Nov 5, 2008
Operator
Good day, ladies and gentlemen, and welcome to the Q3 2008, Hecla Mining Earnings Call. My name is Kim, and I will be your coordinator for today.
At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference.
(Operator Instructions) I would now like to turn the presentation over to your host for today's conference, Ms. Vicki Veltkamp, Hecla's Vice President of Investor and Public Relations.
Please proceed ma'am.
Vicki Veltkamp
Thank you all for joining us today. I am Vicki Veltkamp, and this is the Hecla third quarter conference call 2008.
Our call is being web cast live today at www.hecla-mining.com. On our website you can find today's news release.
Today's presentation will be made by Phil Baker, Hecla's President and CEO, and he's joined by Jim Sabala, our Senior Vice President and CFO; Ron Clayton, our Senior Vice President of Operations; and Dean McDonald, our Vice President of Exploration. But before we start, I need to remind you that any forward-looking statements made today by the management team comes under the Private Securities Litigation Reform Act.
It involves a number of risks that could cause actual results to differ from projections. In addition to our filings at the SEC, we are allowed to disclose mineral deposits that we can economically and legally extract or produce.
So investors are cautioned about our use of such terms as measured, indicated, and inferred resources and we urge you to consider those disclosures that are in our SEC filings. Now I'll the turn the call over to Hecla Mining Company's President and Chief Executive Officer, Phil Baker.
Phil Baker
Thanks Vicki. Hello everyone, and thanks for joining the call.
This third quarter is our first full quarter of earnings with Greens Creek, one of the world's greatest silver mines with its low cost and long lived production. I just want to point out what a positive impact Greens Creek is having on Hecla.
This quarter it's provided Hecla with our second largest quarterly silver production in the last 20 years, 88% over last year. Also it has provided the most zinc production we have ever had, and it's gone to our cash flow from operations.
This is our fourth highest in last 20 years. And this is during the period when the mine is not fully optimized.
Of course our acquisition and integration of Greens Creek is happening when we are facing a financial tsunami. First we had the credit crisis, and then we have had an unprecedented decline in the price of metals we produce.
As we have done in the past, we are responding to this extraordinarily challenging time. When the long term debt markets became unavailable, we raised a $163 million in equity.
So during the quarter we used those proceeds to reduce the debt from $360 million to $199, and since the end of the quarter we reduced another $37 million, leaving us today with only about a $161 million outstanding. To repay this debt we're going to consider all our options, but given the improvements of the credit markets and the amount of debt we have compared to the original credit approvals, we certainly will try to restructure the remaining debt.
While metals prices have declined quickly, there has been a delay in cost coming down, so we are proactively working to accelerate cost reduction from suppliers at the mines, and on cost we can immediately control, like capital, exploration, and G&A. Some capitals got hold like the deeper development at the Lucky Friday, and exploration programs are being deferred like at San Juan, where we have negotiated a new earning agreement to give us a longer term to earn in.
With these steps, I expect further cost declines in the fourth quarter. While we are still finalizing our business plan for 2009, I expect capital exploration in G&A to be almost 50% less, that’s $40 million to $50 million lower.
Driving down cost is management’s primary focus. You are going to hear more about cost from Ron, Dean, and Jim as we apply the lessons Hecla has learned in its long history to this tough time.
Let me talk for a moment about metals prices. There is a great deal of short-term uncertainty about the prices of metals we produced.
I believe in the long-term the fundamentals have never been better. Silver, like gold, should eventually perform well as a result of the impact of all the liquidity injection into the economy by the Fed and Treasury, and what we believe will be the ultimate impact on the value of the US dollar.
On the fundamental supply and demand front, the lack of physical inventories for small denominated silver shows the broad based demand for the metal as an investment, and industrial demand for silver over the long-term will not abate, given the unique properties of the metal. The fundamentals for our business are probably the best they’ve ever been.
That the operations we are in the high capital year due to tailings construction programs at both the Lucky Friday and Greens Creek. That’s going to provide capacity at both mines through their projected lives.
If prices stay at these levels annual capital expenditures for the rest of the mine lives will be less than half of our 2008 expenditures. These relatively low capital programs that we will experience in the future are something that’s unique about Hecla.
