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Hecla Mining Co (NYSE:HL)
Q2 2019 Earnings Call
Aug 7, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello and welcome to the Q2 2019 Hecla Mining Earnings Conference Call.

[Operator Instructions]

I would now like to introduce your host for today's call. Mike Westerlund, you may begin.

Mike Westerlund -- Vice President of Investor Relations

Thank you, operator. Welcome, everyone, and thank you for joining us for Hecla's Second Quarter 2019 Financial and Operations Results Conference Call. Our financial results news release that was issued this morning before market open along with today's presentation and the exploration release from Tuesday are available on Hecla's website. On today's call, we have Phil Baker, President and CEO; Lindsay Hall, Senior Vice President and Chief Financial Officer; Lauren Roberts, Senior Vice and Chief Operating Officer; Larry Radford, Senior Vice President and Chief Technical Officer; and Dean McDonald, Senior Vice President, Exploration.

Any forward-looking statements made today by management team come under the Private Securities Litigation Reform Act and constitute forward-looking information under Canadian securities law as shown on Slides 2 and 3. 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 earnings and exploration releases and at the beginning of this presentation. These risks could cause results to differ from those projected in the forward-looking statements. In addition, during this call we may disclose non-GAAP financial measurements. You can find reconciliations of these measurements to their nearest GAAP measurements in the accompanying presentation, which is available on our website at www.hecla-mining.com.

Finally, in our filings with the SEC we are only allowed to disclose mineral deposits that we can reasonably expect to economically and legally extract or produce. Investors are cautioned about our use of terms such as measured, indicated and inferred resources, which are not reserves 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.

Phillips S Baker -- Chief Executive Officer

Thanks, Mike, and good morning, everyone. The financial performance in the second quarter was poor and impacted by several items and the team is going to be discussing this in a moment. So I just want to highlight a couple of points and set the stage for the next couple of quarters. You can just follow along on some of the main points on I think Slide 4. We called out in the new release's headline the increasing Greens Creek silver production, which is due to realizing higher grades this year over plan because of newly identified mineralization. As outlined in our 43-101 over the next 5 years we expect to continue to see higher-than-average reserve grade. So Greens Creek's strong cash flows in the first half of the year should be repeated into the second half and into the future. Of course the amount of cash flow varies by quarter, depending on prices, grade of the byproduct metals, volume and timing of concentrate chips.

And that's part of what happened to us this quarter. For most of the last decade we have consistently invested in exploration and growing reserves, which is the foundation of any mining company. Today we have among the longest mine lives compared to peers, with more than a decade of reserve life at each of Greens Creek, Casa Berardi and Lucky Friday, plus we also have their resources. By having these long reserve lives, we can see how to make these mines better with new technologies that can generate returns for many years to come. An example of that is the automated haulage at Casa that is at 1/2 the cost of non-automated. We also are making discoveries that are immediately going into the mine plan. At Casa we're seeing that in the East Mine and Dean's going to talk a little bit about that. So we can generate good value from our exploration and other investments. But with Nevada not working as we had hoped, we are reducing those expenditures and others by $25 million, as we talked about in June. And in fact, we are working to extract $30 million of costs.

Most of it is capital exploration and G&A. This reduction, coupled with our anticipated higher cash flows from Casa Berardi, San Sebastian and the continued performance from Greens Creek -- these are all assets in which we have a proven track record operating -- should increase substantially our cash flow over the remainder of the year. And we're also seeing improved financial performance in Nevada. So in this quarter, for the first time since the acquisition of Klondex a year ago, our plans show us generating more cash than we spend. So we can start deleveraging by reducing the revolver. And then, with the anticipated cash generation really picking up in the fourth quarter, we expect no revolver debt by the end of the year, and at spot prices it may be even better.

In addition to minimizing spending in Nevada, reducing expenditures companywide and beginning in the third quarter the planned reduction of our revolver debt, we are taking other steps to increase our cash and EBITDA in anticipation of a new debt refinancing. One of those steps is the purchase of put options to set a floor of $15.13 and $1,400 dollars for our silver and gold sales, respectively, going forward. Fortunately, it looks like we're not going to have to rely on these puts and we'll realize the higher spot prices that we're enjoying today. We are monitoring the market, however, to purchase more put options for 2020 should the cost of the puts decline. They're quite expensive at the moment. Another step was amending certain terms of our revolving credit agreement to give us additional headroom on the net debt to EBITDA metric through the second quarter of 2020.

We don't expect any constraints on the availability from the revolver covenants and of course we don't expect to utilize much, if any, of it by year end. Finally, we are looking toward the refinancing of our high-yield notes. As part of this we are considering all of our options if we don't use the high-yield market to refinance all of the bonds. As I indicated in June, we have a number of possible alternatives we are considering. And since that June release, conditions have improved. Gold and silver prices are higher; interest rates are lower. So we believe the quality of our alternatives has improved since then and we fully expect that within the year we will refinance the debt. So that gives you a sense of how we see things. We are implementing our plans in Nevada, recognizing it will take study, like we did at Greens Creek early in its life.

We are lowering companywide costs, increasing production in the second half, realizing higher prices that are protected by puts, and all of which makes Hecla stronger by year end. Before I turn things over to Lindsay, let me talk about management changes. First, I'm pleased to welcome back to Hecla Lauren Roberts, who most recently was the Chief Operating Officer at Kinross. And he's taking the role of COO at Hecla. Many of you will know Lauren from his time at Kinross, but for those of you that don't, he brings 30 years of mining experience, mostly underground, 10 of it in Nevada, and has good experience working in challenging ground conditions at hot mines and with mechanical mining. So he has a lot of direct experience with the issues we have in Nevada, at Casa and the Lucky Friday. And I said "welcome back" because he used to work for Hecla from 1989 to 1997.

