Nov 8, 2011
Operator
Good day, ladies and gentlemen, and welcome to the Third Quarter 2011 Hecla Mining Company Earnings Conference Call. My name is Stacy, and I will be your conference moderator for today.
At this time, all participants are in a listen-only mode. We’ll conduct a question-and-answer session towards the end of the conference.
(Operator Instructions) I would now like to turn the presentation over to your host for today to Ms. Melanie Hennessey, Vice President, Investor Relations, please proceed.
Melanie Hennessey
Thank you, Stacy. Welcome everyone, and thank you for joining us for Hecla’s third quarter financial and operations results.
Our news release, which was issued this morning before market opened and presentation are available on Hecla’s website. In addition, Hecla issued a release yesterday providing an update on our predevelopment and expiration initiative and another release today declaring the first silver price-linked dividend on common stock.
On today’s call, we have Phil Baker, Hecla’s President and CEO; joined by Jim Sabala, Senior Vice President and CFO; also Larry Radford, Hecla’s new Vice President, Operations; and Dean McDonald, the Vice President of Exploration. Before we get started I need to remind you that any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act.
They involve a number of risks that could cause results to differ from projections. In addition, in our filings with the SEC, we are only allowed to disclose mineral deposits that we can economically and legally extract or produce.
Investors are cautioned about our use of such terms as measured indicated and inferred resources and we urge you to consider the disclosures that we make in our SEC filings. With that, I will pass the baton to Phil Baker, Hecla’s President and CEO, Phil?
Phillips S. Baker Jr. -
Thanks, Melanie. Hello everyone.
I’m glad you all join us today. I will provide a brief overview, Jim will speak about our financial results, and then Dean and I will provide an update on the #4 Shaft and the predevelopment exploration programs then we’ll take some questions.
So go to slide four; now for the third quarter results. In the press release, I said this was a unique quarter in Hecla’s long history.
First financially, it was an excellent quarter with solid financial operating results. Sales were $121 million and net income was a quarterly record.
Sliver production was as expected at 2.3 million ounces and cost were $0.67 per ounce which remain among the lowest in the world. And realized sliver prices averaged $37 per ounce, so almost all of that was margin.
Cash from operating activities was $61 million, increasing our cash position to a record $414 million. Now if you will move to slide five.
And here is where you really see what was unique about the quarter. We announced an innovative dividend policy that tied to pay out to the sliver price.
We believe it gives Hecla the highest pay out among sliver companies something over 1% and makes Hecla a more attractive alternative to other sliver companies and also to the ETF. This quarter the board also approved the completion of the Lucky Friday #4 Shaft, an investment that grows production 60%, generates returns and extends the mine life for decades.
So very unusual in the precious metals industry to have a mine life that’s measured in decades. I fully expect that this Shaft because of the longevity against the mine and the access to geology will ride benefits we cannot currently contemplate.
If you think about it’s the number two shaft at the Lucky Friday was built in 1960, and the Silver Shaft in 1982 and what we are mining today was never contemplated at that point. Also in this quarter, we have taken steps to reopen 3 mines, the Star, Bulldog, in which includes its Satellite the Equity Ramp and San Sebastian.
We believe one or more of these mines will be in production by 2016 when we expect to produce 15 million ounces and we’re working to make it happen faster than that. At the Star and Equity, we are underground and much further long than expected to start of the quarter.
We also had final court approval in closing of the Coeur d’Alene Basin Environmental Litigation. I cannot overemphasize the importance of this for growing Hecla.
If you think about the uncertainties for the future of Hecla, this was the biggest unknown and the most catastrophic of risks. It’s now behind us.
The risks that remain are normal to the mining business and I think they are less for Hecla than most mining companies. Finally, we added Larry Radford to our operations.
The growth initiatives we have require his skills and we’re very happy to have him join us. He worked in a variety of operating leadership positions for Barrick and most recently Kinross.
Jim will continue with a review of our financial performance. Jim?
James A. Sabala
Thank you, Phil. Metal prices continue to remain strong across the all four metals that we produced this quarter resulting an excellent financial performance.
On slide six we present realized metal prices for the quarter and you could see that our realized silver price is up by 73%, and realized gold price is up by 40% over the third quarter of 2010. Zinc and lead prices in the third quarter were also up by 12% and 5% respectively over the same period of 2010.
