Hecla Mining Co

NYSE:HL

Earnings Call Transcript 2021-Q3

[Operator]

Good day, and thank you for standing by. Welcome to Q3 2021 Mining Company Earnings Conference Call by Hecla. [Operator Instructions]

I would now like to hand the conference over to Anvita Patil. Ma'am, please go ahead.

[Anvita Patil, Assistant Treasurer]

Thank you, operator, and welcome, everyone. Thank you for joining us for Hecla's Third Quarter 2021 Financial and Operations Results Conference Call. I'm Anvita Patil, Hecla's Assistant Treasurer. Our financial results news release that was issued this morning, along with today's presentation, are available on Hecla's website.

On today's call, we have Phil Baker, Hecla's President and CEO; Lauren Roberts, Hecla's Senior Vice President and Chief Operating Officer; and Russell Lawlar, Hecla's Senior Vice President and Chief Financial Officer.

Any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act and involve risks as shown on Slides 2 and 3 in our earnings release and in our 10-Q and 10-K filings with the SEC.

These and other risks could cause results to differ from those projected in the forward-looking statements. Reconciliations of non-GAAP measures cited in this call and related slides are found in the slides or news release.

With that, I'll pass the call to Phil Baker.

[Phil Baker, President, CEO]

Thanks, Anvita. Good morning, everyone, and thanks for joining our call. Looking at Slide 4, Hecla continued with another quarter of solid financial performance, including free cash flow generation of $15.6 million. And this makes it the 8 out of the past 9 quarters of generating free cash flow, and we've totaled $237 million over that period. As a result, the balance sheet is solid with $190 million in cash.

And we've been working to improve the operational consistency at Casa Berardi, and I'm happy to see that this hard work is paying off with record throughput this quarter of nearly 400,000 tons and realized this is 150% more tons than the third quarter of 2013, which is the year we acquired Casa Berardi.

So since 2013, we've recommissioned the East Mine. We've also expanded the operation to include numerous open pits, and we continue to extend the mine life.

Now I'm highlighting these facts, not only to give credit to the good work that the guys at Casa -- guys and gals at Casa are doing, but also just to highlight the culture we have of improvement in innovation. Further evidence of that culture is our new mining method at the Lucky Friday, and this is the first time we're really talking about the new mining method. And we call it Underhand Closed Bench. And it's shown positive results in managing seismicity, which is the biggest issue that we have at the Lucky Friday.

And this new mining method was developed as a result of another example of Hecla's commitment to innovation, the development of the Remote Vein Miner. And as the mine was preparing to receive the RVM, we were completing destressed blasting, and we determined that this blasting method could be optimized in a way to be a new and more effective mining method.

So the RVM has been developed and constructed and we're going to deploy it, but it's going to be at another property. And as the new drill and blast method is better suited to control seismicity, and so that's an important safety element of the mine. And Lauren is going to tell you more about this method in a moment.

Now speaking of safety, I want to give credit to the operations team for their continued commitment to the health and safety of our employees. This -- at this point, we've achieved a company-wide all-injury frequency rate of 1.63. And then earlier this year, we published our sustainability report, and we emphasized how small the footprint we have. We generate less than 100,000 tons of Scope 1 and 2 greenhouse gas emissions. And given how small emissions are, we invested in enough carbon offset credits for Hecla to have net zero emissions this year. I suspect we're one of the few mining companies that can say they are net zero for Scope 1 and 2. And we expect to continue to be net zero again next year.

Lastly, before I turn it over to Russell and Lauren, I'd like to discuss the inflationary pressure that has impacted the industry. At Hecla, we operate very high-grade, high-value mines that are also very low tonnage. So we don't move a lot of rock. We do in a year when a larger mining company moves in a day. So we don't use a large amount of consumables, which is where you've had the most significant inflationary pressure. Also, our power is supplied by local utilities from renewable sources, mostly hydro. So our energy costs are very stable.

