Earnings Call Transcript - HL 2026-11-04

Operator

Hello, everyone. Thank you for joining us, and welcome to the Q3 2026 Hecla Mining Company Earnings Conference Call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. I will now hand the conference over to Mike Parkin, Vice President of Strategy and Investor Relations. Mike, please go ahead.

Mike Parkin, Head of Investor Relations

Thank you, Hillary. Good morning, and thank you for all for joining us for Heckler's third quarter 2026 results conference call. I'm Mike Parkin, Vice President of Strategy and Investor Relations. Our earnings release that was issued yesterday, along with today's presentation, are available on our website. On the call with us today is Rob Pritchmoff, President and Chief Executive Officer, Russell Lawler, Senior Vice President and Chief Financial Officer, Carlos Aguilar, Senior Vice President and Chief Operating Officer, Brian Erickson, Vice President of Operations, Kurt Allen, Vice President of Exploration, as well as other members of our management team. At the conclusion of our prepared remarks, we will be available to answer your questions. Now turning over to Slide 2, Cautionary Statements. Any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act and involve risks, as shown on this slide, in our earnings release and in our 10-Q filing with the SEC. These and other risks could cause results to differ from those projected in the forward-looking statements. Non-GAAP measures cited on this call and related slides are reconciled in these slides or in the back of the news release. Please note, as we discuss financial figures and projections throughout this presentation and in the earnings release, we are referring to our continuing operations. I will now pass the call over to Rob.

Rob Krcmarov, CEO

Thank you, Mike, and good morning, everyone. Turning to slide three, Eklund is the third quarter of 2026 from a position of real strength. I'm speaking of financial strength, a position today that marks the strongest balance sheet in the company's very long history. And so the attributes shown on this slide that define us as North America's premier silver producer, they haven't changed. What has changed is the confidence with which we can now invest in what comes next. So I'm eager to have our team discuss some really remarkable developments that are coming out of our substantial project pipeline that further solidifies our market positioning. And so a little bit more on that in a minute. So turning to slide four. This was another very strong quarter for Heckler. Even though a couple of the headline numbers moved in a different direction than last quarter. I want to spend a moment walking through why, because I think the underlying story here is a really good one. Revenue from continuing operations was $334 million, compared to the record $411 million we reported in the first quarter. Two things are driving that change, and it's worth being clear about both, because neither of them is a production problem. First, metal prices pulled back from the highs we saw earlier in the year. So I remain very confident in the outlook for silver and gold prices. Second, part of the gap was simply timing. A meaningful amount of silver concentrate, mostly at Greens Creek, was produced but not yet sold as of quarter end. Had that concentrate shipped with the quarter, revenue would have been noticeably higher, on top of an already strong quarter. So that inventory shipped in early August, and you'll see it show up in our third quarter results. Those of you who's followed us for some time know the lumpy sales pattern at Greens Creek. Adjusted EBITDA from continuing operations was $199 million, more than double the $94 million we generated a year ago. Operating cash flow was...

Cosmos Chiu, Analyst — CIBC

I'm sorry.

Rob Krcmarov, CEO

Okay, sorry to continue. I'm just going to re-emphasise, I got some numbers mixed up from the previous quarter, and I apologise, everyone. Income from continuing operations was $150 million, or $0.22 a share, up from $118 million, or $0.18 a share in the second quarter. Adjusted EBITDA from continuing operations was $211 million. That's up 6% over the quarter, and up more than 40% on a year ago. Operating cash flow from continuing operations was a record $203 million. Thank you. Free cash flow was a record 2 at 151 million, which is nearly triple what we generated in the third quarter last year, and Greens Creek led the way with a site record of 147 million. The balance sheet is the strongest it's ever been. We finished the quarter with almost $700 million in cash and no long-term debt up in finance leases. We've also put in place a new $500 million revolving credit facility. It's undrawn other than a small amount of letters of credit, and it comes with a $100 million accordion option. So if you add it all up, we have about $1.2 billion of liquidity, and that gives us real options. The flexibility to keep investing in the projects and the assets that make the most sense on our own timeline, rather than being dictated to by the silver price as in the past. On the operating side, we produced 4.2 million ounces of silver within 1% of the second quarter. Greens Creek produced over 1.9 million ounces. Lucky Friday produced nearly 1.3 million ounces, which is what we planned after coming out of the high-grade pocket that drove its second quarter, that record in the second quarter. And Keno Hill contributed almost a million ounces, and that shows what this asset can do, and it's why we keep investing and de-risking its future. So a word on Kino Hill. That record came from running the mill close to its permitted limit, and our current permits can't support that for long. So we're choosing to suppress throughput to stay within permit limits, and Carlos will give you the numbers and the timing on that in a minute. Silver production should fall by less than throughput, and that's because we'll be more selective in both the mine and the mill. I want to be clear, Keno Hill carries a high fixed cost base, so through the permitting period at current prices, you should expect lower revenue and higher cost per tonne. That said, I still see real value in that ground, and that's why we had four drills turning there. We also made some positive changes to our 2026 guidance. We raised the bottom end of our consolidated silver production range. We improved our silver cash cost and all in sustaining cost guidance, and we lowered our capital investment guidance. Turning to slide five. This slide shows where we want to take the company. Our medium term goal is to be a silver producer of more than 20 million ounces a year. A potential restart at Midas is part of that, and so is Keno Hill getting to its permitted mill rate once the permitting and infrastructure work is done. All of it depends on exploration, success, development, and permitting. Closer in, we have two organic opportunities at Greens Creek. One is the pyrite concentrate circuit we told you about last quarter, and the other is the dry stack tailings, which now has more than one potential path forward. What the three projects on the next slide have in common is low capital intensity. Our bar for any of these investments is the return that clears our investment thresholds by a healthy margin. And early indications on the pyrite circuit are encouraging on that front. I am constructive on silver and gold. Even so, I'd rather build cash now so we can keep these projects moving, whatever the price does. And that's why the balance sheet has been such a priority for us. I'll turn it over to Brian to walk through the latest progress on it. Brian, over to you. Thanks, Rob.

