, we're lowering our silver production guidance for Greens Creek and Lucky Friday and affirming Keno Hill's silver production. We are also increasing Lucky Friday's cash cost and all-in sustaining cost guidance, while reducing Greens Creek cost guidance. Overall, our consolidated silver and gold cost guidance remains unchanged. Capital and exploration guidance is affirmed as well. And before I open the call to questions, I just want to express our gratitude to all our dedicated employees. Your unwavering commitment to safety and environmental stewardship has been instrumental in establishing Hecla's strong reputation and operational success. We're confident that your continued dedication will play a vital role in shaping a successful future under Rob's leadership. And with that, operator, I'd like to open the call to questions.

Operator, Operator

Our first question comes from Lucas Pipes with B. Riley.

Lucas Pipes, Analyst

Thank you so much, operator. Good morning, everyone. Rob, congratulations. Great to see. My first question is on the strategic side, and maybe a touch early, but I wondered where Hecla is positioning itself. I think of three dimensions, gold versus silver, base versus precious, North America versus the Americas as a whole. That's kind of been a traditional way of how I've thought about it. I’d be curious where you think Hecla would be sitting within that matrix. Thank you very much.

Rob Krcmarov, Incoming President and Chief Executive Officer

Thanks very much, Lucas. In terms of strategy, let me just start out by saying we've got two flagship mines and two mines that haven't really met our expectations. So really, our focus is going to be on organic growth and really focusing on maximizing the value of what's quite an extensive portfolio and in particular, making sure that Keno Hill follows a measured path to optimum production and profitability. Reaching that point is going to take a bit longer than we initially anticipated. An important precondition is really some of the remediation of past work and completing several capital projects, improving the safety of our people, environmental compliance, and most importantly, coordinating with our most important stakeholders, the First Nations of Na-Cho Nyäk Dun and the Yukon government, and really looking to obtain their support and input. Moreover, there's going to be an increasing renewed focus on cash flow generation at all of our assets and not just production maximization. Regarding geographic spread, right now, we want to stay focused on Canada and the U.S. While there are large mines and deposits in Mexico, grounding of permits in that country, even on operating mines, has come to a standstill. When you look at the additional security risk, that's become unacceptable for Hecla, and right now, we're not prepared to speculate that the conditions are going to improve. We prefer to focus on safe jurisdictions where our investors can be reassured that there’s a clear path to obtaining the required permits and the production and cash flow continue uninterrupted, so long as we meet our commitments and obviously have social license. We'll continue to evaluate the situation in Mexico, but right now, we're focused on our own assets and internal growth in the U.S. and Canada.

Lucas Pipes, Analyst

Rob, this is very helpful. I appreciate that color. And on the point of cash flow, how should investors think about allocation? Is it back into the business, be it operational improvements, CapEx, exploration, or is there also a priority towards debt reduction?

Rob Krcmarov, Incoming President and Chief Executive Officer

Obviously, I'm not comfortable with our debt, and we will address that in due course. But our attention is to allocate capital to make sure that Keno Hill and Casa Berardi are performing to their optimum levels.

Carlos Aguiar, Vice President of Operations

And really, if I just add a little bit more, the continuation of investment at Greens Creek and Lucky Friday clearly will also continue as those mines are the ones that we're using the cash flow from to invest in those mines of Casa and Keno Hill as well. But clearly, investing in our business needs to be one of our first priorities, including exploration as well.

Lucas Pipes, Analyst

So in the context of higher metal prices currently, any excess to maybe where the budget was would not necessarily go towards the balance sheet. It would probably go first and foremost towards operations. Is that reasonable, or would you draw a different conclusion?

Carlos Aguiar, Vice President of Operations

I would look at it right now. We will continue to invest in our operations both capital and exploration. You saw during the quarter, we paid our revolver in such a way that we're almost net zero at the end of the quarter. We really wanted to get off the revolver just because the revolvers are great, but they're best undrawn. We were able to do that since the market was conducive. As we move forward, we'll look to, as we generate more cash, we'll look to build a cash balance. There will be a balance between building a cash balance so that the net leverage ratio continues to come down, but our future is going to be organic growth as Rob mentioned at these assets, so we'll need to continue to invest in them as well.

Lucas Pipes, Analyst

Rob, congratulations again, and to the entire team, all the best of luck.

Operator, Operator

Our next question is from Heiko Ihle with H.C. Wainwright.

Heiko Ihle, Analyst

Thanks for taking my question. Rob, congratulations on your appointment. As you probably already know, I just want to say you have a very talented team around you. I've covered Hecla for going on a decade at this point. Looking forward to meeting you in person, and obviously, also congratulations to Carlos on this promotion. I have a more general question, but what have you been seeing with labor costs in the fourth quarter thus far? And I'm not sure if you can maybe give some granularity by asset, but if you can, that would be great. Otherwise, maybe just a more general answer of what you're seeing.