Now we have seen some labor costs and turnover pressure as most businesses are experiencing. And at Greens Creek with our fly in, fly out and almost fully vaccinated workforce being able really to work from just about anywhere, we had higher-than-normal turnover in certain job classifications in the last quarter. And it also takes longer to replace those employees with newly, fully vaccinated employees.

So this is what we saw at Greens Creek this quarter. We had higher-than-normal turnover, which caused us to change the mining sequence and mine tons that were closer to the portal, which also tended to be lower grade.

Thus, while we were able to produce the tonnage, the number of ounces were lower as a result. We've made changes to the crew schedule, and we continue to recruit to ensure full staffing, and we see this as a temporary issue, which doesn't impact the long-term value of production of the world-class Greens Creek mine. We have, however, lowered our short-term production guidance at Greens Creek due to the lower quarterly production, and we'll speak more about this later in the presentation.

With that, I want to turn it over to Russell.

[Russell Lawlar, SVP, CFO]

Thanks, Phil. Turning to Slide 6. During the quarter, silver contributed 30% of the company's revenue, while gold contributed 46%. The lower contribution of silver is due to the price of silver having decreased somewhat during the quarter compared to gold holding steady, and the production at Greens Creek, as Phil has already discussed.

During the quarter, our revenue continued to be driven by Greens Creek and Casa Berardi. However, we continue to see long-term growth and operational improvement at Lucky Friday. We continue to see strong margins in both our silver assets where the margin was more than $11 per ounce and in the gold assets where the margin was more than $300 per ounce. This means the property has generated more than $45 million of free cash flow.

Turning to Slide 7. We continue to add to our balance sheet through cash flow from our operations with our net cash balance increasing roughly $10 million. Keep in mind, this is after the largest exploration spend in the company's history, the semiannual interest payment on our long-term debt.

And during the quarter, we had some other smaller working capital adjustments such as: the settlement of a lawsuit related to a 1989 arrangement; purchase of land at the Lucky Friday, which sets us up for tailings expansion for decades into the future; and the purchase of carbon credits.

Our leverage profile has remained similar to that of last quarter at 1.2x and is the lowest since we first issued the long-term bonds in 2013. We continue to see strong margins in our silver assets, which have driven our free cash flow generation over 8 of the last 9 quarters.

The strength of these assets allows us to not only return significant amounts of capital to our shareholders in the way of dividends, in fact, it's been 20% of our free cash flow in 2021, and we've been paying dividends for a decade now, but also to enhance the dividend to our shareholders by lowering the silver linked threshold to $20 per ounce of silver during the quarter.

With that, I'll pass the call to Lauren to go through our operations.

[Lauren Roberts, SVP, COO]

Thanks, Russell. I'll start on Slide 9. We produced 1.8 million ounces of silver and 9,700 ounces of gold at the Greens Creek mine in Q3 at an all-in sustaining cost of $5.94 per ounce of silver. As Phil described, production was lower because of challenges in sustaining full mining crews. The mining sequence was adjusted to make the best use of the available working shifts, and this had us focus on zones near to the portal, but with lower silver grade. Despite this lower grade, the mine generated strong free cash flow of $34.4 million during the quarter, and it's really a testament to the quality of this asset.

Mining resumed in the deeper reaches of the mine in October and the silver grades are rebounding. In the past 6 quarters, Greens Creek generated $290 million of free cash flow. To reflect the lower third quarter production, we are lowering silver production guidance to 9.2 million ounces to 9.5 million ounces from the 9.5 million ounces to 10 million ounces. Gold production guidance is unchanged. Silver cash cost is maintained at a negative $1 to positive $1 per ounce and silver all-in sustaining cost guidance is maintained at $3.25 to $4 per ounce.

Moving to Slide 10. The Lucky Friday mine produced almost 832,000 ounces of silver and generated positive free cash flow of $7.5 million in the quarter. Year-to-date, the mine generated $26 million in free cash flow and remains on track to achieve production and cost guidance.