Brian Erickson, Other

Trudy, display six. So work continues to advance on all three organic projects Rob discussed and is shown on this slide, and they share one important attribute. Each is expected to be low in capital spend. These projects build on infrastructure we already have, they follow permitting paths that are already established and well understood, and we already have the operating expertise in-house. That allows us to produce potentially high margin production and cash flow growth while reducing many of the exploration and development risks inherent in greenfield projects. Starting with the Greens Creek pyrite concentrate circuit, we're advancing engineering on a new circuit at the mill that will recover additional silver and gold that currently reports to the dry stack tailings facility, producing a marketable pyrite concentrate that is shown to be in high demand. This work is at a scoping level, incorporating some advanced design, and preliminary costs estimates are underway. At average reserve grades, we continue to estimate that the circuit could add potentially 1 to 1.2 million ounces of silver and 10 to 15,000 ounces of gold in annual production once fully ramped up, on top of things because it gives existing output. Early indications continue to point to a robust return on capital that meets our investment thresholds, while also reducing the rate at which we add tailings to the storage facility, which would be expected to lower future tailings of storage capacity-related investment. With a favorable benefit-to-cost ratio and what we believe is low technical risk, this project is well-suited to an accelerated engineering and execution path, subject to permits and final investment approval. Under that path, we expect to begin intermittent pyrate production of concentrate as early as late 2017 using temporary equipment, with potential to reach full capacity with the completion of the new circuit, expected in late 2018. These estimates remain preliminary and are subject to changes in engineering advances, but we're very excited about this project. Second is the Gaines Creek Tails reprocessing project. Now we're looking at the middle image on the slide. I want to spend a little extra time because the scope of what we're evaluating has broadened. As of September 30th, the Drystack Tailings Facility held an estimated 10.7 million tons of material containing roughly 51 million ounces of silver, nearly 600,000 ounces of gold, and additional critical minerals. At quarter in metals prices, that represents an in situ gross metal value of approximately 6.4 billion. That's a gross figure before transportation, processing, and sales cost, which we expect to be significant, and it is not a mineral resource reserved. Thank you. So think of it as a measured scale. We're evaluating the potential of three pathways forward with this. The first pathway is the one we've been working on for a few years, a multiphase metallurgical program with a third party. Phase III testing was completed in August, and the metallurgical results are pending and expected any week now. That's a key milestone that should help shape our next steps, including the potential to advance to a pilot plan test in Phase IV. This pathway depends on our potential partners securing a suitable processing facility, which they are working on. Early indications point to a potentially low capital intensity path for Heckler to achieve initial cash flows, with first cash flows potentially in about three years, based on our current understanding today, though that timing is subject to a number of factors largely outside of our control and could change. What is new this quarter is that we are now evaluating two additional pathways. One of the new potential pathways is a direct sale of the dry stack material. Following interest from third-party smelters and concentrate dealers, we're evaluating whether this material could qualify as low-grade feedstock that we could sell directly. And this is moving from concept to action. In the fourth quarter, we expect to load a test parcel from Greens Creek of approximately 5,500 dry metric tons of this low-grade feedstock for shipment and sale to a third-party smelter. This remains early stage, and there's no assurance it will lead to commercial shipments next year and beyond, but it is an important first step, and we'll look to update the market as we learn more. The third pathway is self-processing. This would potentially involve an on-site processing facility, which could require new or amended permits. We expect to begin metallurgical evaluation of the self-processing concept in the first quarter of 2027, with initial results potentially available by spring of 2027 to help determine next steps. These pathways for the Greens Creek tailings are not mutually exclusive. Our path forward could include more than one of them, and we're evaluating combinations of two or more. That flexibility is real strength because it gives us multiple ways to capture value and generate cash flows from material we already have on site. And as with the Pyrate concentrate, reprocessing all or part of the tailings could reduce the space needed for tailing storage and help lower Greens Creek's long-term reclamation liability. We expect to provide further details in coming quarters as the evaluation work advances. Finally, the MIDAS Restart Project in Nevada also continues to advance and it shares that same low capital intensity attribute. MIDAS has permitted infrastructure, including a mill with approximately 1,200 tons per day of milling capacity, a tailings facility with roughly 15 years of storage capacity, and other surface infrastructure, all of which could help reduce the time and capital required for a restart. We're working to expand the existing high-grade gold and silver resource to the scale needed to support a restart, and we continue to evaluate a hub-and-spoke model that would bring ore from Midas and potentially other regional sources, such as Hollister, which is well within trucking distance through the existing mill. Drilling resumed at Hollister this quarter after a multi-year pause, and Kurt will touch on the latest Nevada exploration results in a few minutes. In summary, three capital projects at three different stages with one common thread. Low capital intensity and the potential for high margins. We'll keep you updated as the work advances. I'll now turn the call over to Carlos for the operations review.