Consequently on slide seven, you can see that we continue to experience among the lowest cash cost per ounce in the industry achieving excellent margins. Our per ounce cash costs were $0.67 per ounce during the third quarter of 2011, cash costs were up marginally compared to the same period last year due to higher production costs, treatment costs, mine license taxes and employee profit sharing due to higher metals prices.
However, the benefits of higher metals prices far out strip the cost associated therewith with our margin of $36.35 per ounce of silver produced up from $22.46 per ounce in the third quarter of 2010. Based on current 2011 production guidance and cost estimates, and assuming recent metals prices in the fourth quarter of 2011, total cash cost net of by-product credits are expected to be approximately $1 per ounce of sliver for the year 2011.
Moving to slide eight, net income applicable to shareholders more than tripled to $55.8 million for the third quarter of 2011 compared to $16.4 million for the same period of 2010. Net income per common basic share was $0.20 in the third quarter of 2011 compared to $0.06 in the same period of 2010 and earnings after adjustments applicable to shareholders were $35.4 million or $0.13 per basic share.
There are couple of important adjustments to note, which are included in this. First, during the quarter, we reported a $40.4 million gain on our long-term based metal hedging program.
The program is designed to help produce the impact to fluctuating base metals prices long-term and is working as designed. At the end of the third quarter, market prices for lead and zinc were $0.94 and $0.86 respectively compared to $1.19 and $1.05 at the end of the second quarter.
Consequently, we reported the gain associated with the increased value of the hedge book at the end of the quarter. Going forward, we have hedged 42,350 metric tons of zinc at an average price of $1.10 per pound and 34,225 metric tons of lead at an average price of $1.12, which is about 20% above the current spot market.
To put this into perspective, our annual payable production is 51,000 metric tons of zinc and 32,000 metric tons of lead. By hedging at these prices it helps us to control the byproduct credits we receive and in turn maintain the very low cash cost per ounce.
Another item which impacted our earnings in the third quarter which is the tax provision of $27.3 million for the third quarter, and $70.5 million for the first nine months in 2011. While the gap provision will continue at the approximate 36% rate, our effective tax rate today has been 33% in 2011 due to statutory changes to deprecation.
The third item impacting earnings was $4.9 million provision for closed operation in environmental matters primarily for final reclamation of the Grouse Creek property in Idaho. The last item impacting earnings was a negative provisional price adjustment of $3.6 million related to provisional metal settlements.
I’d like to make a comment on one thing that also impacted earnings that is not considered an adjustment due to its routine nature. One of our normal shipments from Greens Creek occurred just after quarter end had it made its scheduled shipment date sales would have been higher by $4.6 million and income from operations higher by $1.4 million.
On slide nine, we see the benefits of having among the lowest cost in the industry combined with strong metals prices and strong production. Hecla reported cash provided by operating activities nearly $61 million in the third quarter of 2011 representing a 45% increased over that reported for the third quarter of 2010.
This has allowed us to continually accumulate funds in the treasury, which is set forth on slide 10. After an excellent quarter of cash flow generation Hecla was able to fund all capital requirements and increased cash available in the treasury to $414 million.
Subsequent to September 30, Hecla made the initial and largest required payment of a $168 million for the Coeur d'Alene Basin Environmental litigation. The company has no significant long-term debt outstanding and increased capacity having just recently increased our undrawn line of credit to $100 million.
Therefore, total liquidity available for investment at quarter end stood at $514 million, which we expect will be sufficient to continue the capital projects, predevelopment initiatives and exploration activities that we have on our plate. The strong cash flow generation combined with a healthy balance sheet has allowed the board to reach another milestone during the quarter, which was the board approval of a new silver price-linked dividend policy as shown on slide 11.
Today, we declared a dividend of $0.02 per share based on third quarter average realized sliver price of $37 per ounce. Realized price are calculated by dividing gross revenue for each metal by the payable quantities of each metal included in concentrate and or are sold during the period compared to the average market price during the quarter.
We are thrilled to have the opportunity to pay cash dividends while continuing to strengthen our asset base and pursue future growth opportunities. And with that, I’d like now to turn the call back over to Phil.
Phillips S. Baker Jr. -
Thanks Jim. And let me be clear that the dividend that Jim has just described is not because we don’t have growth, we do.