We are very excited about the UCB mining method, which is showing significant improvements in managing seismicity, a key operating parameter for us. Think of UCB as a short longhole stope with no undercut that has found down dip under engineered fill. The method keeps the minor within a destressed horizon with work area dimensions that are readily rock bolted.

In the third quarter, 87% of the tons mined came from the UCB method. As we continue to refine it, we are looking for opportunities to improve productivity as well. With the success we are seeing from the UCB, we plan to deploy the Remote Vein Miner at another Hecla operation.

On Slide 11, the Casa Berardi mine achieved record quarterly throughput of approximately 400,000 tons milled this quarter, the highest in the mine's history. Our mill optimization investments continued to deliver results with consistent plant availability, higher mill throughput and improved metal recovery. In the third quarter, the mine produced 29,700 ounces of gold at an all-in sustaining cost of $1,476 per ounce.

While production and throughput are strong, we are seeing higher costs related to the increased volume processed, mill contractor costs associated with the improvement activities and higher underground mobile maintenance costs. We are increasing our production guidance to 130,000 to 135,000 ounces of gold for the year. Cash cost guidance is maintained at $1,000 to $1,125 per ounce of gold. Our sustaining capital spend was higher than anticipated due to several factors, including accelerating the acquisition of 2 pieces of underground mobile equipment, which were planned for next year.

We are increasing the all-in sustaining cash cost guidance to $1,350 to $1,400 per ounce. We remain focused on reducing and optimizing costs at the mine following the impressive results from our mill improvement program. Casa Berardi generated $73 million in free cash flow in the past 6 quarters, and we're looking forward to extending this trend.

With that, I would like to return the call to Phil.

[Phil Baker, President, CEO]

Thanks, Lauren. So Slide 13 shows our consolidated production guidance for 2021 to 2023. And we've tweaked it slightly with an increase in gold production and a decrease in silver for the year, but no changes for the future years. And I want to remind everyone that all of our silver is mined in the United States, representing about 40% of the silver mined here. and it makes Hecla the U.S.'s largest producer.

Now silver cost guidance and gold cash guidance are reaffirmed. The gold AISC guidance has increased because of advancing the purchase of some of the equipment, as Lauren described, and because also of the strengthening of the Canadian dollar. Unlike our cash costs, where 72% of our direct production costs are hedged at an average rate of $1.33, our sustaining capital is unhedged.

So we had the impact of the change in the currency. We might change this in the future. We might hedge the sustaining capital. Now if you go to the bottom of the slide, you can see capital expenditures, exploration and predevelopment cost guidance is unchanged.

Now before I take questions, I want to close with a comment about ESG. The way we have approached ESG is to make a real difference in our environment, for our employees and the communities that we operate in and for our shareholders, and first, for the environment. I'm really proud of the fact that we probably have the lowest absolute emission per dollar of revenue of any mining company and the fact that we are net zero today for Scope 1 and 2.

For employees, I'm proud of the way we treat our employees. They not only have a living wage, but are generally the highest paid workers in the communities that they live in. And for the U.S. employees, they have benefits that are really best-in-class as far as health care and pension benefits. We have both the traditional pension and A 401(k).

In the communities that we operate in, we've been operating there for almost 2 full generations in the case of Lucky Friday in almost 4 and are the largest private employer in those communities. So the communities and the mines have a real active engagement because they're largely part of the mine.

And finally, Hecla has about 80,000 shareholders. About half of these are institutions, half are individuals. And I think Hecla's Board governs the business thinking about how to align management to the interest of shareholders, and I think they do a very good job of that.

One other thing I'll mention before taking questions is I want to remind you that we give everyone the opportunity to have a one-on-one conversation with us. On Page 8 of the release, you'll see a link that will allow you to sign up for one-on-ones on 1 of the 4 tracks that we have. So a track for exploration, operations, general and ESG. So I just would encourage you to take advantage of this opportunity, and it's open to anyone.

And with that, operator, happy to take questions.

[Operator]

[Operator Instructions] And your first question comes from the line of Heiko Ihle from H.C. Wainwright.