Carlos Aguiar, COO

Thank you, Brian. Turning to slide 8, Green Street produced 1.9 million ounces of silver and nearly 12,000 ounces of gold in the third quarter. Lower than the second quarter primarily due to hydrogen plant maintenance during the quarter. Costs applicable to sales were 76 million, reflecting the higher sales volume from the timing of treatment noted by Rob earlier. We cashed costs of negative 10.11 per ounce in ASIC of negative 3.25 per ounce, brought up to by-product credits. Cash flow from operations was 155 million, and free cash flow was a new side-level quarterly record of 147 million. As Rob mentioned, the concentrate inventory we carried at the end of the second quarter, shipped in early August, and is reflected in these results. Looking ahead, we have additional scheduled maintenance planning in the fourth quarter. We remain confident in achieving production guidance at our flagship operation, which we are maintaining at 8 to 8.3 million ounces of silver and 51 to 55,000 ounces of gold. We are raising our costs applicable to sales guidance by $10 million to $250 million, reflecting actual results over the first nine months and higher expected on-site power generation costs in the fourth quarter. This increases in total dollars. On a per-ounce basis, guidance has improved, driven by our strong first nine months and higher by product credits. We now expect cash cost of negative $13 to negative $12.50 per ounce, an ASIC of negative $5.50 to negative $5 per ounce, both opted by product credits. Turning to slide 9, Lucky Friday produced nearly 1.3 million ounces of silver as planned, as the mine moved out of the high-grade ore pocket, the drug record second quarter production of 1.5 million ounces. Costs applicable to sales were $34 million, cash costs were $7.31 per ounce, and ASIC was $27.68 per ounce, both offered by product credits. Both were up from the second quarter, reflecting lower production volume and higher sustaining capital spending. Cash flow from operations was $88 million, and free cash flow was $67 million. The surface cooling project is expected to be commissioned in the fourth quarter of 2026. We expected to begin improving underground working conditions shortly after commissioning, supporting the mine's 15-year reserve mine life. For the full year, we have tightened up our super production guidance by raising the low and of the range to 5 to 5.2 million ounces. The cost applicable to save with no change at $140 million. We have also improved our cost guidance. We now expect cash cost of $850 to $9 per ounce, down from $9 to $9.75, and we have lowered the high end of our ASIC range to $2550 per ounce from $26. For a new range of $2450 to $2550 per ounce, both opted by product credit. Thank you. Turning to slide 10, Aquina Hill produced a record 963,000 ounces of silver in the third quarter. The result benefited from a new silver grade that improved more than 35% as we worked through the lower grade zone we discussed earlier this year and from a new quarterly record mean rate. Cash flow from operations was five million and free cash flow was negative at two million, reflecting continued capital investment and working capital outflows. However, you shouldn't expect that milling rate to repeat. In September, the mill ran close to its permitting rate, but the capacity under our current waste rock, tailings, and water permits cannot support that rate over time. Beginning in the fourth quarter, we are choosing to suppress throughput to preserve that capacity and stay within permitting limits. We expect throughput to step down to approximately 300 tons per day in the fourth quarter, with further suppression beginning in January 2027, to levels significantly below third quarter 2026. As Robe noted, we expect silver production to decline proportionally less than throughput, as we mine and process more selectively. In practical terms, at current matter prices, you should expect lower revenue and higher cost per ton at Kena Hill this period, given the high fixed cost nature of the asset. We have been speaking to this strategy for a few quarters now, and we believe is the best path forward. While we wait on permits, the team is focus on what on what we can control. We are putting in place tighter grade control to reduce dilution, and that work is underway. We are also planning to be more selective about what goes to the mill, and we are preparing to stockpile lower grade materials so we can process it later, once we have the permitted capacity. As these steps come together, we expect higher grade and better margin on every ton we process while keeping the lower grade tons available for later. The permitting and infrastructure work we are doing now is what should allow the mine to reach its potential. I will have the call over to Rosa for the finance effort.

Russell D. Lawlar, CFO

Thank you, Carlos. Turning to slide 12, let me take you through our financial results. As Mike noted, everything I'll cover here reflects results from our continuing operations. HECLA provides an investment opportunity like no other. Not only are our mines in the best jurisdictions and we have a very low cost profile and long mine lives, we also offer exposure to silver that is best in class with 69% of our third quarter revenues coming from silver, with gold making up 15% and the remaining coming from base metals. Revenues during the quarter, inclusive of environmental services, were $395 million, with $372 million coming from our mining operations, which is up 17% from last quarter. The increase is primarily due to timing of shipments at Greens Creek, as we've already discussed. With these revenues, we remain the purest silver mid-cap multi-asset producer, and as we've already discussed, our project pipeline is pointing to growing our exposure to silver for our shareholders. As we move to slide 13, I'll go into further details on the financial performance during the quarter. Income from continuing operations was $150 million, or $0.22 per share, compared with $118 million, or $0.18 per share, last quarter. In addition to the higher revenue, income benefited from a $36 million increase in fair value. Adjustments, primarily related to realized and unrealized gains on marketable securities. That was partly offset by $41 million of higher costs applicable to sales on the higher volumes sold, $22 million of higher tax expense on better profitability, and a $6 million increase in expiration pre-development expenses programs ramped up, including new programs at Hollister and Aurora. Our margins remain strong. We realized $63.62 per ounce of silver sold, and with an ASIC of $14.34 per ounce, that drove a margin of $49.28 per ounce, or 77% of the realized price of silver. ASIC was higher than the second quarter, mainly because of lower production at Greens Creek and Lucky Friday, lower byproduct credits, primarily related to less gold production, and higher sustaining capital, mostly at Lucky Friday. These non-GAAP figures of ASIC and cash costs exclude Keno Hill, which remain in a state of pre-commercial production. As we presented last quarter, we have substantially less exposure to oil than many of our peers in the industry. The starting point is the nature of our ore bodies at our operations. Which are high-grade and high-value underground mines where we mine less tons to extract the value, and as a result, we consume less diesel. The second factor is all of our operations source their power from local utilities where diesel prices do not impact the price. From time to time, Greens Creek will generate power. However, this isn't normally for prolonged periods of time and doesn't move the cost structure materially when we do. Cost cash provided by operating activities was a record $203 million, up 16% from the prior quarter, helped by favorable working capital changes and higher payable ounces sold. Consolidated free cash flow was a record $151 million, surpassing the previous record of $144 million set in the first quarter. At the site level before exploration and corporate costs, Greens Creek generated a record $147 million and Lucky Friday generated $67 million, while Keno Hill was slightly negative due to working capital movements weighing on its cash flow. This is primarily related to the collection of payment from two shipments of concentrate that slipped to October. Turning to the balance sheet, we ended the quarter with $692 million in cash, up from $483 million at the end of the second quarter. That increase reflects our strong cash flow generation, as well as $64 million of proceeds from the sale of investments. We have no long-term debt outside of finance leases, and we entered into a new $500 million revolving credit facility, undrawn other than $3.4 million of letters of credit, plus a $100 million accordion. Option, together with our cash, that brings our total liquidity to approximately $1.2 billion. We've moved from a net debt position of approximately $144 million a year ago to a net cash position of approximately $680 million today, which gives us the strongest balance sheet we've had in HECLA's history. I'll now turn the call to Kurt to go through exploration.