Look at slide 12, which shows the projects that will deliver $15 million ounces by 2016. If we can pay a dividend and grow over the next five years by expanding the Lucky Friday and reopening mines that fell victim to the price depression we had for almost 30 years.
This slide provides a picture of where we are going to grow production. Of the last 90 days our thinking and work on the ground has progressed significantly.
And the #4 Shaft has progressed according to plan I’ll cover that on the next slide. The #4 Shaft has been defined for well over a year, while on these mine reopenings, we are learning a lot.
A quarter ago, we were not sure how long the rehab would take at the Star mine and the Equity ramp. As it turned out, they are both complete and we are in the final stages of powering them up for drilling.
At the Star, we hadn’t identified the two separate studies that we’re now doing. The first, the mineability study is focused on getting the Star back into production in the next few years from the material in the upper country, which has a potential for $25 million ounces.
This study will be ready by the end of the first quarter. The other, the dewatering study provides not only potential production from deeper resources at the Star, but also it generates additional exploration on the Star and the area between the Star and the Lucky Friday and ventilation opportunities for the Lucky Friday and this study will be complete within a year.
At the San Juan equity ramps drilling will be turning at the end of the month, which is what we generally expected. What we aren’t sure of was the granting of permits for the Bulldog decline.
In fact, it was too sensitive or speculative for us to even mention a quarter ago, but we now have it and we are on the ground building the portals for this new decline. It has all happened so fast that we are not ready to give you the specifics on the ultimate cost and timing of the decline, we’ll do that some time in the future.
Finally at San Sebastian, we are seeing significant drilling success on the Andrea Vein and expect the scoping study to be completed on both the Andrea and Huge Zone within a year. We believe at least two of these studies have the potential to turning the mine reopenings before 2016.
It’s too early to start to lay that out yet, but we will in the coming quarters. So now back to the #4 Shaft on slide 13, where we show that construction is now 41% complete that’s the line that’s at the bottom of those areas; and 80% of the major procurements have been ordered or installed.
After two years of essentially setting up, we are now starting to sink the shaft, a process that is mostly confined to an 18-foot diameter space. The other important thing to mention is the project has gone two years without a lost time accident, nothing is more important to us than safety and we are pleased that our contractor cementation is as committed as we are.
So I want to congratulate George Sturgis, our VP who heads our project team’s cementation, the contractor and the workforce for a great job. We think because of this commitment to safety the #4 Shaft remains on time and on budget.
With that, let me turn it over to Dean.
Dean W.A. McDonald
Thank you, Phil. The longitudinal section in slide 14 shows the Noonday and Star Morning mining and exploration complex relative to the Lucky Friday expansion area.
The Noonday resource and a serious of other veins shown in the upper part of the Star Morning area are above the current water level, and I’ll refer to as the Upper Country resources. As Phil mentioned, a scoping study on the mineability and cost structure of the Upper Country is in progress and will be completed before the end of the first quarter in 2012.
A second study is designed to evaluate the refurbishment and dewatering cost to reestablish the Star Shaft and is expected to be finished in the third quarter of 2012. This would allow access to deeper resources that were previously defined as reserves, and open up significant areas for exploration.
Additional underground development from the 7,500 level of the Star to the Lucky Friday expansion area would create a connection to enhance ventilation with the Lucky Friday and create an extensive exploration platform to evaluate veins between the two mines. Slide 15 is the longitudinal view of the Noonday vein system with the current resources defined in orange.
Drill pierce points to the East and West of this resource from surface drilling are also shown in this figure. Drill intersections at the Noonday as reported yesterday in the exploration and predevelopment release indicate that particularly to the East mineralization has good continuity, is progressively more silver and lead rich and is open to the East.
Access along the Star 2000 drift to the Noonday resources, has been completely rehabilitated and crews are currently preparing the underground drill stations. Later this month, definition and exploration of the Noonday vein system will commence and provide the detailed information to convert this significant resource into indicated category, and in combination with the scoping work, possibly into a reserve.
Slide 16 shows the plan map of our 21 square mile property at the San Juan silver join venture in Creede, Colorado, and outlines the recent activities of the Bulldog predevelopment project. Earlier this year we completed a positive conceptual study of this vein system that currently has a 37 million ounce silver resource, with extensive exploration potential along trend.