I only want to make one comment about exploration, but don’t take that as an indication of limited success. We own great districts with great potential, but let me focus on the Lucky Friday, which is experienced extraordinary success with our drilling.
We are not surprised to find more ore. We are surprised by the improvement in the quality of the ore body.
We clearly have not been mining the heart of the ore body for the last ten years. The best is yet to come.
And with that, Jim, let me ask you to talk about the financial results.
Jim Sabala
Thank you, Phil. During the third quarter of 2008 we made significant progress on a number of fronts, despite of extremely challenging metal and financial markets.
In particular, we completed the public offering of 34 million shares, which allowed us to repay 163 million of our $240 million bride loan. The remaining $40 million has been extended to February 2009, subject to the company providing a business plan to the bank group in December.
We completed the integration of the Greens Creek operation in the Hecla Mining Company, and in early October we notified Rio Tinto we would no longer require their services. With the acquisition of Greens Creek, we increased silver production by 88%.
The Company also experienced corresponding increases in lead, zinc, and gold production. On the financial front, sales for the third quarter of 2008 increased by 24.7 million, or 62%, included in the sales is a mark-to-market charge of $11.6 million relative to the difference between provisional metal pricing, impacts and final settlement prices.
During the quarter, we realized silver, gold, zinc, and lead prices of $12.30 per ounce, $848 per ounce, $0.87 per pound, and $0.73 per pound respectively, compared with average spot prices of $15.03, 870, $0.87and $0.80 respectively. Operating cost increased to $43.2 million, which is a result of increased ownership of the Greens Creek mine and a general increase in overall operating costs.
Cash cost per ounce of silver produced is $4.46 for the quarter, compared to a negative $4.93 in the prior year's comparable period. This increase is a result of the overall increase in cash cost, including increases in treatment and freight cost, and a decrease in by product credits during the period.
Most of our other operating expenses were comparable with prior periods; with the exception of exploration which was $5.4 million compared to $4 million in the previous year's quarter, and the provision for closed operations expense was $0.9 million, compared with $2.3 million in last year's comparable quarter. Our interest expense was up, in connection with the financing to acquire the Greens Creek operation, with interest expense for the quarter of $6.8 million compared with $0.1 million in 2007's comparable quarter.
As a result, the Company reports a net loss for the quarter of $3.8 million, and a net loss applicable to common share holders after payment of preferred stock dividends of $7.2 million. We did, however, for the quarter report significant operating cash flow of $19 million, compared to $22.6 million in 2007's comparable quarter.
I'd like to spend just a minute giving you an idea of the impact of changing prices upon Hecla's bottom line, to give you a feel for the sensitivity of our net revenue from the smelters and cash flow to metals prices. Remember I am talking about on an annual basis, not quarterly.
A $0.10 change in the price of zinc changes our net smelter revenue and cash flow by approximately $8.2 million a year. The same $0.10 change in lead price results in $5.7 million per year, and for silver, a $1 change results in $9 million of incremental revenue.
A $10 change in gold price changes the annual cash flow and NNSR by about $540,000. I think this gives you an indication of the magnitude of the change and the tremendous leverage that can occur when metal markets recover.
And with that, I'd like to turn the presentation over Ron Clayton, who will discuss operating matters in further detail. Ron?
Ron Clayton
Thanks, Jim, and good morning. As Phil mentioned earlier, the two largest impacts to our margin somewhere to the entire mining industry have come in the form of prices we received for the metals we produce, and the amount of precious metals we are paid for on our concentrates.
There is not much we can do about the prices, which certainly affected us, so I am going to focus my comments on some of the major components impacting our costs and what we are doing about it. So far this year we've seen higher treatment charges that have increased our cost by a $1.36 per silver ounce produced, increases in concentrate transportation have added an additional $0.20 per ounce.
The good news, on the smelter side, is that the treatment and silver refining terms contain escalators and de-escalators that have softened the impact as the commodity prices have declined. The second major impact is we've also seen from 10% to 30% cost increases for non-diesel fuel consumables, such as steel and cement.
Diesel fuels averaged 155% of what we paid for it a year ago. Again, there is some good news on this horizon.