Kurt D. Allen, Other

Thank you. Thank you, Russell. We invested $16.6 million in exploration and corporate development this quarter. The 2026 guidance remains at $55 million. With the success we've had this year, we're looking to grow our budget next year. Turning to slide 15, I'll start at Keno Hill where drilling ramped up through the quarter. We now have four drills turning, and we expect all four to run through the end of the year. That's already paying off at the Flame and Moth, where drilling in the favorable basal quartzite along strike with the lightning vane has identified a new mineralized extension with over 350 feet of dip length located 900 feet southwest of the existing resource. Three of four holes encountered significant mineralization. Hole K26944 returned 26.1 oz per ton silver and 14% zinc over 8.5 feet. Hole K26951 returned 6.5 oz per ton silver and 3.5% zinc over 16.1 feet. This new extension is open to the northeast toward the existing resource and to the southwest along Strike, and we will continue follow-up drilling in the fourth quarter. Turning to slide 16, at Birmingham Deep, we continue to extend the high-grade trend that points toward the historic Hector Calumet mine, which produced roughly 96 million ounces of silver historically. Southwest step-up hole K26940 returned 25.7 ounce per ton silver and 4.2 percent lead over 10 feet on the footwall vein, and hole K26942 stepped out a further 165 feet into strongly mineralized rock with assays pending. Together with hole 945 to the northeast, the known strike length of this trend is now 1,300 feet, a 500-foot increase over the second quarter. On the Birmingham main vein 2, hole 940 also intersected 61.1 ounce-per-ton silver and 3.8% lead over 5.3 feet, extending that vein about 260 feet to the southwest. Turning to slide 17 and moving to Greens Creek, at the west door offset target, about 500 feet from the northwest-west resource, three of five holes intersected significant sulfide mineralization. Holes PS511, 512, and 513 encountered 6, 11, and 8.3 feet, respectively, defining sulfide mineralization over 300 feet of strike with assays pending. These results support the concept that this area could host a meaningful extension to the existing mineralized zone at Greens Creek. At Zink Creek, all four holes this year intersected the target horizon with strong alteration and abundant pyrite, including nine feet of semi-massive pyrite in hole PS509. In the underground, three rigs continue to define and step out from existing resources with good results. Including 63.6 ounce per ton silver over 14.1 feet in the 200 South Zone. Turning to slide 18, in Nevada, at Midas, hold DMC 494 returned 0.73 ounce per ton gold and 2.9 ounce per ton silver over 1.4 feet. Confirming a second narrow high-grade vein following our second quarter discovery in hold DMC 481. Step-out holes on both veins all intersected the structure with assays pending on all but one. These results confirmed the prospectivity of the southwest pediment area, an important part of our evaluation of a potential restart of Midas. Drilling also began at Aurora, where Brawley Peak showed intense alteration, and at Polaris, where it showed banded quartz veins with evidence of boiling, suggesting we need to drill Thank you. Drill tests deeper on these targets. At Hollister, drilling began at the south and Excalibur targets with assays pending. Drilling at both Aurora and Hollister will continue in the fourth quarter. I'll now turn the call back to Rob for closing remarks.

Rob Krcmarov, CEO

Thank you, Kurt. Turning to slide 19. And to sum up. Safety improved again, but we're continuing to work to improve it further. Our total reportable injury frequency rate, or TRIPPER, improved again from 1.51 to 1.57 in the quarter, and that's the right direction. I think we can still better, because as I've always said, a safe mine is a productive mine. Q3 was a quarter of record cash flow and continued strong financial results. It builds on a record that has helped us pay down debt and move into a position of real financial strength, the kind that lets us keep investing in our robust organic project pipeline for years to come and service value for our shareholders. We have almost $700 million in cash, no long-term debt, and about $1.2 billion in liquidity. Without question, that's the strongest balance sheet in this company's history. And our pipeline continues to advance with the Pyroc concentrate circuit progressing at Greens Creek, new potential paths forward for the dry stack tailings, and Midas potentially heading towards a restart. And all of these have low capital intensity as the common thread. At Keno Hill, we're working through the permits and the infrastructure that will support the mine reaching its potential. We do believe in robust precious metals market and we think silver has a very bright future and we're working to grow the exposure to the metal for our shareholders. You know, I really hope you can feel the enthusiasm we have inside our company for the project pipeline. We think Heckler is the most compelling way to get exposure to silver in this sector. And perhaps the last word on guidance, we've tightened our production range, improved our silver cash costs and all in sustaining costs, and we've lowered our capital investment all while generating record free cash flow. So with another solid quarter behind us, we're well positioned to achieve our 2026 guidance, and we look forward to keeping you updated. I'll now ask the operator to open the line for questions.