We recently received approval from the Forest Service to commence a new portal and decline into the Bulldog workings. The infrastructure to support this development is mostly in place as crews are being mobilized to start work on the portal and complete related surface infrastructure.
As mentioned during the last quarterly call, we were successful in reopening the equity ramp and found the underground infrastructure to be in excellent condition. After some rehabilitation of the portal area and reestablishment of the services, we anticipate underground drilling to commence before year-end.
The diagram of the equity in slide 17 shows the ramp development down 800 vertical feet and the proposed drilling of the equity vein trend down to a high grade [goes over] intersection in WE1031. The same drill program will also evaluate the (Inaudible) vein down to a 1000 vertical feet.
Slide 18 shows the location of the Mexican Silver belt and our large land holdings at San Sebastian. Due to high commodity prices and very encouraging exploration results from the near by Andreia Vein, Hecla is re-evaluating the 2005 scoping study on the Hugh Zone, which is a deeper, down dip silver and base metals resource extension to the Andrea Vein, Francine Vein, which was previously mined by Hecla.
In parallel, we are advancing metallurgical test work and mineability studies of the Andrea Vien. Slide 19 is a series of longitudinals of the Andrea Vein that shows controllers reflecting the gold equivalent grades by horizontal width.
You can see the evolution of the Andrea Vien when it was a small near surface resource in 2010. Exploration resumed in late 2010 when a high-grade extension of the vein was discovered to the South East.
Exploration and infield drilling in the last quarter have defined two distinct high-grade zones along the 1.7 km straight length of the vein that will be incorporated into the year-end resource. Drilling will continue to expand the high-grade zones and determine if there is continuity and extensions of the mineralized vein.
If the drilling is successful there is the potential for the Andrea to more than double the Huge Zone resource. Slide 20 identifies the underground and surface targets at Greens Creek.
Recent underground drilling has refined and expanded to high-grade mineralization at the Gallagher and 200 South resources. A Mine Horizon defined below the current mine infrastructure is referred to as the Northeast Contact.
Drilling below the mine infrastructure recently intersected an ore grade interval in the vicinity of other mineralized Northeast Contact rocks. The same mineralized mine horizon was intersected to the North of the mine at Cub Creek in West Bruin as shown in the surface map.
Much work is still required, but we are starting to see well-developed mineralization along this contact. Finally a longitudinal of the 30 vein is the Lucky Friday, is shown in slide 21, where definition drilling in the third quarter has upgraded resources in the two blue-circled areas.
Exploration drilling has defined high-grade veins, the equivalent of the 30 vein and some intermediate veins in faulted blocks between splays of the Silver Fault. These veins have been intersected by drilling from the 61 to 6800 levels and again from the 7700 to 8100 levels.
With that, I will pass you back to Phil for further remarks.
Phillips S. Baker Jr. -
So look at slide 22, it shows our guidance for Silver production we believe it will still be between 9 million and 10 million ounces, cash cost guidance for 2011 will be approximately $1 per ounce at current metals prices as previously stated, we expect our capital investments to be approximately $110 million versus the previous guidance of $115 million due to the timing of certain projects and it aims primarily at Greens Creek. Exploration is expected to be $27 million versus previous guidance of $32 million due to slower drilling rates and earlier arrival than anticipated conditions at Greens Creek and Silver Valley.
And this will be the first time we report predevelopment expenditures this third quarter was the first time and for providing guidance now for the rest of the year $6.3 million of which $2.7 million is related to the Bulldog 1.8 for both the Star each for the Star and the Equity. Now predevelopment expenditures are costs incurred in the exploration stage that may ultimately benefit production such as an underground ramp development and our expense due to lack of proven and proper reserves basically it’s infrastructure that we expect to use once we’re in production.
With that operator Stacy, if you can open the line for questions.
Operator
(Operator Instructions) Your first question comes from the line of John Bridges with JPMorgan. Please proceed.
John Bridges
Good morning Jim, Phil how are you doing?
James A. Sabala
Doing great, thanks John.
Phillips S. Baker Jr.
Very well John, thank you.
John Bridges
Just wondered your sales were a bit lower than we were looking for, you did say that you picked up, you had a bit of an accumulation of concentrated Greens Creek. Roughly how much metal do you think could come out in the fourth quarter?
