Good day ladies and gentlemen, and welcome to the Second Quarter 2017 Hecla Mining Company Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will follow at that time. [Operator instructions]. As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Mike Westerlund, Vice President, Investor Relations. Please go ahead.

Thank you, operator. Welcome everyone, and thank you for joining us for Hecla's second quarter 2017 financial and operations results conference call. Our financial results news release that was issued this morning before market opened, along with our exploration release and San Sebastian releases issued on August 2nd, and today's presentation are available on our website. On today's call we have Phil Baker, President and CEO; Lindsay Hall, Senior Vice President and Chief Financial Officer; Larry Radford, Senior Vice President, Operations; and Dean McDonald, Senior Vice President, Exploration. Any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act and constitute forward-looking information under Canadian securities law, as shown on slide two. Such statements include projections and goals which are likely to involve risks detailed in our Form 10-K, Form 10-Q, and in the forward-looking disclaimer included in the news release and at the beginning of the presentation. These risks could cause results to differ from those projected in the forward-looking statements. In addition, in our filings with the SEC, we are only allowed to disclose reserves which are mineral deposits that can economically and legally extract or produce. Investors are cautioned about our use of terms such as measured, indicated, and inferred resources, and we urge you to consider the disclosures that we make in our SEC filings. With that, I will pass the call to Phil Baker.

Thanks, Mike. Hello, everyone. We had a very good quarter, and in many respects, it's very much in line with our plans, except for our tax provision. And there's also some positive recent developments that I'd like to start by highlighting. First, we secured the Velardena mill at our San Sebastian mine through 2020. And San Sebastian has really been a great creator of value for shareholders, which given its growth in production, very low cash costs, and all-in sustaining costs after by-product credits, it's given substantial cash flow, triple-digit returns, and it's also -- now we're seeing mine life extension to this property. Last year, San Sebastian was an important cash flow generator, and this year that continues, albeit at a lower amount, as expected. And it looks like that performance will continue for three more years through 2020. And I'm sure that's not going to be the end. At this point, our focus has only been on the cyanide-amenable ores. Now we're looking at sulfide ores to combine with the already-discovered Hugh Zone. There's a lot more I can say about it, but I'm going to let Larry and Dean speak about that later. Our mines operated according to plan in the first half of the year. The lower grades were anticipated at the mines due to mine sequencing, and at Casa Berardi, the second half not only has higher grades, but also reduced stripping costs. So, we expect significant free cash flow from that property. At Greens Creek, the TCs and RC terms for zinc and lead are very much improved in 2017, and we'll start seeing really the effects of that over the second half of the year. And of course, we've seen a nice increase in the zinc and lead prices, which represent about 20%…

Thanks, Phil. Firstly, just like to highlight that, when you look at the second quarter results on Slide 5, it is important to keep in mind that the strike at Lucky Friday has impacted many of the comparative numbers. For the three months ended June 30th, 2017, we reported $134 million in sales of products, a 22% decrease in revenue over the same period of 2016, as shown on Slide 5, as a result of lower metals production partially offset by higher base metal prices. Factors to be noted in the second quarter results compared to the previous year's quarter was interest expense of $10.5 million, which was higher as capitalization of interest ceased once the construction of the #4 Shaft was completed at the end of 2016. Also, this quarter, we had budgeted higher exploration and pre-development costs of $6.9 million than the previous quarter. Getting into the quarter, net loss applicable to common shareholders was $24.2 million. Contributing to the loss were a couple of unusual items reported in the quarter. Rather than Lucky Friday generating operating income in the quarter, we incurred $6.4 million in costs related to the suspension of mining activities, plus an additional $1.5 million of non-cash depreciation expense. Suspension costs would be around $1.1 million to $1.5 million per month if the company had elected to do very limited production or just carry maintenance. So, as you can see, we're still in mode of reducing those suspension costs. Each and every month the run rate gets a little better. We also booked an income tax provision of $16 million, which is unusual given that we had a loss before taxes of $7.9 million. Normally you would expect a recovery of taxes rather than a provision. But given our view of our tax losses…