Operator

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Harrison Reynolds from RBC Capital Markets. Your line is open. Please go ahead.

Harrison Reynolds, Analyst — RBC Capital Markets

Hi, good morning, everyone, and congratulations on the good quarter for Hecla. Looking at the balance sheet now, $700 million in cash and credit facility up to $600 million, what are the latest thoughts on the best use of capital from here, including your assessment of the current valuation shares are trading at between organic investment, returning capital to shareholders, and potentially M&A from here? And on M&A, what would your criteria look like between jurisdiction, commodity focus, stage and size? Thank you.

Rob Krcmarov, CEO

Russell, why don't you start with the balance sheet?

Russell D. Lawlar, CFO

Sounds good. Yeah, good morning, Harrison. Yeah, as it relates to the balance sheet, frankly, and as we've communicated in the past, we're working towards building a cash balance that's capable of providing for our future liquidity needs. Brian talked quite a lot on those growth projects that will require capital. There's, you know, they're not huge capital intensity, but we also want to make sure we can fund those. Kurt had spoken about the expiration that he's working on, right? So we expect good things to come from that. So we want to make sure we're able to fund that. Additionally, we want to make sure we have sufficient liquidity just on our balance sheet as it relates to, you know, being able to weather low prices and other things like that. But as we do build that balance sheet, as we see focus come in as it relates to these growth projects that Brian spoke about, exploration programs, that kind of thing, we'll continue to evaluate capital returns. And when we find that it's the right time, then we would actually act on that.

Brian Erickson, Other

And I'll ask Rob, maybe, to take the M&A portion of that.

Rob Krcmarov, CEO

Okay, thanks. And thanks for your question, Harrison. On M&A, one of the things I'll point you to is we have exceptionally long mine lives. Not quite, but almost double the peer average. And so we have visibility over the horizon. I think the other thing to note is that, you know, we're kind of unique in our space in that we have more silver exposure than the majority of our peers. And so we want to preserve that. You asked about the criteria. So we want to stay a silver company. We also want to stay in relatively safe jurisdictions. We're currently in Canada and the US. I mean, you have to go where the scarce quality assets are, and so does that mean that we're going to be here forever? No, probably not. We'll probably look at other jurisdictions, but we do a proper detailed analysis on what a relatively safe jurisdiction looks like. So as a rule of thumb, I've said anything in the top third of the Fraser Institute Index would take a look at that country, but we wouldn't just use it as a tick box. We would do a thorough risk assessment and understand whether we are comfortable with those risks, whether we can mitigate some of them, or whether it's simply not for us. Thank you. Our MLA appetite right now, as I said, it's, you know, we already have a future that we've plotted out to plus 20 million ounces. And or investing in our organic projects that we already own, we already control. We understand them deeply. That's our preferred path forward. But if something comes along, we have time. You know, we can be thoughtful and diligent and thorough. We have time. If something compelling comes along that meets our investment criteria, we will act. But again, I just point you to our preferences for organic growth. Obviously, M&A is a tool that's available to us. We just be very disciplined about how we do that.

Harrison Reynolds, Analyst — RBC Capital Markets

That's great detail. Thank you. Separately, wanted to ask on Keno Hill, could you frame up the outlook for processed grades a bit more there? It's obviously a very high-grade deposit, and wondering, under the lower throughput and greater selectivity plan, you know, what are the goalposts for processed grades into Q4 and over the next couple of years until the permanent amendments come in?

Rob Krcmarov, CEO

Well, I'll start. You know, there was a few things that pulled down the grade in the first half. We had less output from the bare zone. Which is obviously a high-grade zone. We also had dilution because we were mining some remnant areas. That comes at a higher cost and lower grade. And we moved into the Arctic zone. And then we also, plus there was also sequencing at Birmingham and Flame and Moth. Those issues have since been mitigated, and so mill grade went from about 19 ounces per tonne in Q2 to about 26 in Q3. I expect that the grade will be maintained at roughly reserve grade. Any comment on that, Brian or Calis?

Carlos Aguiar, COO

Well, we expect silver production to decline, but proportionally less because we expect to be more selective, not only on mining, but also in processing. We will be focused on reducing dilution and prioritizing high-grade areas in mining and processing while we stop filing low-grade material for later processing. So actual production will depend on right grade mining and mill, and we provide a specific silver ounce production guidance in February.

Harrison Reynolds, Analyst — RBC Capital Markets

Got it. Thank you for the detail on both of those, and thanks for taking my questions.

Operator

Your next question comes from the line of Wayne Lamb from TD Securities. Your line is open. Please go ahead.

Wayne Lam, Analyst — TD Securities

Yeah, thanks. Good morning, guys, and congrats on a good quarter. If I think back to early last year, you guys had... I already flagged some of the permanent constraints at Keno Hill and the potential to scale back or put a pause in operations. So I guess two questions. Number one, with the silver price kind of back to 50 bucks, is there potential to reevaluate a potential move to care maintenance given Keno was slightly negative free cash flow this quarter at a $63 silver price? And then number two, you know, the Yukon seems to be, you know, quite a... It's quite a hotbed for development lately, and it seems like the province is keen to accelerate projects forward. So just wondering, is there something more project-specific at Keno that's holding up the permits?