Rob Krcmarov, Incoming President and Chief Executive Officer

Thanks, Heiko. I'm going to hand that one over to Russell and perhaps Carlos to comment.

Russell Lawlar, Senior Vice President and Chief Financial Officer

Our labor cost in two of the four mines are close to 55%, and that includes the usage of contractors. As you know, in the third quarter and according to our jurisdictions, most of the capital projects are executed. So during that period of time, we had extra people executing on the projects, and that's why we are expecting. Once the construction drops a little bit in the last quarter, we are expecting a decrease in the use of contractors in the near future.

Kurt Allen, Vice President of Exploration

I don't have much to add to that, but Carlos did mention that one of our larger drivers of cost is labor, about 45% of our internal labor, then you add some contractors on top of that. What we mentioned in the release was that we expect to see contractor labor come off in the fourth quarter as we both fill our roles and as Carlos mentioned, complete some of the work that was done in the third quarter.

Heiko Ihle, Analyst

Fair enough. Building on the last question, Rob, with your background, I did some research earlier today after Hecla revealed some of your past. Let's discuss your long-term plans for the company. I assume there have been discussions with the Board even before your appointment. Are there any significant changes regarding capital allocation, or perhaps any future mergers and acquisitions that we should anticipate?

Rob Krcmarov, Incoming President and Chief Executive Officer

With regards to M&A, I'll continue to engage with the Board. Most importantly, I think it's really important that we actually are clear on what our M&A criteria are going to be. So, we'll have that discussion, establish some parameters and guidelines, and have a disciplined approach to that. In my past life, I've been involved in a fair bit of M&A, and it's crucial that we conduct thorough due diligence. If we choose to proceed, it will only be subject to full and thorough due diligence, and a fully-informed Board. M&A is best done from a position of strength, but we're not there yet. I believe that we can add value to our existing assets by focusing on internal growth and maximizing the value of our existing portfolio.

Heiko Ihle, Analyst

Fair enough. I assume you don't have a favorite asset yet, do you? Too early.

Rob Krcmarov, Incoming President and Chief Executive Officer

It's hard not to love Greens Creek because it's just a fabulous asset. I have to say, even though Keno Hill has been a slower ramp-up than we expected, I love the exploration potential there. I really do. I think it has significant scale exploration potential. In fact, I also really like the Yukon.

Heiko Ihle, Analyst

Very good. I'll get back in queue. Thanks so much, and congratulations again.

Operator, Operator

Our next question comes from Mike Parkin with National Bank.

Mike Parkin, Analyst

Hi guys. Thanks for taking my question. Could you just clarify how long the mill at Keno was offline in the third quarter?

Rob Krcmarov, Incoming President and Chief Executive Officer

We were down for 35 days during the third quarter.

Mike Parkin, Analyst

Okay. And then with the tailings, you had previous notes in your Q2 that the tailings capacity would be met by the end of this year. With the work you're doing, what kind of capacity have you been able to add? And are you able to still complete the further construction into year end, or is it kind of weather-dependent and you're having to wait till the spring to resume work?

Rob Krcmarov, Incoming President and Chief Executive Officer

We are going to continue expanding the current dry stack tailings capacity at the end of this year and the following year, and we will end with over two years of capacity to continue the operation.

Mike Parkin, Analyst

Okay, you're not weather dependent or strained?

Rob Krcmarov, Incoming President and Chief Executive Officer

No.

Mike Parkin, Analyst

Great. And then one other one. Rob, you've obviously given us quite a bit of color in terms of what you're thinking of, but as you get more comfortable with the assets, do you foresee giving a broader market update on the path forward for Hecla? Once you've had the time to visit the sites, really get into the numbers? Is there thought to come out with years, where I plan to take the company, or is it going to be just a bit more piecemeal and we'll get updates on quarterly earnings, that kind of thing?

Rob Krcmarov, Incoming President and Chief Executive Officer

As you can imagine, I'm going through an intense onboarding. I've already been to Casa, and I'll be visiting the other three operations in the next three weeks. In fact, tomorrow, I'm going to Lucky Friday. Once I get a clearer picture, the thinking is going to evolve. I'd like to think that at some time, when it makes sense, we'll hold an Investor Day and more fully articulate our vision.

Mike Parkin, Analyst

Okay. And you guys have quite a massive project pipeline that hasn't been talked about much in the market. Are you planning to do any site tours of those assets? And is there a thought towards possibly rationalizing that portfolio down to core projects and potentially letting loose some of the non-core post-review?