We're looking forward to his contribution. So Larry has taken on a temporary position of Chief Technical Officer to allow transition with Lauren while keeping operating plans on track and having good continuity on our innovations. By the way, Larry has passed off responsibilities to Lauren twice before in their careers. I want to extend my personal thanks to Dean McDonald, who is retiring at the end of September. He has been a strong leader for the company since joining Hecla in 2006 and opening our Vancouver office. He's led the team that established record silver reserves in 10 of the past 11 years, almost all from exploration, an impressive achievement when you consider the overall reserves in our industry had been shrinking. And I urge you to read the second quarter results -- this will be Dean's last -- and a set of exploration results that he gets to author for Hecla because of the success that we're having finding new high-grade underground at Casa and on the El Toro Vein at San Sebastian. Dean's role is being divided between 2 of our highly skilled people -- Keith Blair, who becomes Chief Geologist, and Kurt Allen, who becomes Director of Exploration.

With that, I'll pass the call to Lindsay.

Lindsay A. Hall -- Senior Vice President, Chief Financial Officer and Treasurer

Thanks, Phil. We recorded a net loss of $46.7 million, which represents an EPS loss of $0.10 for the quarter, which was higher than the market was expecting. Included in the loss was a gross loss in our Nevada operations of $20 million, which included some $18 million of depreciation expense. Because Nevada has few reserves, the depreciation expense will always be greater than at our other operations. Going forward we'd expect a run rate of approximately $14 million to $15 million for each of the next 2 quarters. Also this quarter, at Greens Creek we sold less base metals at lower prices and more silver at lower prices than last year, but in the case of Greens Creek the gross profit was lower for the most part because of pricing year over year. Also included in the net loss was $5 million related to the writedown of the Fayolle asset, an exploration-stage project in Quebec that we are selling.

So it was a tough quarter operationally at 3 of our mines, but for different reasons -- base metal pricing in the case of Greens Creek; Casa some milling issues; and at Nevada just not seeing the gold ores rates we expected. Turning to EBITDA for the quarter, we have calculated adjusted EBITDA of $22.9 million, some $30 million less than the prior year's quarter, again for the reasons consistent with the net income variance -- lower operational results at Casa and Greens Creek were responsible for the lower EBITDA. We also calculated debt-to-EBITDA ratio for the 12 months ended June 30 to be 3.9x. With the pause in Nevada on most capital expenditures, additional revenues from higher commodity prices and if we approve the achievements -- improvements in the operational performance, we expect this ratio to improve in the coming quarters.

We have worked with our syndicate of banks to relax the debt-to-EBITDA ratio while we assess our options to refinance the bonds, which Phil has spoken about. Our draw on the revolver today is some $85 million, with $15 million of cash in the bank. And we expect to reduce that net number, a $70 million drawdown, to $35 million by the third quarter and reduce it to 0 by year end. Lastly, we finalized the purchase price allocation for Nevada this quarter at an accounting value of $485 million. Another took a carrying value assessment, given the changes we have currently implemented, and concluded that a writedown on these assets was not triggered at this time. So overall it was a tough quarter, but we are taking the necessary actions on a timely basis that we think will improve our financial position. We expect to be cash flow positive over the next couple quarters, so we are on the right track.

With that, I'll pass it over to Larry.

Lawrence P. Radford -- Senior Vice President and Chief Technical Officer

Thanks, Lindsay. We've made some changes to our annual estimates by increasing our silver production estimate and we are maintaining our gold production estimate. Going to Slide 8, we have made significant changes to Nevada operations as announced in early June in order to reduce the cash flow impact of the operations while we work through a number of issues. As described on Slide 8, we have nearly stopped all development. Our plan is to mine out Fire Creek by the middle of next year and are exploring options to extend its life further. Among the issues we face in Nevada is water. Keep in mind that we are not overly concerned with the amount of water, which is very small by the standard of Nevada mines. We are more focused on ensuring that our permits are sufficient to match the expected water outflow.

We are permitted to discharge 100 gallons per minute. We have approval from the Nevada Division of Water Resources to increase this rate to 162 gpm. We expect approval from the Bureau of Land Management for this increase in the near future. The mine is currently discharging about 90 gpm, most of which is treated and is discharged or evaporated. Some water is low in contaminants and can be discharged directly without treatment. As the mine expands north and south, more inflow is expected. The mine models are in the process of being refined, but we expect inflows of approximately 300 gpm. We are working on getting a nonconsumptive water right of 1,000 gpm. The process of obtaining this water right is expected to take 12 months. Also in Nevada we continue to work on a toll milling agreement for Fire Creek ore.

Why is it important? It could mean lower trucking and processing costs, it could mean the ability to process all types of ore, all of which could enable a reduction in the cutoff grade, opening up areas of the mine that were considered uneconomic. If this happens, we can turn on the developments of these areas quickly and get them back into production. For the full year, as shown on Slide 9, we are raising our forecast to 62,000 ounces. Although there is risk in this estimate, principally ground conditions, which can be quite variable, I believe it is a reasonable estimate due to steps that we are taking at Fire Creek which include decreasing development and the scope of development is expected to be largely complete in September.

The all-in sustaining costs after byproduct credits is projected to be under $1,000 for the second half of the year. I'm also pleased to report that the Midas Mine is receiving a first-place Safety Award for Small Underground Mines from the Nevada Mining Association in September. Moving on, Greens Creek continues to be the main cash flow driver of the company, on Slide 10. Greens Creek's silver production is up, as several high-grade stokes extended further than we had anticipated. We are increasing our estimate for silver production to 9 million ounces this year and base metals production is down. So the net benefit is positive from a value point of view, but the cash costs, the all-in sustaining costs after byproduct credits have increased because the value of the byproduct metals has declined. This happens once in awhile and this is one of those quarters. So we increased the cost estimates this year a bit to reflect this.