[Heiko Ihle, H.C. Wainwright]

You spent almost $14 million on exploration in the quarter. You said that at least part of that is related to less COVID limitations, which makes perfect sense. But I mean you still increased expenditures by about 50% since Q2. I just went through your September 14 exploration release again and there you were stating that you were planning on replacing your reserves by the end of the year. That all said, walk me through your plans for 2022. And while you likely can't give me actual numbers, just sort of philosophically maybe walk me through your thoughts of exploration expenditures over the next several quarters, ideally by quarter, if you can?

[Phil Baker, President, CEO]

Well, Heiko, as you realized, we’re still in the budgeting process for the coming year. So I don’t have -- I’m not going to be able to give you quarterly information. But what I can suggest to you is that we’ll have a level of expenditure that will be similar to this year. And the reason for that is we see huge opportunities at really each of our operating properties and then we have a suite of almost 10 other properties that we see the need to explore because of the potential that they have to create real value for shareholders.

And it just sort of applies across the board. So I’m not going to really go through any particular property. But it is -- in the time I’ve been at Hecla, I’ve not seen us have this inventory of exploration opportunities. Having said that, we are judicious on the use of this capital. It’s hard to come by. We have lots of competing interests for the capital, both exploration and operations-wise and acquiring additional assets. So it is a competitive process for the use of it.

[Heiko Ihle, H.C. Wainwright]

That’s a good answer, more or less what I was looking for. Building -- by the way, just to clarify, you’re saying the same as this year, not the same as this quarter, correct?

[Phil Baker, President, CEO]

Correct. I mean, I would anticipate you -- our guidance is right at $40 million. I would expect us to be something similar to that in 2022. And it's -- we have the capability to do it, and we have the opportunity.

[Heiko Ihle, H.C. Wainwright]

Makes sense. Okay. And then just one quick clarification. I've asked something somewhat similar a few quarters ago, but the numbers are just even more extreme now. You have essentially the equivalent of a quarter sales and cash on the balance sheet. You have more than twice of that in available liquidity. And I guess where I'm going with this is, when is enough, enough?

[Phil Baker, President, CEO]

Look, Heiko, if you look at us historically, we have viewed the need to have the balance sheet be relatively conservative. So levels of cash on the balance sheet of a couple of hundred million dollars or more is something that we will likely have is, will we have doubled that? Probably not. We probably will -- we have enough opportunities of where to deploy the capital that it won’t grow to that sort of level. But you conceivably could. If you look at the strength of these operations and if you have the right metals price.

[Operator]

Your next question comes from the line of Lucas Pipes from B. Riley Securities.

[Lucas Pipes, B. Riley Securities]

Phil, relative to my expectations for Q3, Greens Creek was a little weaker. And I just wondered are you able to provide a bit more color what happened? Maybe it was just my estimate that was too aggressive. But what’s your take on Greens Creek and the outlook for Q4 and next year?

[Phil Baker, President, CEO]

Sure, Lucas. As we’ve tried to indicate, the -- what we had was a shortfall in the number of workers as a result -- and it’s really as a result of really the quality of these guys and their ability to move to different positions with different entities. It’s a fly-in, fly-out operation for the most part for at least a large portion of the workforce. And so we had people that left and we hadn’t had the opportunity to replace them. We have now done that through 2 ways. One is recruiting more people, but we’ve also changed the schedule. And so you’ll see things go back pretty much to normal.

But I think it’s going to be an ongoing challenge that we and everyone has. I mean it’s just a fact in every business there seems to be a shortage of people, and we’re quite competitive, and we have a great operation. We have a great culture there where people want to come to the mine. And so I don’t think we’ll have any long-term issues. Lauren, anything you want to add to that?

[Lauren Roberts, SVP, COO]

Phil, I’d just reiterate that we’re all enjoying the mining sectors. We’re all enjoying elevated metal prices. And skilled trades, skilled miners are in high demand, and we should expect some turnover as a result, but I think it will be manageable for us.