We are beginning to see some improvement in consumable pricing, and in some cases we have escalators and de-escalators built into our arrangements with our suppliers. From a labor cost standpoint, we've also seen some increases over the last couple of years, but in many cases our compensation programs contain a relatively high percentage of that risk pay which is tied to profitability.
For example, Lucky Friday, a component is tied to both profitability and the silver price. There are some reductions that accrue automatically, when the silver price decreases and costs go up.
It has a negative impact on our employees, which is unfortunate. I hope we were able to successfully return the higher price, higher margin environment, where we can return to sharing profits.
What are we doing to counter the negative impacts of declining metal prices and increases? We have been reviewing and reducing capital programs and side expenditures over the last three months.
All spending at the operations has been reduced to only those expenditures that are necessary to maintain a safe and environmentally sound working environment, and to maintain current production levels or very near-term increases in production. Examples include deep development, and major ventilation improvements of the Lucky Friday have been curtailed.
The essential engineering and construction projects are being managed and conducted by in-house personnel, and non-essential projects have been put on hold. We are reviewing assets of both operations to identify potential sales of equipment not essential to current or immediate future production.
Some equipment will be rebuilt, with newer replacing older equipment. Sustaining capital that is not essential to current or immediate future production has been delayed on both sides.
New hiring at the operations has been confined only to that necessary to maintain production in a safe and environmentally sound manner. We are attempting to increase production without increasing cost of both sides.
Both operations are reviewing cut-off grades to ensure that the maximum possible margins are being achieved without sterilizing significant quantities of economic material. We are working with our customers to identify ways to improve our smelter returns, and we are working with our suppliers to identify ways to accelerate reductions in consumable cost, and have begun to see some small improvements already.
For example, the most recent order of diesel fuel we have got coming is about $0.30 per gallon less than the last order that we placed. We have implemented programs of both operations to more efficiently use power and minimize power cost.
Many of our employees, as well as our customers and suppliers have been through difficult times together before, and while we would like for the economic situation to be better there is not much we can do about the prices of our products. While we are facing difficult challenges, we have the best people in the world when it comes to meeting these challenges.
I appreciate, and am encouraged by, the effort and response we have had from both our employees and suppliers, and we are already seeing results. With that, I'll turn it over to Dean for a discussion on exploration.
Dean McDonald
Thank you, Ron. Exploration at Hecla has been advancing on a number of fronts - from near mine exploration at key operating properties to exploration initiatives that are more regional in scope; however, due to market conditions, Hecla has a planned reduction in exploration spending to about $3.5 million in the fourth quarter, with programs focusing on core targets at the Lucky Friday, Greens Creek, and the San Juan joint venture.
Drilling at the Lucky Friday mine focused on the east and central part of the resource to the 7100 level, and confirmed veins are coalescing into larger, higher-grade veins at depth. These drilling intersections are some of the most impressive in the history of drilling at the Lucky Friday, and represent an even better ore body below the current Lucky Friday mine workings.
As well, deep drilling below 7500 level continues to extend high-grade resources to the east. Not mentioned in the press release are the encouraging drill results to the east, both above and below to 5900 level, that suggests further additions to the resource near current mine workings.
Drilling around the eastern extension of the 6700 level has defined discreet mineral pods beyond the reported resource boundary that could also represent future mineable areas. This has been a banner [deep] quarter for exploration at the Lucky Friday.
Seven deep holes into the 2500 foot gap zone above the Lucky Friday extension defined a huge envelope of continuous mineralization, with zones of high grade silver. All of these holes intersected multiple veins upto 3.5 feet wide and ranging in grades up to 21 ounces per ton, silver plus base metals.
This drilling shows strongly developed mineralized structures exist throughout much of the gap area, and appear to coincide with the resource trend below 40-50 level. It clearly demonstrates potential for resource extensions in up to eight veins, well above the current resource.
Future drilling will build around larger high grade veins to the east and in the lower part of the gap area. Drilling on surface of Greens Creek targeted the extension of the mine contact rocks into an area northeast of the current mine workings.
The drilling successfully defined the mine contact and mineralization events that can be correlated for over 1500 feet. The mineralization is stronger towards the southwest and may indicate we are vectoring into a new zone.