Thanks, Lindsay. On Slide 9, you can see Greens Creek had another excellent quarter, producing 1.9 million ounces of silver at a cost of sales of $54 million and a cash cost after by-product credits of $1.86 per silver ounce. The all-in sustaining cost after by-product credits was $8.71 an ounce. The lower production was due to lower grades than the second quarter of 2016, as was expected, and the prices of our by-products helped with the cost numbers. On Slide 10, you can see our Teleremote LHD in action at Greens Creek. The LHD has successfully been operated remotely from surface in a long-haul application, mucking by itself and hauling to an ore pass, all automatically, with the operator simply pressing the button on each cycle to continue mucking. We are studying the application of the unit to drift and fill stopes, with the goal of having faces ready for the entry of the bolter at the start of the shift. Bolting is generally the bottleneck in the mine. We installed the first Woodgrove staged flotation reactor in the lead bulk circuit at Greens Creek, as you can see on Slide 11. The commissioning has gone well, and we expect to benefit in the form of increasing revenues in the second half of the year, particularly in the fourth quarter, with the goal of driving the metals to the bulk concentrate for which there are better smelter terms. With the successful commissioning of this unit, we believe that there's further opportunity for additional units in the zinc and lead rougher circuits. As Phil noted, the strike continues at Lucky Friday, but we are not idle there. Crews have continued doing needed maintenance in #2 Shaft, completed a needed bypass ramp, and performed limited stope mining and backfilling. We continue…

Thanks, Larry. Hecla has a very busy quarter with the drill bit, with successes at San Sebastian, Casa Berardi, and Greens Creek. A list of drill intersections is provided in the appendix of the exploration release. These results will give you insights to where we may have future gains in reserves and resources. The San Sebastian property continues to generate multiple opportunities to find new high-grade resources to extend mine life. On Slide 20, you can see the current middle, north, and Francine Vein pits in the yellow outlines, the surface projection of the new West Middle Vein reserve, the new underground ramp under development in black, and the green ellipsis, where drilling is defining new reserves and resources. Of note in the diagram is the West and East extensions of the Middle Vein and the East Francine Vein, where drilling continues to expand resources and reserves, and is expected to be a large contributor to prolonged production at San Sebastian. Slide 21 shows the longitudinal section of the Middle Vein, with over 9,000 feet of continuous mineralization. Recent drilling at the west end of the reserve, as outlined by rectangles on the left of the diagram, has defined some high-grade mineralized pods near the proposed production ramp. This drilling may also represent the upper fringe of a base metal-rich Hugh Zone-style mineralization that we predict from temperature data will be at the elevation as defined by the ellipse in the diagram. Drilling at the east end of the Middle Vein recently returned high-grade intersections that are expected to expand the resource that is near the high-grade East Francine Vein. Drilling about 1,000 East of the East Francine pit, as shown in the longitudinal on Slide 22, continues to intersect high-grade mineralized vein that is 300 feet from surface and…

Thanks, Dean. The three mines continue to perform well. They're according to plan, and we see the second half of the year being quite strong. We're able to live with the strike without bending our balance sheet because of the strength of our other assets. We continue to innovate to increase safety, productivity, and improve our cost structure. We've extended the life of San Sebastian, and we're increasing our exploration efforts there even further. So, stay tuned for all this. And so, with all that, we're in good shape for the third quarter, and we'd be happy to answer any questions you might have.

Thank you. [Operator instructions] And our first question comes from Lucas Pipes from FB&R Company. Your line is now open. Please go ahead. Pardon me, Mr. Pipes, your line is now open.

Sorry about that. Ted Beachley here for Lucas. And we were just wondering, why did you guys use the ATM this quarter?

We periodically will use it for discreet obligations we have, and in this case, we applied it to the pension plan. And you'll see us do that periodically. It's just a way to deal with some long-term sorts of liabilities, is how we've used it, and we did the same thing in the past. We did the same thing about a year ago.

Okay. Thank you. That's good for now. I'll jump back in.

Okay. Thanks.

Thank you. And our next question comes from Heiko Ihle from Rodman. Your line is now open. Please go ahead.

Okay. Good morning. Congrats on the quarter and congrats on the announcement with [gold] today.

Thank you.

In the release, you mentioned a substantial improvement for the treatment refining charges. So just walk me through your expectations for the rest of the year, because the costs finally came in a little bit better than what we saw. Just walk me through your expectations for the rest of the year, and maybe even like a longer-term outlook. I don't know how much visibility you have or you get, if you could, please?