Moving to Slide 11, the production challenges from the first quarter at Casa Berardi spilled over into the second quarter, which has kept production from fully recovering. The principal issue has been mill availability. Pre-crushing of ore began in July and it is planned to continue until year end. We expect an additional 400 tons per day and several thousand ounces from this initiative in the second half of the year. We also expect grade to improve by 10% in the second half. Moving to Lucky Friday, we have raised our production estimate for Lucky Friday, which is still a relatively small amount but it's helping to offset some of the costs of the ongoing strike. In addition, the fabrication of Remote Vein Minor is complete, as you can see on Slide 12. The unit looks great, as you can see in the photo.

The focus now turns to operating it in Epiroc's test mine in Sweden in the third quarter. Pending successful testing, the plan is for the unit to be disassembled and sent to Lucky Friday, and it's expected to arrive in the second quarter of 2020. Moving to Slide 13, San Sebastian is on track. The Hugh Zone bulk sample shown on this slide is on target, and the contractor should begin the long-hole mining trial soon. Exploration drilling at El Toro is encouraging. As El Toro permitting is on the critical path to a continued operation, we're beginning the baseline work now to minimize any production hiatus. Hecla has an option on Golden Minerals' Velardena mill where we'll process the oxide material through 2020. Although Golden Minerals has announced the potential sale of its subsidiary that owns the mill to Outland, a Mexican mining company, our option remains valid.

Although we are only beginning our budgetary planning for 2020 there are 3 new developments at Hecla that give me optimism. First, the plan to move high-grade forward in the mine plan of Greens Creek hits full throttle in 2020. Second, the Casa Berardi drilling success in the 148 and 152 Zones that Dean will cover, has potential to be brought into additional production in 2020. And third, the El Toro exploration that Dean will also cover has the potential to extend San Sebastian production. Finally, a personal note. I welcome Lauren to Hecla. We worked together at both Barrick and Kinross and I'm gratified to be handing off to a seasoned professional. This is my 8th year with Hecla, not counting when I worked at the Troy Mine as a miner in 1981. Since joining Hecla we've added mines, increased consistency in performance and introduced new innovations that have improved safety and productivity.

As I hand off to Lauren and begin contemplating retirement after 36 years in the business, I look back with satisfaction on the work that the Hecla team has done. I will now pass this to Dean.

Dean W. A. McDonald -- Former Senior Vice President of Exploration

Thanks, Larry. Although exploration budgets have become more constrained, we continued to have good success in the second quarter with drill programs at and near our mines where we are confirming and expanding resources with the potential for increasing reserves in the near future. A list of important drill intersections is provided in the Appendix of the exploration release which was issued on Tuesday. At Casa Berardi we had considerable drilling success along the main trends, as shown in Slide 15. Three areas of note are the cluster of high-grade underground resources at depth in the 113 through 123 Zones in the West Mine on the left side of the image. In the central part of the slide, high-grade lenses defined closer to surface in the 124 and 128 Zones are below and east of the principal bed. And in the East Mine the expansion of the high-grade 148, 152 and 160 Zones. A notable success is the quick evolution of the East Mine.

Access to this part of the mine was only reestablished about 6 months ago and already drill results as shown in the Slide 16 have defined and expanded a series of high-grade lenses extending from the 148 Zone along a strike length of 2,000 feet to the 160 Zone. High-grade lenses in the 148 Zone average over 10 feet in width and appear to persist further east to the 160 Zone. But also present in the 160 Zone are drill intervals up to 30 feet wide with good grade that may be amenable to more bulk mining methods. At San Sebastian, as shown in Slide 17, surface drilling is pushing hard to extend near-surface oxide mineralization along the El Toro Vein, which is about a mile and a half south southwest of the current line. The longitudinal shows the vein has a mineralized strike length of 5,000 feet and localized high-grade pods are located between the surface and 450 feet of depth.

There is a substantial increase in the width and grade of the vein, where a strong hanging-wall vein intersects the main El Toro Vein. Both veins remain open for expansion. Significantly, as shown in the cross-section in Slide 18, this hanging-wall vein appears high grade and merges with the main El Toro Vein at depth as well as along strike. Although both veins have additional exploration potential, the current combination and configuration of veins look attractive and are being evaluated for a number of mining scenarios. The El Toro area may provide an extension of oxide mine production past 2020. It's sometimes easy to forget about Greens Creek because it's so robust and dependable, but drilling continues to upgrade resources in the upper and central part of the mine, as seen in Slide 19. Recently exploration drilling has begun to evaluate extensions to the south.

The opportunity to continue to extend mine life at Greens Creek is readily apparent and some of the stronger trends are defined with the red arrows in the slide. Surface drilling has begun south of the Fire Creek Mine in the South Notice area to evaluate a series of strong geophysical targets that resemble the geophysical features of the veins already being mined. At the Hollister Mine important surface drilling is about to start as we begin drilling east of the current Hatter-Graben resource. We're confident we can make the Hatter-Graben substantially larger. This was recently reinforced by the discovery of outcrop a long trend over a mile east of the current Hatter resource, as seen in Slide 20 of a very prominent silicified dike with veins that are reminiscent of Hatter mineralization.

Over the last 13 years I've worked with a great exploration team that has been very effective at leveraging our budget to sustain and grow the reserves and resources throughout that period, regardless of commodity prices and fluctuating budgets. I am retiring but our succession plan has been in place for a number of years, and I believe that with Kurt and Keith and the rest of the exploration team the successes will continue. And with that, I'd like to pass it back to Phil.

Phillips S Baker -- Chief Executive Officer

Thanks, Dean. Why don't we go ahead and open the line for questions, operator?