Rob Krcmarov, Incoming President and Chief Executive Officer

Yes, absolutely. While the cupboard is full and we're blessed with many projects, we can't really service all of them and do them justice. One of the things I've been discussing with Kurt is the need to focus on the ones that can deliver near-term and medium-term value and those that might be best managed in the hands of other operators, who will give it the attention it deserves. Yes, we will rationalize the portfolio and focus on the very best assets.

Mike Parkin, Analyst

Great. Looking forward to the updates, and welcome aboard.

Operator, Operator

Our next question comes from Sean Wondrack with Deutsche Bank.

Sean Wondrack, Analyst

Thanks for taking my questions, and welcome. It was just a couple of months ago at our high yield conference that I had asked how serious Hecla was about repaying the revolver. It's really nice to see the opportunistic pay down there. There was a comment made earlier on the call that we're not comfortable with debt. Is that fair to assume that was referencing the coupon, or is it referring more to the size of the facility?

Russell Lawlar, Senior Vice President and Chief Financial Officer

One of the things that we've tried to message to the market is that, over time, we want to look to deleverage. This isn't something that we would necessarily do larger overnight, but over time, we do believe the leverage ratio is too high. The ratio improved from 2.3x to 2.1x, and we'll look to build that cash balance, as I said earlier, and work to bring it down. We will also balance that with investment in our assets, like I've mentioned previously, in exploration, but then also in capital developments and the projects necessary at the assets.

Sean Wondrack, Analyst

Is there any kind of a more formal net leverage target or a band at which you'll seek to operate within?

Russell Lawlar, Senior Vice President and Chief Financial Officer

Historically, we've said under 2x, and less than 2x is where we want to operate now. Historically, we would run at 1x or less much of the time. I'd like to see us be able to build that position back up again. Those things take time. Certainly, we're in an environment where the prices should be helpful with that.

Sean Wondrack, Analyst

Right. As we think about moving into next year, is there any reason to believe the CapEx will be materially different relative to '24? I know it's a little early. I'm not sure if you can comment on that yet.

Russell Lawlar, Senior Vice President and Chief Financial Officer

Yes. I would suggest, you know, we'll come out with our full detailed guidance next year. We've kind of directionally said where we expect Keno Hill to be, etc. But, as it goes for those details, we'll come out with guidance next year, early next year.

Joseph Reagor, Analyst

Hi everyone. Rob, welcome to the team. Thanks for taking the questions. A lot of my questions have already been touched on, but just on Keno Hill, as you guys switch to mining methods, how much cost savings maybe on a per ounce basis are you expecting from that?

Carlos Aguiar, Vice President of Operations

We still don't know. We need to evaluate. The main proposal is the safety. That's the main focus, the change of the mining method, which is going to occur until 2026. But as today, we don't have any estimate above the reduction in cost because the main priority is safety.

Joseph Reagor, Analyst

Okay. And maybe a bigger picture question then. In the event that you guys aren't, for one reason or another, able to ramp up production there, whether it be due to First Nations issues or anything else, and the costs don't come down significantly, is there any risk in anyone's eyes that that asset would need to be curtailed in the current price environment, or is there a certain price environment where you would consider that?

Carlos Aguiar, Vice President of Operations

Yes. I think Joe, maybe even a quarter ago, we talked a little bit about this as it relates to our commitment to the Yukon. I think that clearly with Cassie's remarks on the last slide we presented that we're committed, as well as Rob indicating his view on what a but we believe that we need to invest in that operation in a number of ways. That's both community engagement, infrastructure, environmental practices and safety, etc. We are committed to being in Yukon for the long-term, and we expect to see positive results.

Joseph Reagor, Analyst

Okay. Fair enough. And then, kind of just adding on to these big picture questions about the whole company. Obviously, debt reduction is a focus. Any thoughts about changes in dividend policy, or a timeline on when we might see you guys kind of empty a little bit of the coverage of these longer-term assets?

Carlos Aguiar, Vice President of Operations

The dividend policy, we believe, gives our shareholders exposure to silver. Many of our shareholders like that exposure. The dividends are approved by the Board, so they get the Board's discretion as to how that goes. But we believe that it does give that exposure to silver.

Rob Krcmarov, Incoming President and Chief Executive Officer

Yes. I mean, I would like to visit some of those assets and personally understand what the opportunity is and whether we should be focusing on it. The priority right now is the operations. Perhaps sometime during Q2, I'll have a clearer picture. Thank you everyone for your questions. This concludes the call, and we look forward to engaging with you again soon. Have a good day.

Operator, Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.