Drilling of the East Ridge target, which is eight miles north of the mine, confirms the presence of the altered mine contact rocks and sulphides, and represents one of many new targets being defined on the expanded 29 square mile property at Greens Creek. Later in the quarter, drilling shifted from surface back to underground, where high grade extensions to the Gallagher and 9A zones were defined and will add to the resources.
In Mexico, we continue to be impressed with the exploration potential at the 511 square mile San Sebastian property. Positive drilling results at the La Roca district have shown that the district toes the potential ore grade gold and silver mineralization within multiple meter wide veins.
Northeast of La Roca, the Penascote and Fernanda Guadalupe vein systems were recently discovered on surface. Both target areas consist of multiple silver bearing vein structures that coincide with some of the strongest and largest geochem anomalies ever identified in the district.
For what may have been considered as somewhat mature exploration property, we continue to identify exciting new prospects at the San Sebastian project. As mentioned in the press release, we are reducing our exploration activity in Mexico, but will continue to advance the new target areas with systematic low cost activities that will refine the future drill targeting.
At the San Juan Silver Joint Venture in Colorado, the two drills focusing on exploring the northern extension of the Bulldog vein system will be stopping due to the encroaching snow. Early stage drilling is showing that some of the high grade veins that are characteristic of the mining camp.
Work is advancing on the Bulldog mine 3D resource model, which is based on underground production samples and drilling. This digitally recorded data will result in a new resource estimate at San Juan by year's end.
As mentioned in the release the earnings, the San Juan agreement has been extended to give us more flexibility in our timing on exploration. With the extension, we don't expect to drill in 2009 unless metal prices have improved dramatically.
That is the summary of exploration this quarter and I'll pass you back to Phil.
Phil Baker
Thank you Ron, we’ll take questions.
Vicki Veltkamp
Operator, could you give the instructions for the question-and-answer period now, please.
Operator
(Operator Instructions). Your first question comes from the line of [Anthony Sorrentino of Sorrentino Metals].
Please proceed.
Anthony Sorrentino
Hello, everyone.
Phil Baker
Hi, Anthony.
Anthony Sorrentino
What are the payment obligations of the credit facility as currently structured?
Phil Baker
We have amortization scheduled under the term facility at $18 million at the end of the fourth quarter and then roughly $40 million for each of the next two years with $11 million for first quarter of 2011. Also we have a bridge payment that is due in the first quarter of next year.
So, when we think about a long lived asset, that’s one of the things we’re going have to end up doing; extending the terming the facility.
Anthony Sorrentino
Right, would you consider the sale of assets to reduce that?
Phil Baker
We’re willing to consider all options Anthony and nothing is off the table.
Anthony Sorrentino
Alright, what is capital spending been cut to for the fourth quarter and all of 2008?
Phil Bake
Capital spending in the fourth quarter is roughly about $18 million. We might see a bit of savings from that.
So, it's down from the third quarter, but we're in the midst of finishing some programs, and it didn’t make sense not to complete them. The total for the year will be about $73 million.
For next year I would anticipate somewhere around half of that.
Anthony Sorrentino
Okay. One final question.
If metals prices remain where they are today, would you be required to take an impairment charge against any of your assets?
Phil Baker
I'll let Jim answer that question and we certainly just filed our 10-Q and we've done that analysis and we did not have an impairment, but I'll let him talk about the future.
Jim Sabala
Sure. I'll talk a little bit about the process of impairment.
As I think everyone is aware, impairment is measured based on a long-term forecast. So, you literally have to take your business plan, put it out 10 to 15 years and your biggest risk factor when you do that is what the metals price is.
So, usually the methodology is a Safe Harbor that the SEC has adopted, of three-year trailing prices plus looking at forward curve prices and when we do all of that at this time, we do not see an impairment. However, if metals prices were to deteriorate significantly, we would indicate that there is fundamental shift in the market we would have to evaluate it again.
But, based on the history of metals prices, and what we expect, we do not see an impairment at this time.
Anthony Sorrentino
Okay. Thank you very much and good luck.