James A. Sabala
I don’t have the metal quantities with me right now John, but the value of the shipment was about $5.4 million.
John Bridges
Okay. And then you are saying the grades of Greens Creek were bit lower than the track.
What sort of profile do you expect running through into next year from Greens Creek?
Phillips S. Baker Jr. -
Generally speaking John, the grades will improve I mean this is tenths of an ounce type of thing and that's always been the case; 2011 has always been the low point in our grades. Of course, as we see higher metals prices, we see the optimum lower cut-off grades and so you know we’ll take advantage of that where we can.
But generally speaking in similar but slightly higher grade than what we have in 2011.
John Bridges
Yeah, I was interested in that comment in the quarterly where you spoke about 11 being the low point. So you expect incremental growth from here rather than a flat and then a hockey stick in five years.
Phillips S. Baker Jr. -
Yeah I guess the two things I would say that in terms of our current operations we have always have seen 2011 as in the mine plants as being the point where we had the lowest ounce production. And so that will on the margin increase over the course of the next five years.
In five years time, in 2016 is when we see the full benefit of the #4 Shaft and the incremental production that comes from mining to deeper higher-grade material at the Lucky Friday. So we have that growth that doesn't happen until 2016.
In the interim, additional growth that we might have will come from the Star, San Sebastian, San Juan and I would suggest it will probably, those things will go into production probably in that order although you could argue about which whether it’s going to be San Sebastian or the Star that will be first. How long that will take?
Will it take the full five years to see one or more of those in production? We don't know at this point.
We're at the very early stages, but I think there is a good chance; at least one or more of those go into production before 2016. So I'm anticipating that we probably will see not quite the hockey stick.
At this point, we are not able to give you the details of it, so we're sort of asking you to focus on that 2016 step up in growth.
John Bridges
Okay. And you are picking up better grades, in parts of Lucky Friday as well.
That stuff in the fault zone, is that very chewed up, is that going to be a problem for the miners?
Phillips S. Baker Jr. -
Well, I'm sure it's going to be more difficult than it’s, but there are wider blocks within that fault zone. Dean, do you want to comment on that?
Dean W.A. McDonald
Yeah. John, we're really determining what are the wits of those blocks within these plays, frankly what excites me more is the fact that we're seeing the continuation of those veins the grades are staying very strong and really for me the upside is going to be to look across that fault where certainly my expectation is that we're going to see the 30 vein and some of the major intermediate veins carry on through rest of the Silver Fault.
But to answer your fundamental question, certainly, early indications are that there are areas between those blocks that can be mined, but again, it's still very preliminary.
John Bridges
Okay. That sounds like a much better outcome to be the other outside of fault.
Excellent, I'll get out of the way. Many thanks and congratulations on the results, guys.
Phillips S. Baker Jr. -
Thanks, John.
Operator
Your next question comes from the line of Chris Lichtenheldt with UBS Securities Canada. Please proceed.
Chris Lichtenheldt
Hey, everyone.
Phillips S. Baker Jr. -
Hi, Chris.
Chris Lichtenheldt
Just on Greens Creek quickly again. If my math is right, it looks like several recoveries in the third quarter dipped a bit a few percentage points relative to the second quarter.
Is that accurate and if so I’m assuming what's going on there, that’s expected to increase them?
James A. Sabala
It would be within normal variations. There is nothing that’s risen to a level of any concern Chris.
Chris Lichtenheldt
Okay. That's fine.
Just on grade again, fourth quarter, can you say if that would be, it should start picking up a little bit already or not until next year, is that the grade picks up at Greens Creek?
Phillips S. Baker Jr. -
Look, there is probably a similar grade in the fourth quarter. And I'll tell you that our ability to predict, sort of one week to next is not high enough to be able to tell you specifically if the grade is going to increase or decrease, but it's going to be roughly in the same range that we are in right now.
Chris Lichtenheldt
Okay. That’s great.
Just on Lucky Friday, can you tell us how the thinking is going in terms of the pace that you have achieved at this point?
Phillips S. Baker Jr. -
Well, we are just in the process of the transition from the setup of that to the sinking and we would anticipate that there will be at least two months of a learning curve. And I think we’re estimating only 2.5 feet or so a day during the learning curve period and that’s so we’ll be able to tell you if that eight feet a day is achievable probably in the first quarter, certainly possibly by the year-end calls, certainly by the first quarter call.