Questions and Answers:

Phillips S Baker -- Chief Executive Officer

[Operator Instructions]. Our first question comes from the line of John Bridges with JPMorgan. Your line is open

John Bridges -- JPMorgan -- Analyst

Morning, Phil and everybody I guess the elephant in the room is still the -- is the refi. You mentioned that your options have become high quality as a result of the higher metal prices. Could you give us a bit more color as to the extent to which things are improved and to which avenues you're most focused on?

Phillips S Baker -- Chief Executive Officer

John, at this point we're still considering all options. We're not at the moment focusing on any one. The initial thing to do was to make the changes that we've made in Nevada and start to generate the free cash flow. And so you'll see that over the next couple quarters. And then on the back of that we'd expect to do something. But all options as to how we might handle the refinancing are on the table. Lindsay, anything to add?

Lindsay A. Hall -- Senior Vice President, Chief Financial Officer and Treasurer

No. I'd say, John, the little bit -- the high-yield market's a little bit more positive today than it was maybe a few months ago. So we see that as a positive as an avenue to refinance the bonds.

Phillips S Baker -- Chief Executive Officer

Yes. You know, bonds are only trading at yield that's maybe 4 percentage points better than it was 2 months ago. So we're going to give things a little bit of time, I expect. But having said that, we'll wake up and be conscious of what the market's doing and be prepared to move quickly if it makes sense.

John Bridges -- JPMorgan -- Analyst

Okay. And then just as a follow-up, the water situation, what's a nonconsumptive water? Is that you buying a ranch that you can put water onto, like some of the others in Nevada?

Phillips S Baker -- Chief Executive Officer

No, it's not. Larry?

Lawrence P. Radford -- Senior Vice President and Chief Technical Officer

No. It's basically because as it is described you're not consuming anything. It's a government-awarded water right.

John Bridges -- JPMorgan -- Analyst

Okay. Okay. And if I may squeak in one, the toll treatment, do you have refractory material you can see that would go into a toll treatment? Or is this positioning ahead of what you're going to find with current drilling?

Phillips S Baker -- Chief Executive Officer

Yes. We're aware that we have material that would be great feed for an autoclave or roaster. And so we just see it as an opportunity. Larry, go ahead.

Lawrence P. Radford -- Senior Vice President and Chief Technical Officer

Yes. There is one heading that's the north end of Spiral 3. It's the far north of the mine that is in high -- material with a high sulfite content. In fact, we have sent some of it out for testing and to third parties for their evaluation.

John Bridges -- JPMorgan -- Analyst

Dean, best of luck in your new endeavors.

Dean W. A. McDonald -- Former Senior Vice President of Exploration

Thanks John.

Operator

Thank you, our next question comes from the line of Matthew Fields with Bank of America Merrill Lynch.

Phillips S Baker -- Chief Executive Officer

Hi, Matt

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Hey, Phil. Hey, Lindsay and everybody. And congratulations, Dean, on your career and good luck. I just wanted -- I don't know if I heard it correctly. Lindsay, did you say earlier on the call that there was $70 million drawn on the revolver as of today?

Lindsay A. Hall -- Senior Vice President, Chief Financial Officer and Treasurer

Yes, that's correct, Matt. $85 million less $15 million, that $15 million cash on the balance sheet today.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

$85 million drawn less $15 million of cash?

Lindsay A. Hall -- Senior Vice President, Chief Financial Officer and Treasurer

Yes.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Okay. So as of quarter end there was $52 million net, meaning there was more drawn less $9.5 million of cash? Is that -- I don't understand the net drawn.

Lindsay A. Hall -- Senior Vice President, Chief Financial Officer and Treasurer

All we do is take the cash -- the draw less the cash is what we call the net. So if you use $52 million to $70 million, that's the increase in the net draw.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Okay.

Lindsay A. Hall -- Senior Vice President, Chief Financial Officer and Treasurer

Between June 30 and today.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

If you printed a financial statement today it would say $70 million or $85 million?

Lindsay A. Hall -- Senior Vice President, Chief Financial Officer and Treasurer

$85 million on the draw and $15 million of cash.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Okay. Thank you. So just -- I'm trying to work through the second half because if you're going to have nothing on the revolver drawn that means a free cash flow generation of at least $52 million. And even at $1,500 gold and $17 silver and with the higher production at Greens Creek, I still don't even get you close. Is there an asset sale baked into your expectation?

Phillips S Baker -- Chief Executive Officer

No, there's no asset sales. There's no financing. It's all free cash flow generation from the mines.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

So then let's just work backwards, because if we're at $52 million of cash flow, if your guidance for Capex is $138 million, that means you have $67 million of Capex to go. You have about $20 million of interest. That means you need $139 million of EBITDA over the second half, roughly, to get $50 million of free cash flow. Am I missing something?

Phillips S Baker -- Chief Executive Officer

That's -- I think those numbers are right. Sorry about the background noise.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Okay. Great. Is the message that the Capex guide of $138 million is too high and you're going to cut that significantly?

Phillips S Baker -- Chief Executive Officer

Nope. No, it's . . .

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Is there no big working capital release baked in here?

Phillips S Baker -- Chief Executive Officer

No. There's just normal sort of working capital changes.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Okay.

Operator

Thank you. Our next question comes from the line of Jake Sekelsky with Roth Capital.

Jake Sekelsky -- Roth Capital -- Analyst

Hey, guys. Thanks for taking my questions. Just looking at Greens Creek and with some unsensitivity of base metal prices, have you put in place or have you put much thought into putting some hedges back in place on those base metals to sort of smooth some of that out, especially given the recent run in precious prices?

Phillips S Baker -- Chief Executive Officer

To put additional hedges in, well, we periodically put in hedges. And typically they're at higher prices than where we are now. Are you able to hear me?

Jake Sekelsky -- Roth Capital -- Analyst

Yes. Yes.