Phil Baker
Thank you, Anthony
Operator
Your next question comes from the line of Borden Putnam of Eastbourne Capital. Please proceed.
Borden Putnam
Good morning.
Phil Baker
Hi, Borden.
Borden Putnam
Please indulge me; my computer is giving me fits today. There are spread sheets I need to access to be able to put a question together; if I fail in the middle of this, I apologize ahead of time.
Ron, first question to you. I was looking for some increase in mining cost at Greens Creek.
However, I was hoping that some of that might be offset by materials increases. Some of that might be offset with the benefit of the longhole stoping and I didn't see a lot of that come down.
I did see a decline in grade as I might have expected. Can you flush that out a little bit for us and explain how that's going, and also what proportion of ore that comes from the mine comes from the longhole stoping.
Ron Clayton
Okay. In terms of the longhole stoping, Borden, it's not come up quite as fast as we had been hoping for.
But, I think you're going to see a little bit of a difference in the fourth quarter, and then little more in the first quarter and I know you're going to see it, because I am already seeing it up here; that's part of what's impacting it. In terms of the percentage, I think we're looking at about 60% right now, coming from longhole stoping; it may even be a tad higher than that.
It's going to go up a little bit more, particularly if we can get up and consistently stay at the 2,100 tons a day, the goal we are shooting for. In terms of the cost, the third quarter probably saw the highest diesel fuel cost that we've seen.
Borden Putnam
Okay.
Ron Clayton
That's a huge impact upwards. It's tremendous.
On the other hand, we were on line power for the better part of September and we're still on it in October or all the way through October and actually I think we are still on line right now, which was than we were expecting. So I am hoping that that has a pretty good impact.
And as I mentioned, we're seeing diesel fuel prices that already coming off about 30%. So I think we're going to see some improvements in the fourth quarter.
Borden Putnam
Okay, I appreciate that. You may not be able to answer this with any certainty or fall into guidance you don’t want to give.
What do you expect the head grade to look like when you are at 60% of material to the mill from the mine? So, I mean we are at silver grade of what, 13.32 right now.
Ron Clayton
With the mix that we're planning, I am not expecting much of a change in head grade from what you're seeing right now.
Borden Putnam
But the benefit is cost savings, right?
Ron Clayton
Yes. Again, a lot of that is going to be driven by three things.
One is the price of diesel, hopefully some declining consumable costs and how much power we can get. We are not planning on getting any power from line power until late in the fourth quarter of 2009.
If we get more than that, it’ll be a huge difference. Our fixed diesel cost price could be as much as $1 million a month.
Borden Putnam
Okay. While I still got you Ron, maybe an unfair question, since the feasibility study has been deferred for the present time.
At Lucky Friday are you looking at redirecting the attentions to facilitating or removal from the mine? Some of the things you had not talked about in the past.
So you remove exhaust to get electric trains, is there any of that work that can be done in this period that’s inexpensive and might advantage the cost structure at Lucky Friday?
Ron Clayton
When I was talking about some of the engineering programs that we're going to continue to do in-house, I pointed at some of those kinds of things.
Borden Putnam
Okay.
Ron Clayton
Unfortunately, we’re still not seeing anybody out there that’s doing anything with small underground gear in the electric range, but we’re looking at a bunch of different ways to try to get the heat and exhaust issues dealt with. Any little thing we can do as well as a way to try to figure out how to do some very big things in a more efficient way.
Borden Putnam
Okay.
Ron Clayton
I have some people who are focused on that, but we’re going to be doing exactly what you’re talking about.
Borden Putnam
Okay, great. I appreciate that and I look forward to the reports of that.
If I can go to Dean: are you still on the call Dean?
Dean McDonald
I am.
Borden Putnam
Thanks very much. Those were interesting results you talked about, at Lucky Friday in particular.
The wording of the press release confused me a little. These isolator intercepts not isolated, the ones that you’ve broken out of a bullet points.
Those are down to the 7,100 level; is it possible as I understand you? Can you give us a better understanding where these occur with respect to?
Also, I have lost the present tag, with the GAAP. I guess these are not in the GAAP area.
These are below the area of present mining?
Dean McDonald
Yes. That’s right.