Chris Lichtenheldt
Okay. That’s great, thanks a lot.
Phillips S. Baker Jr. -
Thanks Chris.
Operator
Your next question comes from the line of Steven Butler with Canaccord Genuity. Please proceed.
Steven Butler
Okay. Good afternoon guys.
Your discussion on these three development projects seems to have taken us by maybe some positive surprise, but of course, more information coming in the future. So obviously as you said, but the just a question if you will on the Star predevelopment focus on the mineable study on the Upper Country, talk about 25 million ounces in the high level above the water level markets you will.
What is the full resource in the ground left at Star, if you have that from your memory including the resources to the depths of about the 7300-foot level?
Phillips S. Baker Jr. -
So let me – I'm going to ask Dean to answer that question, but before he does, let me emphasize that the 25 million that we’re talking about is the potential that we see in the Upper Country. We certainly don’t have any resource of that size that we’re able to point to, it’s just when we look at a variety of veins that are in that Upper Country, we think there is that potential.
Dean, do you recall what’s below the water table?
Dean W.A. McDonald
Yeah. And just an additional comment Steve, on the Upper Country is that the drilling that I mentioned in the noon day and there’s the noon day split a number of other veins as we go to the east, we’re seeing a significant increase in the silver and lead.
And so those ounces will come in on a resource estimate at the end of the year, and that’s actually consistent with what’s been seeing, as you transition from the Star, which was much more zinc-rich to the Morning, which was silver/lead, but that’s your original question, what we currently anticipate and we’re really going through and re-estimating the resources, but what was carried as a reserve in the Star in terms of silver was in the 25 to 30 million ounce range, but bear in mind that also had a great deal of zinc lesser lead. But what we are doing right now in fact is remodeling and re-estimating those resources.
Steven Butler
Okay. And then San Juan was the official resource.
Is it correct 37 million ounces that what I heard you say?
Phillips S. Baker Jr. -
Yeah that’s not the exact number.
Steven Butler
And is there also associated gold with those silver ounces guys?
Dean W.A. McDonald
At the Bulldog very limited gold ounces where we’re seeing the gold is more in the North Amethyst and then in the Equity area. And the reasoning there is that we’re hiring the epithermal system.
But with the Bulldog fairly limited gold at least so far.
Steven Butler
Okay.
Phillips S. Baker Jr. -
We would – as we discovered as we explore to the north on the Bulldog that there is the potential for gold as we go north. In terms of the number of ounces it’s $25.9 million for our 70% shares.
So 100% is roughly $37 million ounces.
Steven Butler
Okay. Thanks.
So and then lastly guys on San Sebastian or the Huge Zone/Andrea Zone again are there official resources on the books for the Huge Zone and or the Andrea Zone maybe not so much in Andrea but may just confirm?
Phillips S. Baker Jr. -
Yeah. Andrea, there are no resources that are on our table on the Huge Zone, we got a million tons eight ounces and some nine million ounces of silver plus a substantial amount of zinc about 50,000 tons and lead 30,000 and there is also copper which we don’t have on this table.
Steven Butler
Okay. That’s it guys.
Thank you very much, thanks for the clarity.
Phillips S. Baker Jr. -
Thanks, Steve.
Operator
Your next question comes from the line of Anthony Sorrentino with Sorrentino Metal. Please proceed.
Anthony Sorrentino
Hello everyone.
Phillips S. Baker Jr. -
Hi, Anthony.
Anthony Sorrentino
Hi, just to follow up on San Sebastian and the Andrea deposits that deposit I believe continues not only silver but gold. So in your long range thinking when you bring San Sebastian back into production would that produce both silver and gold?
Phillips S. Baker Jr. -
Yes. It is a silver/gold rich vein system, in fact it was interesting when I look at it, it reminds me of what we mined on the Francine vein for five years, which was extraordinarily high-grade silver with almost an equivalent amount of gold and generated very low cash costs sort of zero or subzero cost back when the price of gold was 280, 290.
So this is mines made that, I don’t think it’s going to be quite as high grade if that was or have the same continuity, but it looks very interesting.
Steven Butler
Okay. And on another matter, did you increase the revolving credit facility in case you find an acquisition opportunity?