[Lucas Pipes, B. Riley Securities]

And to follow up on this. Is the competition coming from within the mining sector? Or is it the broader economy where electricians can find a lot of work in other industry because --

[Phil Baker, President, CEO]

It depends on the skill set that the person has. Certainly, for miners, it’s within. For electricians, for mechanics, it’s both within and without.

[Lucas Pipes, B. Riley Securities]

And when it comes to retaining skilled labor, I assume labor rates will go up. And as we look out to 2022, is there ballpark kind of cost inflation figure that we should be penciling in to account for this?

[Phil Baker, President, CEO]

I think there’s some increase that you’ll see, but it is -- frankly, when you think about the fact that we spend in aggregate about $0.5 billion, I mean a little more than that, it’s really quite small, the impact that the -- that, that will have on our cash flow. Lauren, anything to add?

[Lauren Roberts, SVP, COO]

I don’t think we should anticipate across-the-board increases. We’re being very focused on staying competitive in certain areas. So that helps to mitigate the cost exposure.

[Phil Baker, President, CEO]

The other thing is I think we just have a compensation structure that’s quite competitive, and there’s a fair amount of pay that people get that is based on performance and the mine has had very good performance, Greens Creek in particular, but we see that happening with Casa with the improvements that we’ve made, at the Lucky Friday with the new mining method. And as a result, there is more -- as these mines are more productive, there is more opportunity for this incentive pay to pay out.

[Lucas Pipes, B. Riley Securities]

Very helpful. Thank you for that discussion. So switching topics. There’ve been a couple of headlines regarding smelter curtailments on the back of high energy prices. And I wondered, are you seeing that impact you? If so, where would this be showing up operationally and ultimately, maybe in the numbers? Would be keen to hear your perspective on this.

[Phil Baker, President, CEO]

I guess the first thing I’d say is that we have frame contracts for our concentrates. So we don’t have a concern for not having a home for the concentrates, which could be a concern. We have a small amount that we sell spot and -- but it’s very desirable concentrate. So no concern there. I think, long term, it’s probably -- it’s hard to say what the balance is. But long term, it’s a net benefit for us to have this sort of consistent production that we have in these contracts. Russell, anything you want to add?

[Lauren Roberts, SVP, COO]

Just to confirm kind of what Phil has already said. We have long-term customers that we’ve been dealing with for many, many years. And as a result of that, we haven’t really seen any change in or risk of us not being able to sell our concentrate as a result of the increase in power costs. What we did see, obviously, was the change in the prices of the underlying metals, which certainly was beneficial to us, but we didn’t see the other side of that being the risk of lack of a place to send the concentrate.

[Phil Baker, President, CEO]

And the other thing to remember, Lucas, is that we sell all of our concentrates into Asia or North America.

[Lucas Pipes, B. Riley Securities]

Got it. Got it. Very helpful. Maybe one follow-up on this. In the industry, what’s the take on this issue? Is it viewed as a kind of temporary, energy crunch or folks maybe positioning themselves structurally to take into account of maybe less certain offtake environment?

[Phil Baker, President, CEO]

Yes. We were at the Virtual AISC Conference in talking to our customers and some of whom have these operations that were shut down, and that was the question we were asking them. And it’s -- fundamentally, it becomes a question of how Europe deals with getting the energy cost down. And it sure seems that they will have to do that. It’s -- the impact of having such high energy cost is so difficult for that -- ultimately for that economy that I think it will eventually reverse. But there’s a lot of politics that come into play as well.

[Lucas Pipes, B. Riley Securities]

Got it. One last question for me, Phil. Just from Lucky Friday, I wanted to circle back on the seismicity and not just -- wanted to get your take. This has obviously been something you’ve been talking about for some time, and it sounds very encouraging, but I just thought if you were able to elaborate on your prior comments and in your outlook on Lucky Friday with controlling the seismicity going forward?