The GAAP area is above 40, 50, which is the upper extent of our resource. The intersections that are described in the press release are at 7,100 level they are in the central to eastern part of the resource in that area.
So, a lot of this represents still fairly wide space to infill drilling in that part of the deposit.
Borden Putnam
So, all of these placements are at the 7,100 level?
Dean McDonald
In and around the 7,100, yes.
Phil Baker
Can I add a little bit to that, Dean?
Dean McDonald
Yes.
Phil Baker
Basically, these intercepts range from 6,200 all the way down to 7, or even about 7,800. To put it all in perspective to what Dean said, they are fairly wide spaced drillings, there is more drilling in that zone in terms of a density of drill piercements then there was when we had at 59.
Borden Putnam
Okay.
Phil Baker
But, this is a pretty positive thing. I can't give you the numbers, but to put it in perspective, if you take out blocks, 62 to 65, 65 to 68, and 68 to say 71, each of those zones is seeing some pretty significant increases in silver ounces per vertical foot, lead and zinc pounds per vertical foot, with the 65 to 68 being significantly higher.
All three of those zones are significantly higher in those statistics. So, it's a combination of width and grade that’s improving.
The only reason I stop at 71, is that the data diminishes a little bit down there.
Borden Putnam
Okay. This is for either one of you.
Are the veins coalescing in these zones or are there additional veins, or are they just higher grade? Help us understand what their character is.
Phil Baker
Yes.
Borden Putnam
Oh really.
Phil Baker
The veins tend to be, particularly 20, 30, and 40 tend to be coalescing along longer strike length than we're seeing them right now, and there maybe, we're not sure yet, there maybe overall less total veins down there, but more metal in the veins.
Borden Putnam
Okay, interesting implications for mining methods.
Phil Baker
Yes.
Borden Putnam
The net explains why there was the intercept that was at the 7,500 level. I wasn’t clear why that depth was being probed at this time, but that’s reason to leave that question off my list.
A question for Jim. Phil talked about a little bit but the maturity date on the bridge loan has been extended to when, and what is the cost of the cost of capital on it?
Jim Sabala
Well, the bridge loan has been extended to approximately mid February with the requirement that I indicated in my comments that we provide a revised business plan to the banks, and then by roughly mid December, they'll evaluate that business plan and we'll work towards doing any restructuring necessary on the credit agreement. The bridge itself has an interest rate of LIBOR plus 600 basis points.
Borden Putnam
Okay. What would they be looking for in the business plan, Jim?
Are they going to look for cash flow coverage, the normal metrics, or is there anything that you can…
Jim Sabala
It would be the normal metrics, Borden.
Borden Putnam
Okay. The last point: incidentally, I apologize for not bringing this up last quarter.
Looking through the financials this time, I was reminded of this and it is on the cash flow statement. It was a new line item about inventory on the cash flow statement.
Let me use your wording to describe it. It's called inventory purchase price allocation adjustment.
What is this?
Jim Sabala
Sure, Borden, what that describes was in connection with the acquisition of Greens Creek. We had to apply a purchase price accounting to all categories of the balance sheet to allocate the purchase price.
And that $18 million in particular was the write up of the inventory from its historical cost basis to a fair market value on the data purchase.
Borden Putnam
Okay.
Jim Sabala
So we had the pleasure of taking silver that cost us sub $3 and writing it up to at that time probably $14. That was a one shot deal.
It's described more fully both in our MD&A and our10-Q for the last quarter and also in our press release but you won't be seeing that again.
Borden Putnam
Okay, I appreciate your referring me to the Q, I did not see that before and I'll look at it. Now is there a risk that it would go against us, I guess that’s not because it's allocated with the one.
Jim Sabala
It's gone, it’s a value that existed at the end of the second quarter, and it has been flushed through the P&L now.
Borden Putnam
So it's not a mark-to-market sort of a thing.
Jim Sabala
No, not at all. It's just that one shot purchase price allocation.
It's gone forever.
Borden Putnam
Very good Excellent. Thanks you.
Phil Baker
Thanks, Borden.
Operator
Your next question comes from the line of [John Tomaso of John Tomaso Independent]. Please proceed.
Phil Baker
Hi, John.