Phillips S Baker -- Chief Executive Officer

Okay. There's some background noise that -- so if you look at the hedges that we've put in place, for the most part the zinc hedges have been roughly 100 -- $1.25 per pound. And lead hedges have been roughly $0.95 per pound or higher. So when we think about when to put in new positions, generally speaking we are not putting in positions when we think the exposure to the downside is less than the opportunity to the upside. So, Jake, I think it's unlikely that you'll see us put in many new positions.

Jake Sekelsky -- Roth Capital -- Analyst

Okay. [Indecipherable] a little bit higher before, is that right?

Phillips S Baker -- Chief Executive Officer

Well, we assume prices could go down some. We're not inclined to lock in these levels.

Jake Sekelsky -- Roth Capital -- Analyst

Fair enough. And then, just on the exploration front, I mean the El Toro thing at San Sebastian sounds like it might be a source of some more oxide material there. I know it's early but can you maybe just provide some color on what you're hoping to see regarding timing and maybe even costs in developing that?

Phillips S Baker -- Chief Executive Officer

Dean?

Dean W. A. McDonald -- Former Senior Vice President of Exploration

Yes. Well, we're certainly still working on costs and evaluating both open pit and underground scenarios. When we look at in terms of permitting and acquiring the land, it's probably about a 1 year timeframe. And so we're looking at that 1 year and slightly beyond for be it open pit or underground.

Operator

Thank you. Our next question comes from the line of Cosmos Chiu with CIBC. Your line is open.

Cosmos Chiu -- CIBC -- Analyst

Hi, Phil and Lindsay and thanks and Good luck to Larry and Dean. Maybe first off on Casa Berardi here. Looking at your production the first half, as you mentioned, you'll need a better second half to hit guidance. Could you give us a bit more color in terms of the higher grades coming out? Historically I guess as you go deeper into the mine it would be higher grade. Which zones are you -- is in the mine plan for the second half? Is it 118, 123? And what is it?

Lawrence P. Radford -- Senior Vice President and Chief Technical Officer

I believe it's 123. I'll look it up right now.

Phillips S Baker -- Chief Executive Officer

So we'll look that up, Cosmos, as to the exact what . . .

Cosmos Chiu -- CIBC -- Analyst

Okay. So it just pretty much though. . .

Phillips S Baker -- Chief Executive Officer

And just to be clear, depth does not seem to suggest higher grade or lower grade. Right, Dean?

Dean W. A. McDonald -- Former Senior Vice President of Exploration

No. Really what happens I think in general, Cosmos, is you get into these zones, specific zones, and as you know, they have fairly short strike lengths, but the down plunge direction is what's critical. And so with the 128 and we've been mining that off and on for the last few years, that is -- tends to be a high-grade zone with good recoveries, not unlike what we're seeing now with the 148 and 152 Zones.

Cosmos Chiu -- CIBC -- Analyst

So, Larry, so in the first half which zones did you mine? And, again, what are you mining in the second half?

Lawrence P. Radford -- Senior Vice President and Chief Technical Officer

It doesn't really change first to second half. It's just there are just basically stopes that are taken in sequence that come out higher. We could mine them earlier if we chose to, but we'd end up sterilizing something. So it's just . . .

Cosmos Chiu -- CIBC -- Analyst

So was the lower grade in the first half more or less planned? Is that what you're telling me, Larry?

Lawrence P. Radford -- Senior Vice President and Chief Technical Officer

It was absolutely planned and it's also worth noting, Cosmos, that the open pit has higher grade in the second half as well.

Phillips S Baker -- Chief Executive Officer

Yes. So the plan has always been higher grade over the -- during the course of the year. The thing that was not planned was lower tonnage that we had in the first half of the year. That was where we had the shortfall. And as we talked about in previous calls it started as a problem that came as a result of the new crusher that we put in and as we had to then modify the mill -- and so those modifications have been completed and we now have an in-pit crusher. We'll try to catch up. Larry, do you have anything to add to that?

Lawrence P. Radford -- Senior Vice President and Chief Technical Officer

Yes. I just took a quick scan through what I call double-digit stopes where we're above 10 grams. And it's not one particular area. There's 123. There's Principal of 124 area. So they're just in the sequence that they come out later in the year. But it's the same zones we mine through all year.

Cosmos Chiu -- CIBC -- Analyst

And then, could you remind me right now, is there anything coming out of East Mine at this time?

Phillips S Baker -- Chief Executive Officer

No.

Cosmos Chiu -- CIBC -- Analyst

Nothing. Okay.

Phillips S Baker -- Chief Executive Officer

There's no production. We just opened that 6 months ago.

Cosmos Chiu -- CIBC -- Analyst

Yes. Okay. And then if I remember correctly from -- you know, I've covered the Casa for a long time. The East Mine, in the past they've had issues in terms of ground conditions, especially with graphite. During your exploration and what your exploration program at this point in time is that still sort of an issue?

Phillips S Baker -- Chief Executive Officer

Well, that was an issue for East and West. And it's really what Orezone solved. That was sort of the big success that they had. And we've just furthered that and improved upon what they've done. And so now we're going to apply it to the East Mine. Larry?

Lawrence P. Radford -- Senior Vice President and Chief Technical Officer

Yes. I mean, the graphite fault extends the full length of the operation. And we have a very disciplined approach to going through it. It's short rounds and spiraling and shotcrete and very procedure oriented. And we've changed our approach to how we access the stokes now. The stokes used to terminate up against a graphite fault. Not we're mining the other side, so we don't -- we only have to go through it once. And that's not the development. So it's been managed through the years very well.

Cosmos Chiu -- CIBC -- Analyst

Yes. And then I guess taking a step back here in terms of the overall cost guidance for the year in 2019, as you touched on it I just want to confirm. So I guess the silver all-in sustaining cost guide has increased due to byproducts. And then how about the cost increase for the gold segment?