[Phil Baker, President, CEO]

Sure. So absolutely, the Lucky Friday’s biggest impediment to production is seismicity. Roughly 20% of the stope’s available time is not available because we’re having to manage seismicity. And so with this new mining method, we think we can change that number dramatically. Most important point is we’re not going to have workers that are in these headings that have the potential for a seismic event or at least the same level of potential for a seismic event. And so we’re very, very encouraged by the safety improvements, substantial improvement in the safety of the mine, particularly of a catastrophic safety event. So that’s number one.

And then as we fine-tune this and fine-tune is maybe too strong of a description of where we are at this point. But as we improve it, we think there’s the potential for maybe productivity improvements. Lauren, what would you like to add?

[Lauren Roberts, SVP, COO]

I’d just reiterate that being able to utilize the headings more than 80% of the time is a clear and obvious benefit in addition to the safety. And as we become more efficient with the method, we may be able to improve the productivity. So I think the 3 things taken together are very promising.

[Phil Baker, President, CEO]

And you look at the Lucky Friday and with the reserve and the resource that it has and the exploration potential that it has both down dip and on strike, you -- and within sort of a 2- or 3-mile range around this infrastructure, the potential, this has -- being able to manage the seismicity has a huge, huge value benefit for the mine in the company.

[Lucas Pipes, B. Riley Securities]

And then a quick follow-up on this. When it comes to the new mining technique, kind of what do you benchmark against? And then are you developing this expertise mostly in-house? Or do you have consultants that you brought in who are helping you on that learning curve?

[Phil Baker, President, CEO]

Well, look, sort of the way this became apparent to us was as we were trying to advance the RVM and try to make the -- reduce the seismicity associated with this, we came to the conclusion that we could test this and potentially have this UCB method be an alternative or in addition to, and we’ve decided that it’s an alternative to the RVM. And we have had some assistance in some areas. But for the most part, it’s been homegrown. And I wouldn’t say most part, it’s 95% homegrown.

Certainly, there’s elements of drilling and blasting that we’ve brought people in, the contractors that have helped us with that. But I’m very optimistic that Lauren and his team and with help from others that we’re going to really advance this. And realize this is a patented mining method. We are -- it’s patent pending, but we have applied for that because it is quite unique what we’re doing. Lauren?

[Lauren Roberts, SVP, COO]

No, I think the only thing I would follow up with Phil in answer to Lucas’ question about benchmarking, I think really the only thing you can benchmark the new method against is the previous method at the Lucky Friday because the Lucky Friday really is a unique setting from a geotechnical perspective. So to benchmark this against other mining methods, I think, is probably not a very productive exercise. But going forward, we’ll be benchmarking against our ability to produce in that mine from the previous method.

[Phil Baker, President, CEO]

And you can expect, Lucas, over the course of the next sort of 6 months, we will provide quite a bit of detail and insight into how the method works and what the cycle is and how it changes the design of the mine because all of those things are -- have come into play, and all of them are in process. We’re -- we have been in a full on test of this for over a year now or I guess right at a year. And as Lauren said, 87% of the tons have come from this method. So we’re not suggesting something to you that is at great risk. In fact, we’ve really taken the risk out of it over the course of the testing period that we’ve had.

[Lucas Pipes, B. Riley Securities]

Very helpful. Really appreciate all the color. And Phil and team, best of luck.

[Phil Baker, President, CEO]

Okay. Well, thank you, Lucas. We’re excited about it.

[Operator]

Your next question comes from Michael Siperco from RBC Capital Markets.

[Michael Siperco, RBC Capital Markets]

Maybe drilling down a little bit on Greens Creek. Can you talk about how things are looking quarter-to-date? Are you fully staffed at this point? Is throughput looking better? Are you accessing those higher-grade areas? Or is it still too early to provide details beyond what’s implied by the revised guidance?

[Phil Baker, President, CEO]

Short answer to all that is yes. So we’re -- you’ve seen our guidance so you can sort of do the math as to what we would expect the fourth quarter to look like. We fully believe we’ll be in that range. We did change our schedule. The schedule had been in the process of being changed during the course of the quarter. That has, I think, fully implemented now the schedule change, Lauren?