Rob Krcmarov, CEO

I'll answer the care and maintenance question first. Our plan is to basically keep running within the current permits while we build that infrastructure. But, you know, as we point out on our 10Q, you know, it says that delays at any step restrictions on temporary waste stockpiling or reduced power from Yukon Energy, that could force further containment or halt. And so, um... If permits or infrastructure are delayed or silver falls material, we could consider care and maintenance, but our preference is to keep the workforce intact. We can see the finish line roughly three years out. We've got a workforce that has increasingly understood the ore body and is becoming better and more efficient at mining it. And so while it's not a huge burden on us, I think the optimum path forward is keep it running for as long as we can and get through to, you know, mid to late 2029 when we can see things really, some of the constraints being removed. And seeing the full potential coming out of Kino Hill. On the Yukon, I mean, we are the only significant operating public, run by a public company mine in the Yukon. We already have strong support from the government. We've got a much better relationship with the First Nation, NACHA, NIAC-DUN, and so I think all stakeholders would like to see us be successful. We've had our stakeholders come out to site and visit us. And we're pretty proud of what we've accomplished there, particularly both in terms of the mining that we're doing, the responsible mining, but also the rehabilitation activities that we've done through ERDC, which is our rehabilitation unit, which is actually funded by the government. Now, the rehabilitation and the reclamation that they've been doing, it's highly visible to the community. Anyone who drives by the highway can see it improving, you know, week by week and month by month. Patrick, you've been up in the Yukon recently. Any comments, Stu?

Patrick, Other

No, I think you've summarized it well. The relationships are solid. Permitting is moving forward. It is a deliberate process. We are planning on filing our project proposal by the end of the year, which is the first step in the YESUB review, the federal review, and there's nothing specific that is We're not delaying any of that that that's currently in process. We're just working our way through that process.

Wayne Lam, Analyst — TD Securities

Okay, great. And then maybe just on the tailings reprocessing project, it seems like the results from environmentals has gone decently well with the Greens Creek material. So just wondering why you guys are now evaluating multiple avenues outside of that. And in particular, if you were to go down the route of building your old facility, isn't that something that could maybe be seen as outside the scope of expertise for HECLA and add quite a bit on timeline to realization?

Brian Erickson, Other

Yeah, so, you know, we mentioned the third party we've been working with and we've got a long relationship with them and certainly their technology seems to be working out well in the studies that we've done. The other two paths really do just give us optionality. You know, you think about that site, if you can shift raw tails off as a low-grade concentrate, it definitely helps the environmental aspects of closure for that site and some of the long-term expansion costs on the tails facility. As far as reprocessing, you know, that's essentially what we're building at the mill. We're building a pyrite concentrate, which is a circuit, which is what we would do with the TAILS facility. So, you know, we're making a pyrite concentrate as well within our wheelhouse because we're already going to be doing that. So those studies will get started. Again, we should have some metallurgical results. You know, we're a little bit worried about the oxidation of that material. But we need to determine what the metallurgical results are and how well it'll float. But I don't think there's really any significant technical concerns there. The other thing, you know, it gives us optionality to look at all three, because potentially there is a combination of three options for addressing the tailings facility to monetize that. So. I think all of them are still viable paths. You know, I think over the next year, six, eight months, we'll start to really narrow in on what we're going to do. And I guess from a capital standpoint, you know, the cost of building a pyrite circuit at the mill will give us indications for costs for building reprocessing facility should we do that. So we'll have a lot of information coming in in the next several months that'll guide our path forward.

Rob Krcmarov, CEO

Yeah, so just to circle back to your initial concern, Wayne, about, you know, stepping out of our wheelhouse. We're not stepping out of our wheelhouse. So the pyrite concentrate circuit, that's, you know, that's proven technology, very low technical risk. That's what we're doing on material that we're producing presently. And essentially, all we're doing is mirroring that and looking at putting in a pyrite concentrate circuit for the existing tails. As Brian said, we need to do some drilling and met characterisation to see how much oxidation has happened. But we're not really straying into new areas that we're not familiar with at all.

Wayne Lam, Analyst — TD Securities

Okay, great. Thanks. And then maybe just last one, following up on the capital returns, Rob, when you joined, obviously, the company was in a much different position on balance sheet, and the silver linked dividend was eliminated. So just wondering if there's potential for you guys to institute some type of attributable linked returns program at some point? I mean, to Russell's comment, I think we understand on future capital needs, but with the balance sheet growing as it is, maybe you'll even be in a position soon to build Libby on a standalone basis at some point. That's a joke, by the way.

Rob Krcmarov, CEO

Yeah, you had me pause, but thank you. On the capital returns, obviously, at the rate that we've been building cash on the balance sheet, there will come a point probably sometime in the first half of next year that we have to seriously look at returns. What that looks like, whether it's if there's a dislocation in how we value our assets compared to where the market values the assets, we look at share buybacks. Um, I don't know about, um, doing, um, uh, A silver link dividend. That's never really worked for anyone, not in the gold space, not in our space. So probably unlikely, but dividends, we will consider that. I'd expect we're going to have a much more robust discussion at the board in the first half of next year.

Wayne Lam, Analyst — TD Securities

That was great. Thanks for taking my questions, and congrats on a great quarter.

Tosin Jayola, Analyst — Jefferies

Thanks, Wayne.

Operator

Your next question comes from the line of Tosin Jayola from Jefferies. Your line is open. Please go ahead.

Tosin Jayola, Analyst — Jefferies

There is a congrats on the quarter. My name is Tosin Jayola, and I'm asking on behalf of Farhad, Tariq, at Jefferies. Maybe I'll start with Greens Creek. I just wanted to ask, you know, how much of the variance of temporary related to maintenance and financing question that was indicative of the cost and grade profile entering into 2027?

Rob Krcmarov, CEO

I'm sorry. I found it very, very hard to hear. Did anyone hear that? Would you be able to answer that?