Unidentified Analyst
Borden asked a few of my questions, better than I could have. The volatility in the markets is a rough break after making the big and good purchase that you made and one of the terrible ironies of the business is that if you right size to one environment, the next thing you know the business climate is different, maybe for the better.
Are there any tactics like ore grade which you discussed adequately with Borden, that might provide a six months or 12 months fix or short-term tactics that might pay down a few extra tens of million of dollars and hopefully, the crisis will be over by the time you've made a change. You are not only Hecla exploration projects that are really good projects with a good staff.
Ron Clayton
Well, let me say that with respect to exploration, we’re fortunate that we have all of the ground that we’re exploring on and with the change that we made in the San Juan silver joint venture, we’ve brought ourselves I guess basically three or four years to do the earning there. We have a quite a bit of ability to hold on to the land that we have without making expenditures.
Unlike other situations that companies like us are in. But the fundamental question you’re asking is do we see some easy fix, where we can generate a significant amounts of new cash flow; the answer is no.
I mean we think we just have to work hard and grind down our cost. We’re fortunate in that, we’re seeing the cost of energy decline dramatically and that is the given that we are diesel powered at Greens Creek, that is critical and we’re aggressively going after all of our suppliers, because while we going after those suppliers and trying to get them to accelerate their cost reductions, I see their energy cost declined in the products that they produce.
So, I can’t tell you that there is some easy fix that we have, we just have to grind the cost down and that’s what we’re doing.
Unidentified Analyst
Good luck and I hope this is a panic and not anything long-term in that markets, and that your actions solve the problems for you.
Phil Baker
Okay. Thanks a lot, John.
Operator: (Operator Instructions). Your next question comes from the line of David Christie of Scotia Capital.
Please proceed.
David Christie
Hi guys. A couple of questions on cost at Greens Creek.
I was wondering, are you buying diesel fuel for that mine of course? Are you buying it far an advance or are you buying at month-to-month?
Phil Baker
We buy it really week-to-week, month-to-month. We don’t have a storage capacity to hold a lot of diesel.
David Christie
That’s good in this case. And as far as steel, what's your, doing the sinker I think are you buying year supply at the time?
Phil Baker
I'll let Ron specifically answer that question.
Ron Clayton
No. We buy all of our ground support and those kinds of things are bought just as we need them, so every month, two months of supplies.
David Christie
Even at Greens Creek?
Ron Clayton
Yes. Greens Creek and Lucky Friday, both of them, frankly most of that material comes from the same supplier.
David Christie
And with the power coming from the grid right now, can it supply 100% of the power or do you need supplier?
Ron Clayton
No. Actually we can run without, running the generators other than the, you got to tune them up every couple of days to make sure that they're working and that kind of thing, but we can cover 100% of it.
David Christie
And what's the rate they're charging right now?
Jim Sabala
I think it's about $0.105 kilowatt hour. I have to look at that.
It's not very different in that, that's close.
David Christie
Okay. That’s great guys.
Thank you.
Operator
There are no further questions at this time. I would now like to turn the call over to Ms.
Vicki Veltkam for closing remarks.
Vicki Veltkamp
Phil, do you have any further comments?
Phil Baker
Yes, let me just say, I thought John asked this question really brought to mind that. Yes, we are in market condition is quite tough, but the good news is we've got in Greens Creeks and the Lucky Friday, two mines that have seen these sorts of conditions before.
They are quality assets and we think we'll have the ability to grind cost down and where we can find that little bit of extra production just as we've done in the past. So we think we're well positioned to see our way through this difficult market conditions.
And we have a good relationship with the bank group. We think the sort of the extensions that we've done on the bridge facility is an indication of that.
They've worked well with us and so we look forward to further resolution of those sorts of issues. And with that we thank you for attending our conference call.
Vicki Veltkamp
We appreciate you all joining us today on the Hecla Mining Company's third quarter 2008 conference call. So feel free to give me a call, Vicki Veltkamp, if you have additional questions.
My number is 208-769-4144 and that concludes our call for today. And have a good day.
Operator
Thank you for your participation in today's conference. This concludes the presentation.
You may now disconnect. Have a great day.