[Lauren Roberts, SVP, COO]

With the crews that we’ve made that transition to, yes.

[Phil Baker, President, CEO]

Yes. So it’s not everyone. Right, right. And then as far as hiring, yes, we have the full contingent. We don’t have budget, but because we always budget more employees than we need. And so we still have more hiring that we’ll be doing. But we don’t see any impediment at this point to reaching the guidance that we’ve provided.

[Michael Siperco, RBC Capital Markets]

So would it be fair to say that October looks better than September, August?

[Phil Baker, President, CEO]

Yes. Yes.

[Michael Siperco, RBC Capital Markets]

Okay. Right. Okay.

[Phil Baker, President, CEO]

So we’re mining it. So the issue was we were not mining in the 200 South. The 200 South is about an hour and 40-minute round trip.

[Lauren Roberts, SVP, COO]

Yes, it’s 45 minutes one way with a loaded truck at the bottom.

[Phil Baker, President, CEO]

Yes. Yes. So we are able to mine there. We have the personnel. We were short 25% of the workforce, the mining workforce, the crews that would be doing this work. So it was a major impediment, and it didn’t become apparent to us until well into the quarter.

[Michael Siperco, RBC Capital Markets]

Right, right. Makes sense. Good to hear that’s getting better. And then maybe following up on the last question or part of the last question. And you touched on it a bit on the call, but I didn’t see the word inflation in your results. Obviously, that’s been an ongoing theme for most of your peers. You benefit somewhat from not having a big CapEx spend ahead of you, obviously. But can you talk about what you’re seeing at the mine level on the cost side in terms of labor, materials or any other impacts that you might be getting visibility on or that we might need to watch into 2022?

[Phil Baker, President, CEO]

So the short answer, Michael, is that about 50% of our costs are labor, about 10% energy and nothing else is double digit. So as I said, the energy costs are stable. The labor costs, we would anticipate inflation in certain categories of labor, but not across the board. And then with respect to everything else, yes, there’s going to be a little bit of inflation. But it’s not the same sort of impact for us that you have for these larger economies of scale type operations.

Remember, these mines, Casa is 4,500 ounces a day, 2,000 tons a day; 2,200 tons a day at Greens Creek; 1,000 tons a day at Lucky Friday. Really, really small operations. So the inflationary pressure is really more on the labor side. And I think that will be largely a trailing factor compared to the other consumables. Lauren, anything to add?

[Lauren Roberts, SVP, COO]

No I think, it -- for us, it’s -- our energy is essentially a fixed cost because of the hydro power. Labor, we’ll see some variation in some categories. And then it’s kind of a mixed bag. Like, we’ve been working to renegotiate contracts. And in many cases, we’ve driven our consumable costs down. But in some areas, they go up. Steel is up. Cement is up.

[Phil Baker, President, CEO]

Right. And you think about contractors, cost of contractors has absolutely increased.

[Lauren Roberts, SVP, COO]

Because of the good performance of the sector and there is a lot of work.

[Phil Baker, President, CEO]

And if you think of drilling, and it’s the same thing in assay. So there’s no doubt, Michael, there’s cost pressure, but it’s -- on a relative basis, it’s muted for us.

[Michael Siperco, RBC Capital Markets]

And that actually -- that last point was going to be my follow-up on the exploration side in terms of your program for this year and especially into next year realizing that you’re budgeting and can’t get specific. But are you seeing impacts in terms of rig availability, contract availability and, I guess, those cost pressures as well?

[Phil Baker, President, CEO]

So the good news is with the -- given that the 2 programs are relatively the -- will be the same. Most of those rigs that we had in this year, we will have next year. Is there increased cost pressure? Absolutely. So we won’t get as much footage. But that also becomes a design issue of how long of holes will we do. So we’re trying to manage that. I think we’ll still get very good results even with the cost being higher.