Well, I'll let Larry jump in on this, and let me start with the second question, long-term. Look, it's very murky as to what will happen longer-term. I mean, the reality is these are the best terms that Greens Creek has seen in the 30 years it's been in operation. And so, we certainly don't plan our business with the assumption that the terms we have today will necessarily look exactly like where they look now. Having said that, I think we've made a lot of fundamental improvements on the payables that we're getting from the smelters that, in some respects, will never disappear. Now, the RC-TCs themselves will change, but I think the payables, I think those are major improvements that will stick with us for some time. Larry, what do you want to add to that?

Sure. We've reset our TC-RCs just like most companies, and got the benefit of demand for lead, zinc, and even the bulk concentrate. We're set for the rest of the year, and don't see a lot of variance to the end of the year. And we'll reset again according to our frame contracts. That said, to the long-term kind, to kind of amplify what Phil said, there's a growing shortage of silver-rich lead concentrates in the market, and that does give us some leverage because we have very good concentrates. They're very much in demand right now, both our zinc and our lead concentrates. So, a good position to be in right now.

The other thing you mentioned is in 2018. The way these contracts work, there usually is a rollover into the next year, and you certainly in the first few months of this year saw the contracts really coming off the 2016 contracts. The same thing will happen in 2018. We'll continue to see these 2017 contracts roll over.

And we do sell some into the spot, not a lot, but we do get the benefit of better TCs and RCs in the spot market, particularly with Greens Creek.

And that might be what the difference is when you said we were a bit better than you were expecting.

This may be almost too detail-oriented for the call, but I'm curious nonetheless. You have Lucky Friday suspension-related costs of $8 million for the quarter, if you X out Q1. And with future expectations $1.5 million to $2 million per month, I'm taking the midpoint of that, right, that's $1.75 million a month. That's $5.25 million for the quarter. That would be a 35% decrease. Just walk me through. I assume it's something that had to be done once and don't have to be redone -- go ahead.

It's a real simple answer, and that is it's deprecation, is the difference. I mean, that $8 million is -- in the $9 million per year-to-date is $2.1 million of depreciation. So, we talked about whether we should keep it on that line item or not, and we ultimately decided to just keep everything there. But the burn is going to be somewhere in that -- certainly less than $2 million, and could be as low as $1 million, depending on limited production, or depending on how much we move towards just reducing our activities. Realize that we have taken this as an opportunity to sort of set the mine up with things that we were going to have to do anyway. Now we've gone into some limited production, and we're going to continue to ramp that up.

Thanks guys. Keep doing what you're doing.

Okay. Thanks.

Thank you. And our next question comes from Eliot Glazer from W.M. Smith & Company. Your line is now open. Please go ahead.

Gentlemen, in your excellent 8-K, which you published this morning, under the title "Pre-Development," you wrote the following - "At Rock Creek, the U.S. Forest Service issued its final supplemental environmental impact statement in late June. That draft decision is subject to a 45-day formal comment period." What was the decision at Rock Creek?

It was a positive record of decision, where we could do the evaluation phase of the project.

Okay. In the next paragraph, it says, "With respect to Montanore, the Montana Federal District Court overturned previously granted environmental approvals" if I remember correctly, they came out in favor of bears and fish versus people -- "and remanded the record of decision to the U.S. Forest Service." So, what is the next step? How do you get this back on track, and how many years delay is this going to represent?

So, with respect to Montanore, realize that that whole process was controlled by the previous owners of the project, a company called Mines Management. And what they attempted to do was to get full approval of the whole project rather than breaking it into an evaluation phase, where you're able to go underground and confirm the geotechnical aspects of the project and the hydrology, unlike Rock Creek. That's how Rock Creek was put together. And so, what we'll be doing with Montanore is going back and doing the same process that was done with Rock Creek. We think that's -- if we had had that project from the beginning, that's probably what we would have done with that. So, while we're disappointed, you'd love to have the full thing approved, we're not surprised that we're having to break it into the two parts. And we're highly confident that we'll get the same sort of result that we have with Rock Creek, and you'll see us underground at one or both of those projects in the course of the next few years, couple of years, because we don't think the change that we'll have to do for Montanore is a multi-year process. We think in 2018 that can be done.

And lastly, jumping back to the Rock Creek-U.S. Forest Service Final Supplemental Environmental Statement, so what is your timeline? When would you begin pre-develop and drilling, for example? 2019? 2020? 2021?