Phillips S Baker -- Chief Executive Officer

So with respect to the silver, you're absolutely right. It is the fact that we have lower volumes, lower prices, for the base metals that has caused that to increase. For the gold, in aggregate I thought we were -- yes, we're just slightly higher and it's a result of the higher Casa Berardi for the course of the year. We just are not able to maintain that guidance for Casa.

Cosmos Chiu -- CIBC -- Analyst

And I guess going back to a previous question here in terms of the hedges, I guess I have 2 questions on the hedges. Number one, you talked about the gold and silver hedges. I just want to make sure, Lindsay, is it -- so substantially all of the production for the rest of 2019 into the early parts of 2020 now there's a floor of $1,400 an ounce and $15.13, I believe. Is that the case, like substantially . . .

Phillips S Baker -- Chief Executive Officer

Yes, that's correct.

Cosmos Chiu -- CIBC -- Analyst

Okay. And how much did that cost? Was it expensive?

Phillips S Baker -- Chief Executive Officer

Well, it always seems expensive, particularly when the prices are $100 higher than that. Lindsay, any --?

Lindsay A. Hall -- Senior Vice President, Chief Financial Officer and Treasurer

I think that all -- doing everything was about $12 million or something like that.

Phillips S Baker -- Chief Executive Officer

Yes. Twelve -- that was my understanding as well.

Cosmos Chiu -- CIBC -- Analyst

And you didn't -- did you consider like a collar? Or you didn't want that cap to the upside?

Phillips S Baker -- Chief Executive Officer

Right. We didn't want the cap. I mean, the way we look at it is that cost, or at least the way I look at it, is that cost is well worth paying. You can afford to pay when you have higher than those prices, right? So I would rather lose that cash and realize what's turned out to be significantly higher prices than we could have gotten in a collar with the same put strike. So I have no issue with the fact that we've had to pay that price and retain the upside.

Cosmos Chiu -- CIBC -- Analyst

Yes. And then I guess moving to the base metal hedges, someone else asked a question, but right now it's about 13%, I believe, of your base metal that's hedged. Clearly base metal prices have been a lot more volatile than precious metal prices. And, Phil, as you mentioned, at this point in time you wouldn't consider putting on more base metal hedges. But at what point would you consider it? Because that was part of the reason why you've had to increase your all-in sustaining cost guidance as well at Greens Creek and overall for silver.

Phillips S Baker -- Chief Executive Officer

At what point would we put new hedges in? Is that what you're . . .

Cosmos Chiu -- CIBC -- Analyst

Yes. Or is there like a target right now that's above 13%? Would you want it to be higher than 13% of your production being hedged?

Phillips S Baker -- Chief Executive Officer

I'll let Lindsay answer as well, but my view is the likelihood of significantly lower lead and zinc prices for a significantly longer period of time is pretty low. I do expect that they're going to go down some over the course of the quarter. But we're more -- we're not trading the base metals hedges. This is really just to protect ourselves. And so I don't see us putting in a lot of positions at these prices.

Lindsay A. Hall -- Senior Vice President, Chief Financial Officer and Treasurer

No. I would say, Cosmos, just go back to '18, what we did. You kind of saw the prices anything at '18 and if we liked the prices we would have hedged more. But at these prices, kind of not interesting to us, as Phil alluded to. Downward pressure is probably not that great, so we're fine with where we're at. We like to hedge things but not at these prices. And go back to '18 and see what we did.

Phillips S Baker -- Chief Executive Officer

And certainly should prices decline you could see us unwind the hedges. You've seen us do that before as well.

Cosmos Chiu -- CIBC -- Analyst

Yes. For sure. And maybe one last question from me in terms of the line of credit. You drew about $50 million on that line of credit, I believe, $85 million at the end -- as of right now. In the past my understanding was that you needed that line of credit for working capital purposes at Greens Creek between production and shipment and payment. I guess clearly that was not 100% of the case in Q2. I'm just wondering. Do you still need that line of credit for that purpose as we look into the second half of 2019?

Phillips S Baker -- Chief Executive Officer

Well, our expectation is you'll see it decline during the course of the third quarter and then by the end of the year that it will be unutilized, at least close to it if you net it against the cash. So do we need to have some level of either cash or a line of credit to deal with the lumpiness of Greens Creek? Absolutely. And what we would expect is toward the end of the year, start of next year, that it will be cash that we'll be relying on rather than the revolver.

Operator

Thank you. Our next question comes from the line of Heiko Ihle with H.C. Wainwright. Your line is open

Heiko Ihle -- H.C. Wainwright -- Analyst

Hey, guys. Thanks for taking my questions. I'm also -- have an answer because some people decided to ask 5 questions in the queue here. But I apologize for bringing up the hedges again. I know I'm the third person in the Q&A to do so. But you guys called it a short-term floor for silver and gold prices in your release. I was going to ask you if you wanted to continue doing it, but you prefaced it in your prepared remarks. But I mean, your current hedge goes through Q1 '20. So if something likely gets done, call it, next quarter or maybe even this quarter, we crossed $1,500 gold today, silver's at $17. At what point in time, if ever, would you ever be looking into a cost-less call? I mean the thought being so you get yourself $150 in upside, $150 in downside, it costs you more or less nothing. And you're still pulling in the money to keep your balance sheet safe.

Phillips S Baker -- Chief Executive Officer

Look, you never would say never to that. But I'm very reluctant to sell upsides, because if I can buy it and lock it in and I can do it at the highest price possible, then I would prefer to do that. Because you just see the precious metals prices move dramatically and nobody can predict it, that you're going to have that increase. I think probably 2 weeks ago, 3 weeks ago there weren't very many people thinking the price of silver would be $17. And so I think we would be short-changing our shareholders if we were to sell that upside. So I'd be reluctant to do it. But Lindsay and others could convince me.