James A. Sabala
Look we increased it because we thought it made good sense to have additional liquidity for whatever purpose we might have. And certainly when we look at our cash position, we feel very comfortable with it.
But when we look at the opportunities that we have just with the projects we have in hand, we think these things could move quickly and we would want to have capital available or if there’s an acquisition opportunity. So we’re not limiting ourselves.
Steven Butler
Okay. And of acquisition possibilities that you may have considered or may be considering, what conditions have they failed to meet because obviously you’ve not made an acquisition?
Phillips S. Baker Jr. -
I guess I’m not going to comment on things that we’ve considered what I will say is it takes two to Tango and so we have to find the transaction where we want to buy it and they want to sell. So that hadn’t happened at this point.
Anthony Sorrentino
Okay, very good and I'm not in any rush you have great internal opportunities and I not rashly making acquisition that would potentially lower the rate of return of the company.
Phillips S. Baker Jr. -
Okay. Thanks Anthony for that.
Anthony Sorrentino
Okay.
Operator
(Operator Instructions) Your next question comes from the line of Mike Curran with RBC. Please proceed.
Michael Curran
Good afternoon. I just wondered can you remind us when you ran San Sebastian in the past it was basically gold, silver.
(Inaudible) if guys had a plant there and if you did is a plant still there has it been sort of broken down and slowed off over the years or what you have to start with there?
Phillips S. Baker Jr. -
Hi Mike, first thing is the upper portion of the Francine vein was this rich silver, gold the Huge Zone, which is what 300 meters
Michael Curran
Yeah.
Phillips S. Baker Jr. -
Below it is a silver base metals rich deposit. So yes, we did have a plant that we did sell that plant was designed for that upper portion and it was 100 kilometers away.
So when we had the tough times in 2008, we did go ahead and sell it back then. So we will start new but we think that’s going to work out well, because we will be able to size something and develop something right there on sites that can fit these ore body.
Michael Curran
Great, thanks. Yeah, I couldn’t remember if you had a (inaudible) sitting around, but yeah, I forgot that it was quite a different way.
Phillips S. Baker Jr. -
Hey, Mike it is a 100 year old company. We do have various bits of things that are sitting around, so we’ll have some stuff to start with.
Michael Curran
Okay, thanks.
Operator
Your next question comes from the line of [Greg Poulter] with Aspen Alpha. Please proceed.
Unidentified Analyst
Hey, guys great quarter
Phillips S. Baker Jr. -
Thanks
Unidentified Analyst
Just a quick question on the base metal hedges. Are there any marketing conditions in which you’ve closed out those hedges are they really just hedging against possible economic demand declines a lot of plans are additional hedging in the future.
Phillips S. Baker Jr. -
Greg that’s a good question and certainly when we see the price of the base metals fall we will consider whether monetizing that benefit make sense and then, look for the opportunity to put those hedges back on. We don’t have the criteria set up for when we might exactly do that, but we certainly would evaluate whether that make sense or not.
Jim, do you want anything to that?
James A. Sabala
No, second part of his question is, would we do any additional. It’s worked out well for us, we’ve got a very disciplined approach we have a price grid, which has prices that which we’re willing to hedge and quantities that we’re willing to do at given prices and obviously that’s proprietary, but as we reach those trigger points you know you can expect to see us be active.
And our policy right now is that we can do up to 50% of our production after three years out we’re under that right now. And so if we got a bump in price prices, you could expect to see us active.
Unidentified Analyst
How much under there are you if you can tell me?
James A. Sabala
Quite a ways. Overall, we’ve got the data in our press release.
The total was 42,000 metric tons of zinc I think in my opening comments, now we produce about 51,000, so if you took half of that 25,000 a year, just because I can do the math, that would be 75,000 that you could hedge versus 43,000 that we currently have tied up the same relationship in our lead production.
Unidentified Analyst
That’s great. Thanks for showing some light on that.
No more questions.
Phillips S. Baker Jr. -
Okay. Thanks, Greg.
Unidentified Analyst
Thank you guys.
Operator
And at this time, I’d like to turn the call over to Mr. Baker for closing remarks.
Phillips S. Baker Jr. -
Well thanks much for attending the call. If you have any further questions feel free to get Melanie a ring.
Thanks a lot. Bye.
Operator
We thank you for your participation in today’s conference. This does conclude your presentation.
You may now disconnect. And have a great day.