Conceivably, we could start doing some work in 2018, but it's probably more likely '19, and then it's a couple of year process for doing that work, and then evaluating it, getting the final permit, and then putting it into the next phase, which would be the construction phase. Realize the other thing that we want to do, in addition to the work necessary for permitting purposes, is we also want to do the close-space drilling for our own mine planning. So that will run parallel.

Great. Thank you very much.

Okay. Thank you. We're very excited about it. Thanks for asking.

Thank you. And your next question comes from Matthew Fields from Bank of America. Your line is now open. Please go ahead.

Hey guys. The $6.5 million of cash suspension costs at Lucky Friday, can you just detail what those are being spent on?

The largest component of that, of course, is labor, salaried labor. We have roughly 57 employees at the site. We did have some unusual items -- I wouldn't say necessarily unusual, but some items that flow from previous periods. So, there was about $1 million that came in from the medical from guys recognizing they're going to go on strike, and so they go to the doctor. They go take care of all those medical things that they can. So that was an unusually high number that rolled into the second quarter. And then it's just a whole mishmash of other things. I mean, there was $600,000 for power. There was $350,000 for taxes. I mean, there isn't any one item that you would -- again, that sort of stands out. Lindsay, Larry, anything you all want to add to that?

Just the medical. There's still some medical payments for the hourly workers, and that will drop off.

So, if Lucky Friday remains offline for all of 3Q, do we expect this line item to be a little smaller?

Yes. Well, the depreciation won't change any because it is based on time, so you'll see for the quarter, what was it, 1.5 for the quarter. So that will stay the same. With respect to everything else, we think that there'll be some decline, and we're -- also will have limited production. And the other thing is just getting at the resolution of it, right? We've got a meeting today with the union. We'll see where we stand. Realize that we have recognized that the original proposal that we had had some of the employees -- most employees made more money under what we proposed. Some made less. And so, what we did was we came back and said, all right, for the first year, we'll keep everybody whole. They have to do the training to get to where they were previously in the previous contract. If they do that training, they'll be there, and they'll never lose any money. And so that was sort of our newest change in what we've proposed to them, and we're highly confident in that every employee's going to make as much as they made previously. We're highly confident that we'll get some resolution of this. It just makes sense.

And then you mentioned that, while the strike is ongoing, you were taking the opportunity to get some things done in the mine that you wanted to do, but you only spent about $800,000 in the quarter on CapEx. Is that number going to go up next quarter?

I don't think so. The focus really is more on the limited production starting in July.

Okay. Thanks very much.

Sure.

Thank you. Your next question comes from Mark Mihaljevic from RBC Capital Markets. Your line is now open. Please go ahead.

Hi. Thanks. And good morning, everyone. So, I guess keeping the theme here on these Lucky Friday negotiations, I guess how has the response been from the union so far to the latest proposals? Does it seem like they're coming closer to accepting what you're proposing, or do they still have their heels pretty well dug in?

We'll find out later today. But I guess what I would suggest to you, that you have different groups within the union have different interests. And they've got to sort of sort that out themselves as to what interests will take precedent. But look, at the end of the day, what we have proposed gives everybody at least as much as what they were making before. In the case of skilled trades, like electricians and mechanics, they get a lot more because we have a real difficulty of attracting and retaining those people, and that's part of what the whole change in the comp program was all about. The real issue is there's a handful of senior miners that have had a disproportionate amount of control over where work gets done and who does it, and it sort of created a management system that the company doesn't control, and we're changing that. And so those folks probably aren't going to be enthusiastic about coming to a settlement. And that's a small number.

And then, I guess you mentioned the potential to do some small-scale mining while the strike's ongoing. Do you have a sense of how much you'd be able to do? And I guess you said that started in July?

Yes, sort of the startup in July, but it's really more of an August when we're at the rate. I was actually at the mine yesterday, and these guys are working at 100 tons a day. And we'll see if we can increase that any, but that's probably a reasonable start.

And then, moving over to San Sebastian, obviously you've had some very impressive exploration results there, and nice to see you extending the life by a couple years. I was just wondering if you had a sense of what type of grade profile we should be expecting there, because obviously you've been mining it quite a bit above the reserve levels, but you also had a lot of exploration success. So how should we be looking at this asset over the next few years?

Well, it's still early days for that. Dean and Larry, do you guys want to give some color?