Lindsay A. Hall -- Senior Vice President, Chief Financial Officer and Treasurer

I align with my boss, Mr. Baker, on this. Couldn't have said it better.

Heiko Ihle -- H.C. Wainwright -- Analyst

Fair enough. In Nevada, any estimate how many people are currently actually working at the sites? If you can break this down between Fire Creek and Hollister that might be useful as well. And then following up on that, any idea how many people are going to be there, call it, December 31?

Phillips S Baker -- Chief Executive Officer

Well, we really don't have people working at Hollister to speak of. So, Larry, where are we with Fire Creek?

Lawrence P. Radford -- Senior Vice President and Chief Technical Officer

The total headcount is 163 in Nevada right now. There's a handful of miners at Midas doing some remnant mining there. But nearly all of the effort is at Fire Creek right now. And we do expect -- well, actually, we've brought in a few temp employees because we're still selling at Fire Creek and we will be selling for another 2 months. And we have had attrition. But once we finish that selling, then we should be pretty well right-sized. As far as attrition and concern about it, we still have enough electricians on the site, but that's kind of the barrier that we just need to keep an eye on and make sure we have enough.

Heiko Ihle -- H.C. Wainwright -- Analyst

Okay. And then just -- sorry to bring this up again. So you said there's essentially no one in Hollister. So it's what, 5 people, 10 people, 20 people?

Lawrence P. Radford -- Senior Vice President and Chief Technical Officer

At Hollister?

Phillips S Baker -- Chief Executive Officer

Yes.

Lawrence P. Radford -- Senior Vice President and Chief Technical Officer

It's just caretaking.

Phillips S Baker -- Chief Executive Officer

Yes. Because remember we've stopped development so we're drilling from surface.

Lawrence P. Radford -- Senior Vice President and Chief Technical Officer

And treating water. I mean, but it's just basically caretaking.

Phillips S Baker -- Chief Executive Officer

And remember, this is -- Heiko, we're just pausing as we talked about in June. We're fully committed to Nevada but what we thought we could do we were not able to do. So we're taking a step back and we're making sure we've thought through how to proceed with Nevada. Nothing has changed in terms of our view of the value there. So don't misinterpret the fact that we're not actively mining there, that there's any lack of commitment. The important thing at the moment is to make sure we have our balance sheet in place. The reserves, the resources, the exploration potential is going to still be there. We're just having to delay the time that we're realizing that.

Heiko Ihle -- H.C. Wainwright -- Analyst

Excellent. I will get back in queue. Thank you.

Operator

Thank you. Our next question comes from the line of Anthony Sorrentino with Sorrentino Metals.

Anthony Sorrentino -- Sorrentino Metals -- Analyst

Good morning, everyone, With regard to Nevada, you had mentioned that you looked at the asset values over there at Nevada and decided not to write them down. Was that just your decision or did accounting rules and regulations prohibit you from writing down the value?

Phillips S Baker -- Chief Executive Officer

Yes. That's absolutely right. You've got to follow the procedures provided for in GAAP. And that's what we've done and this is the outcome that we've come to. Lindsay?

Lindsay A. Hall -- Senior Vice President, Chief Financial Officer and Treasurer

No. I always follow the regulations under U.S. GAAP in assessing it.

Anthony Sorrentino -- Sorrentino Metals -- Analyst

Best of luck to Dean.

Operator

Thank you. Our next question comes from the line of Adam Graf with B. Riley.

Adam Graf -- B. Riley -- Analyst

Just a quick confirmation. So the access in Nevada from Hollister over to Hatter, the progress on that access has been halted?

Phillips S Baker -- Chief Executive Officer

That's right. So we've halted that. We set it up for being able to go back in and complete it. But we're going to manage our cash flow to make sure that we hit the numbers that I talked about earlier in the call.

Adam Graf -- B. Riley -- Analyst

All right. And the exploration slide that you showed over at Hatter with the outcrop, am I understanding correctly you think you can extend the known veins at Hatter over to the east? Or you think you found something separate, a parallel or a faulted-off system there that has some surface expression?

Phillips S Baker -- Chief Executive Officer

I'm not sure we know exactly what we've found. We just know that's an exciting thing to see, as far away from Hatter as it is. Dean, give a --

Dean W. A. McDonald -- Former Senior Vice President of Exploration

Yes. What we do know, there has been a few historic drill holes between the Hatter Graben resource and the outcrop that's in the presentation. And so we have a bit of information. It's certainly a long trend. That it's a fault offset of one of the Hatter veins or if it's something parallel and completely new, we really don't have the information to say that categorically. But it's certainly part of what I would suggest is the Hatter system.

Adam Graf -- B. Riley -- Analyst

Is the thought there on the exploration strategy to start on the east side of what you know at Hatter and just start working your way over toward that outcrop with widely spaced drill holes?

Phillips S Baker -- Chief Executive Officer

That's exactly it. And at this point we don't have a plan with respect to the outcrop that we've seen. We're still getting assays and still trying to evaluate what it is. And then we'd have to fund the budget to spend. But certainly at this point the intention is go from known to less known.

Adam Graf -- B. Riley -- Analyst

And just sticking with Nevada for a moment, do you have any guidance or expectations roughly for the mining cost per ton at Fire Creek in the second half, ball park?

Lawrence P. Radford -- Senior Vice President and Chief Technical Officer

It's roughly $300 a ton, really rough.

Adam Graf -- B. Riley -- Analyst

And what do you -- is there any future thought there when you have operations back to where you'd like them to be, where that mining cost would be?