Mike Parkin, Head of Investor Relations

Yeah, Tosin, could you just, you're a bit quiet. Could you repeat your question?

Tosin Jayola, Analyst — Jefferies

Yeah, so I was saying at Greens Creek, throughput and silver grades were both lower year and year, and 3QAC was approximately $5 per ounce above the year-to-day average. How much of the variance was temporary related to maintenance and line sequencing that was indicative of the cost and weight profile entry into 2027.

Russell D. Lawlar, CFO

I think, Tosin, your question, if I heard at least the first half of that was, Greens Creek grades this year are lower than they were last year. And so, you know, Brian Erickson sitting here with us, he was our GM there for a long time. I think that, you know, my perspective on Greens Creek is that The complexity of Greens Creek is what creates a lot of the value of Greens Creek, and the grades at Greens Creek will fluctuate. Sometimes they'll be higher, sometimes they'll be lower. I don't know if you have any comment on that, Brian. And then secondly, you mentioned throughput as well, Tosin, and I see throughput in 2025 was higher than 2026. And I think, you know, maybe, Brian, you could speak a bit to that as it relates to some of the projects we did earlier in the year.

Brian Erickson, Other

Yeah, I think Russell's correct in silver. You know, it fluctuates up through the grades pretty significantly, and we obviously at times see surprises that are, you know, very good. Sometimes we go through lower grade zones, so it's nothing unexpected. As to the throughput, yeah, it is a bit lower. That site, I think we've communicated, has gone through some pretty significant mill work in the last couple of years, which will continue into next year. That's definitely affecting production, but, you know, nothing I'm concerned about longer term.

Carlos Aguiar, COO

And the sustaining infrastructure repairs that we are doing in the near facility is to... He prepared for the next years of the life of Grinch Cray.

Tosin Jayola, Analyst — Jefferies

Great, thanks. And maybe just one additional question on quinoa. You know, realistically speaking, I mean, can quinoa achieve commercial production at a reduced operating rate? And what does the slowdown mean for the company's medium 10 target of 20 million ounces of an hour silver production?

Russell D. Lawlar, CFO

So, Tosin, again, I'm going to restate at least the little bit that I heard, and I apologize again, because I'm having a hard time hearing you, but I think you We started with commercial production at Keno Hill, and the criteria for commercial production at Keno Hill is well-defined in our 10-Q. What I would say is that with the suppression of production that we've talked about, we wouldn't expect to see that commercial production happen until later this decade or early next. What I would say on that, though, as well, is that doesn't actually impact any of the accounting to, you know, of the cost. So all that is is just a mining term that we use under USGAP.

Tosin Jayola, Analyst — Jefferies

Right. And I mean, what does that slowdown mean for the company's medium-term target of 20 million houses?

Russell D. Lawlar, CFO

What does that have to do with the impact on getting to an ounce target? Is that what you're suggesting?

Rob Krcmarov, CEO

To the 20 million. We flag that the 20 million is, you know, we expect to achieve that in the medium term. And so, again, this slowdown is the suppressed production while we organize the investments in infrastructure and get the critical permits that we need. Probably around about mid-2029, then we should be relatively unconstrained and be able to ramp production back up to 440 tonnes per day. Longer term beyond that, the mill is actually rated at beyond 600 tonnes per day, but that would require another phase of investment and another phase of permitting, so that's longer term. So, you know, the incremental reduction in production at Kino Hill, we expect that to last roughly three years, and then you'll see that increase beyond what we've basically been producing throughout its history, actually. So no real impact to our 20 million ounce a year target, again, flagging that that's in the medium term.

Operator

Your next question comes from the line of Cosmos Chiu from CIBC. Your line is open. Please go ahead.

Cosmos Chiu, Analyst — CIBC

Hi, thanks, Rob and team. Maybe my first question is going back to Keno Hill. You know, yesterday you talked in detail about the tailings capacity constraints. Is that something new? It's certainly something newer to me. I know you kind of touched on it in your Q2 MD&A, but previous to that, it was more, you know, talking about the permitted capacity of 440 tons per day, quartz mining license, water license. Are these all sort of interrelated? And if, you know, the tailings capacity constraint is not new to you, is the mid-2029 sort of timeline new? Is that why, you know, you've had to kind of curtail your throughput starting in Q4?

Rob Krcmarov, CEO

No, it's not new. And yes, they are all interrelated. So again, just to recap, I think one of the new things is we've quantified that we've got 200,000 tonnes of tailings left. So that's what we have to play with. We need to obviously get the permits to increase tailings capacity. As we're mining, we're also generating waste, so there is a limit on that. And then we're also, as we're doing more development and more mining, we're generating more water, and so we need to treat that water to the same standards that we agreed to. So it's all, a lot of it's permitting related. Nothing really new here. Patrick, can you add some more colour?

Patrick, Other

Yeah. So as Rob said, there are sort of three constraints that are currently in place. It's tailing capacity, waste rep capacity, and ability to handle water that we encounter through our water treatment plants. Those aren't new constraints. What I think we have provided is a little more clarity on how we're planning to manage those constraints.

Cosmos Chiu, Analyst — CIBC

Until we receive our permits, which we expect mid-2029. Great. And then, Patrick, or maybe Rob, as you mentioned, there's three different constraints, tailings capacity, waste, rock, and water treatment. Which is the biggest constraint? Are they all sort of about the same?

Patrick, Other

I would say that it The tailings is a fixed constraint in that we know how much we have permitted capacity ahead of us. The other two are a bit more variable. They depend on things which are to some degree a bit outside of our control. We're not sure, you know, when we will encounter water. We have models. We think that we know what's ahead of us, but there is a bit of uncertainty around

Cosmos Chiu, Analyst — CIBC

Thank you.