What I could say is that certainly the recent discoveries are probably comparable grades to certainly what we've seen this year, and perhaps higher. We're still putting the resource models together, and from there we'll be adding dilution. But what I would say is that you're probably seeing grades in line with this year's production, but it's still early days. And if you go to the assay tables in the exploration release, there are locally some very spectacular grades.

Larry, anything to add?

Yes. We'll stay north of 500-gram silver and north of three-gram gold, but this is really early, and we have to be careful that we're mixing in reserves and resources in this conversation. We have reserves through 2018, but beyond that, it's all resource. Does that pretty well answer your question?

Yes, that's very helpful. And then, just the final one from me, at Casa, it looked like the recoveries took a bit of a dip in Q2. Can you just give a little bit of color around that?

Well, certainly remember, we've got material that's coming from the open pit, and different times we have variability in the grade that comes out, so there's the grade recovery curve. And you've also got more throughput that's going through, so there's little bit less time. Larry, more?

Yes, just be mindful that the feed right now is about two-thirds underground and about a third open pit. And the open pit is generally about half the grade of the underground. So lower grade, lower recovery. Also within the underground, there's a mixture of sediments and volcanics. The volcanics run a higher recovery. And the amount of sediments that have arsenopyrite in it is variable. It's decreasing over time. We'll actually mine most of this out -- actually I think after this year we'll be in. We'll have the lion's share of it out of the mine. So, we're right on our recovery curves. Phil did mention, with the higher throughputs, retention time does get strained a bit, but we're just finding the upper limit of the mill now and the bottlenecks. And we're setting records daily, so we haven't necessarily found the upper limit yet.

That's it for me. Thanks guys.

Thanks Mark.

Thank you. And we do have a follow-up from Lucas Pipes from FBR & Company. Your line is now open. Please go ahead.

Yes, good morning, and thank you very much for taking my follow-up question. So, I wanted to follow up just a little bit on the Lucky Friday situation. And specifically, you addressed some of it, but specifically where do you see the room for compromise? Obviously, we're here now halfway through the year. And where do you think you could come to an agreement? Have you dug your heels in? Have they dug their heels in, or do you see a path towards maybe later this afternoon some sort of resolution? Thank you.

Sure. Well, realize that we've now proposed to them an arrangement that allows everyone to retain the sort of income that they had, so we think we're on a path that should allow us to come to some resolution. But again, as I mentioned, you've got different groups within the union, and they have different interests, and they have to come to some alignment as to how they come to a resolution on their side. So, we'll see. Look, it makes no sense for this mine not to be operating. We've got people in the community that have worked at this mine for generations. And we know there's a lot of these guys that are ready to come back to work, so we think we're going in the right direction. How long that will take for it to be worked out, we don't know, and so we're not trying to predict it.

And then second quick follow-up is for Lindsay. With the tender offer that was pulled during the quarter, you mentioned you didn't get sufficiently attractive terms. Could you give us a little bit more color in terms of what exactly you were looking to accomplish and how else those goals may be accomplished in the future? Thank you.

Yes, Lindsay, you can go ahead and start, and I'll--.

Yes. I think, Lucas, we look at the credit profile of the company, and we said it's an improving credit profile. And so, when you have an improving credit profile, you look to the market and see what you can do in terms of buying the existing bonds out and refinancing it, nothing new to anybody. But you have a goal to actually -- there's a cost to buying out the new bonds versus -- and that kind of drives what you need for the effective interest rate on the new bonds. So, when you do that math and you have to achieve that, certainly sub-six, and you don't see the sub-six there, you kind of say, well, we've got all the time in the world to deal with this, and we only think our company's going to get stronger. So, you don't do something just to, maybe my words, save market face. We do the right thing for equity holders. And we canceled the deal, and we continue to look at other ways. But, I mean, it's something we wanted to take advantage of the current interest rates, and we'll remain patient. So, it's an important issue for us, but we want our credit rating -- our interest rate to match our credit rating. Phil?

I don't have anything to add. Thanks Lindsay.

All right. Thank you guys and good luck.

Thanks.

Thank you. And that concludes today's Q&A session. I would now like to turn the call back to Mr. Phil Baker for any further remarks.

Well, we appreciate you joining us on the call. Please give Mike and I a call if you have any questions. But I guess one thing I wanted to mention is we are hosting a tour at Casa Berardi on Thursday, August 24. If you'd like to attend that, please let Mike know. Thanks very much, and talk to you soon.

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