[Michael Siperco, RBC Capital Markets]

Got it. Makes sense. And then maybe finally for me. In terms of Rock Creek and Montanore, I know you’ve stated that you’d provide next steps early next year. I don’t mean to jump the gun here, but can you maybe walk us through at a high level what that process is from here? And how we should think about how they slot into the portfolio from your perspective?

[Phil Baker, President, CEO]

Sure. I don’t think anything has dramatically changed in that we still think that Rock Creek and Montanore are in production end of this decade, early the next decade. So we had taken into account the fact that you -- it’s a legal process, not a regulatory process that we’re really in. And so you have to react to the decisions that the judge makes. And earlier this year, the judge made a decision that remanded -- or set aside the record of decision biological opinion on Rock Creek.

So that’s one project. Montanore is a separate project. And what we have done -- what we are in the process of doing is evaluating how to advance Montanore and Rock Creek, but particularly Montanore because it’s really the next one up, so that we satisfy the decision that the judge -- and it’s the same judge that the judge made on Rock Creek. And so we’re working through that. And that’s really all I can say at this point.

[Operator]

And we have a follow-up question from Lucas Pipes from B. Riley Securities.

[Lucas Pipes, B. Riley Securities]

My follow-up question on Rock Creek and Montanore was just asked. But since I’m on the line, so I’ll ask you a high-level question. So it’s macro related. But gold price is hanging in there despite, in my opinion, really high inflation readings, but they’re not breaking out. And I wondered kind of how do you look at the investor backdrop. Are there discussions about how to engage with investors in this environment? It seems to me like there’s a disconnect between what I’m seeing on the macro side and how the group is trading. So I would appreciate your thoughts on that.

[Phil Baker, President, CEO]

Sure. Well, I guess the first thing I’ll say is that the equity investor is a price follower of the commodity. And so the ability to see for the equity investor to have an impact on the general view of gold is limited. Certainly, sometimes you’ll see the equities outrun the commodity, but we’re not seeing that at this point. I think there is -- as I talk to investors, there’s a general view that’s similar to yours, but there just has to be more of a generalist interest in the commodity itself. And that it hasn’t come yet. I think it will come. There’s -- everything that you’re saying about inflation is absolutely true, and you start to look at where real rates are given that inflationary level, and there really should be quite an interest in precious metals. I don’t know, Russell, if you have anything to add to that.

[Lauren Roberts, SVP, COO]

The only thing I would add is, certainly, gold, I think it’s got a lot of things in the macroeconomic environment to support it. Silver on the other side of that, which obviously being the largest silver producer in the U.S., we’re highly leveraged to silver. And we see that really being supported similar to gold, but then you also get the industrial demand as well. So from the perspective of our portfolio, certainly, we take a look at that and we take a look at the -- what’s going on in the macroeconomic environment, we feel quite good about the outlook.

[Phil Baker, President, CEO]

Yes. So that’s a great point, Russell. You think about silver and you think about this -- you had the Biden administration that said they want half the vehicles to be electric by 2030, and we want to reduce the coal power generation. And those 2 things require -- as well as everything else requires more silver in solar voltaics and wind energy and other things. So the -- in the electric vehicles itself. So you look at the outlook for silver, and it’s not like the demand that we’ve had in the past. It is order of magnitude higher than what we’ve had previously.

And it’s just unlike any time in the history of the model. You can go back to the early 1900s and that was the last time you had a change in technology that caused demand for the metal in the same way that we’re having with this energy change.

[Operator]

[Operator Instructions] And there are no further questions at this time. Presenters, please go ahead.

[Phil Baker, President, CEO]

Okay. All right. Well, thank you very much. I'll just leave you with the -- again, the invitation to take us on one-on-one. There is 4 tracks. You'll find a link on Page 8 of the press release. We encourage you to click on that link and set up a meeting with us. So thanks very much. Have a great day.

[Operator]

Ladies and gentlemen, that concludes Q3 2021 Hecla Mining Company Earnings Conference Call. You may now disconnect. Thank you for your participation.