Phillips S Baker -- Chief Executive Officer

That's really the question that we have to answer. Certainly toll milling is something that could have a big impact. And given that we've got that large Midas mill and so the cost per ton is quite high to mill it. So that's -- and of course Lauren's going to -- has joined us and Lauren has quite a bit of experience in Nevada. So maybe he'll have some ideas as to how to improve the cost picture at the Nevada operations.

Adam Graf -- B. Riley -- Analyst

And just to be clear, that $300 per ton, that's just the mining cost at Fire Creek, not assuming milling or anything else?

Lawrence P. Radford -- Senior Vice President and Chief Technical Officer

Yes. Milling and transportation in the second quarter was about $100 a ton.

Phillips S Baker -- Chief Executive Officer

Do you have something, Lindsay?

Adam Graf -- B. Riley -- Analyst

And any effort to, or any thoughts about getting outside or to toll mill through Midas?

Phillips S Baker -- Chief Executive Officer

Yes. That's something that we've contemplated and certainly as prices rise there's probably going to be more opportunity to do that. And you'll also have the more -- another mill in Nevada, the Aurora mill. And we've had people who've approached us to tow mill through that facility. So we're working through some of those things as well.

Adam Graf -- B. Riley -- Analyst

Are any of those near-term opportunities? Or those all longer-term . . .

Phillips S Baker -- Chief Executive Officer

No, no. Look, I wouldn't put value in it other than just optionality and it just shows the sort of options that we have. It's a lot more than maybe people realize.

Adam Graf -- B. Riley -- Analyst

And then if you permit me just one more question, on El Toro in Mexico does that look --

I know in the past, recent past, you have been happy to have San Sebastian kind of be free cash flow neutral. Does El Toro give you the potential to throw off some significant cash flows there, like San Sebastian in the earlier days?

Phillips S Baker -- Chief Executive Officer

Yes. First I'll just say our expectation for San Sebastian is it's going to generate a fair amount of free cash flow in the second half of the year, particularly in the fourth quarter. As far as longer term with El Toro, it's still early days to be able to say what that's going to look like. We're doing the mine planning now. Clearly we're excited about its potential to maintain oxide production. But we're not going to do it just to maintain it. We're going to do it because it generates returns. So we see the potential for that. Now, can it be as good as San Sebastian was in 2016? That's probably unlikely. That year San Sebastian generated $80 million of free cash flows. So we're not expecting that. But you never know, right? Dean?

Dean W. A. McDonald -- Former Senior Vice President of Exploration

No.

Operator

Thank you. Our next question comes from the line of John Tumazos with Independent Research. Your line is open.

John Tumazos -- Independent Research -- Analyst

Thank you for taking my question, trying to phrase this in a way that you can answer and maybe I'm not clever enough to do that. But if you refinanced with a public bond, would a guess be that it might be 9% or if you refinanced with a bank might it cost 6%? What can you guide us for our spreadsheets for the financing cost in 2021 and '22 for the new instrument?

Phillips S Baker -- Chief Executive Officer

I think the best thing I can do is just tell you to look at where the bonds are trading and maybe look at some of the other precious metals companies. It appears to me at the moment you're talking about something with an 8 handle. And as far as -- and of course interest rates seem to be declining and the outlook seems to be pretty good to see further declines. I'll let you go ahead and add to it. And then as far as the banks go, to the extent it's floating-rate debt it could be quite low, certainly that 6% number or less. Lindsay?

Lindsay A. Hall -- Senior Vice President, Chief Financial Officer and Treasurer

Yes. I would agree, John. There's other bonds much like ours trading out there and that gives you an idea what we could enter into the market today. So to some extent, like I say, below the 9 handle. Tenor is getting more interesting than it was maybe two months ago, too, as well. The tenor of what we could....

John Tumazos -- Independent Research -- Analyst

There was a financing that at Credit earlier this morning. Pure Gold did $90 million with Sprott Lending to restart the Madsen Mine in Red Lake. And I think the financing had more tentacles than I have fingers. But the main part was about 6% over LIBOR and part of it was -- $25 million of the $90 million was a stream. So you're saying you can -- you're not going to have more tentacles than fingers and there's not going to be a stream and it's not going to be 6 points over LIBOR?

Phillips S Baker -- Chief Executive Officer

Simplicity is a great thing, John.

John Tumazos -- Independent Research -- Analyst

I believe that too. Thank you and good luck.

Phillips S Baker -- Chief Executive Officer

Okay. Appreciate it.

Operator

Thank you. At this time I would like to turn the call back over to Phil Baker for closing remarks.

Phillips S Baker -- Chief Executive Officer

Well, thanks very much for participating on the call. The thing I'm struck by probably more than anything is that about 2 months ago when we talked last we had a plan that we needed to execute. We're well on our way of executing that plan. And in the meantime we've seen precious metals prices rise dramatically and we've seen interest rates decline. So the outlook for Hecla, I thought it was OK, good, 2 months ago. I think it has improved dramatically over the course of those last 2 months. And so we appreciate you following the company and we would encourage you if you have any other questions to give Mike or I a call and be happy to walk through that. So thanks for taking the time. Talk to you again soon. Thanks.

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Mike Westerlund -- Vice President of Investor Relations

Phillips S Baker -- Chief Executive Officer

Lindsay A. Hall -- Senior Vice President, Chief Financial Officer and Treasurer

Lawrence P. Radford -- Senior Vice President and Chief Technical Officer

Dean W. A. McDonald -- Former Senior Vice President of Exploration

John Bridges -- JPMorgan -- Analyst

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Jake Sekelsky -- Roth Capital -- Analyst

Cosmos Chiu -- CIBC -- Analyst

Heiko Ihle -- H.C. Wainwright -- Analyst

Anthony Sorrentino -- Sorrentino Metals -- Analyst

Adam Graf -- B. Riley -- Analyst

John Tumazos -- Independent Research -- Analyst

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