Patrick, Other

But tailings is a hard constraint, and that's what we're using to base our plan on currently.

Cosmos Chiu, Analyst — CIBC

Great. And then also at Keno Hill, and Rob, it was great to hear that you have four drills on site, and there's exploration success at Keno Hill. But I guess my question is, could you maybe talk me through the rationale in terms of... Drilling in the near term at Keno Hill. You know, it's great, flame and moth, 900 feet southwest of these existing resources. But you have this kind of near term or intermediate term constraint on milling capacity. So do you need to find more ounces? Or, you know, what's the return on this? Or are you trying to find higher grade ounces so that you can actually feed it into the mill at a lower capacity?

Rob Krcmarov, CEO

High grade ounces is always the target, and that's where Kurt and his team have been having a lot of success. You have a look at that Birmingham deeps. As we head down plunge, the grades get even higher. We're also targeting, and again, most of our exploration in the district is near mine. We're working in and around the existing ore bodies. We're not really going out to any of Kurt's 17 targets that could have more than 50 million ounce potential. We're really sticking close to where we have existing development, so we can Basically, it monetized any wins there. Again, in the medium term, we're excited by that area, a long strike, continuing to step out from Birmingham. To the north, I guess it is, where you have the convergence of the historic hector calumet. There's just a handful of holes there, and that's really where everything's pointing to us, that there could be larger resources available. Kurt, sorry, I should have deferred to you.

Kurt D. Allen, Other

No, I think he covered it well. I think, you know, the... One of the goals at the Deep Birmingham towards the Hector Calumet is that we think that the fluid source for both those deposits are probably the same, and so there could be a big prize between those two deposits. All of our drilling has been focused near mine, near the Birmingham, near Flamin Moth, trying to increase resources and reserves at the operating mine.

Rob Krcmarov, CEO

But you picked up on an important point, Cosmos, and that's the high-grade point. It's not just finding high-grade. It's actually mining high-grade by reducing dilution, and so that's going to be a focus of us. You know, we're looking at various options that we were talking about. Brian, can you talk about the mechanical cutting and stuff?

Brian Erickson, Other

Yeah, we're obviously given guidance. We're going to reduce tonnage there, but we're not resting on that. We've been working for a number of years to reduce the mining widths and reduce that dilution. And we've got some testing underway up at the mill to determine, you know, Potential opportunities to reduce dilution in the ore feed. So there's a lot of work going on on this. We'll update you as we get some highlights from some of this stuff, this work we're doing.

Cosmos Chiu, Analyst — CIBC

Yeah. I guess, Rob, to ask you more directly, do you need to find more ounces, even if it's near mine when you have this constrained near term, to 300 tons per day?

Rob Krcmarov, CEO

No, I don't think we need to find more ounces. We've already got a reserve life that's, I think it's like about 15 years or something like that. And, you know, we're yet to develop the Birmingham deeps, which is higher grade. We don't need more ounces. What we need to do is get the throughput. It's got high fixed costs, as you know, and so that denominator is a little bit low. And so once we unconstrain it and we can develop faster, we can mine faster, we generate more water, we can treat that water, we can place the tailings and the waste, You'll see it start to approach its full potential under the 440 limit, you know, from around about 2029 onwards.

Cosmos Chiu, Analyst — CIBC

Great. And then, Rob, maybe one last question. It's great to see that in an industry where everyone else is talking about inflation and input costs being higher, and we've seen a number of companies increase their on-sustaining cost guidance for 2026. You've actually gone the other direction. You've decreased it, which is great. But maybe can you talk about how much of that is attributable to by-product credits and, you know, could you maybe talk about labour, input costs? Are you seeing any pressure, especially, say, in the Silver Valley? Because I've heard, you know, Silver Valley competition has been pretty high in terms of labour, in terms of, you know, cost and whatnot. Could you maybe touch on all that, Rob or maybe Russell?

Russell D. Lawlar, CFO

Yeah, Cosmos, I certainly can take that, and I agree with you that it's great that we're able to improve our own sustaining costs, and that took place for really a few reasons. One was byproduct credits, right? When we came into the year, we had to make assumptions as it related to specifically gold and zinc, and one of the things that sometimes people forget about is the large byproduct credit that Greens Creek does have in zinc. And both of those have been more favorable than the assumptions that we made. And that's part of what we're seeing during the year. And then also, you know, keep in mind our sustaining capital also went down slightly. So that also improved our own sustaining costs. From the perspective of kind of just production costs, and we do see about 50 percent of our cost comes from labor. And that will be something as we see competition for miners, whether that's in the Silver Valley or elsewhere, that will be something that we're going to have to keep up with. You know, I think in the current term, you can see in our cost structure, we've not been impacted significantly, but it will be something that we'll have to keep in mind as we go forward.

Operator

This completes the time allotted for questions. If you have any additional questions, please reach out to Mike Parkin via the Contact Us link on the website. I will now turn the call back to Rob Krichmarov, President and CEO, for closing remarks.

Rob Krcmarov, CEO

Well, thank you. And just to pick up on that point, I do encourage you. I know that we've run out of our allocated time, but your questions are important to us, so please do reach out to Mike after this call. And so thank you all for the thoughtful questions today, and thanks for joining us this morning. I'm going to leave this with you. We're in the strongest financial position this company's ever been in. We're well positioned to achieve our 2026 guidance, and we're putting that strength to work for our shareholders, and we look forward to updating you again next quarter. Thanks, and have a great day.

Operator

Thank you. This concludes today's call. Thank you for attending. You may now disconnect.