Nov 5, 2014
Executives
Mike Westerlund - Vice President, Investor Relations Phil Baker - President and Chief Executive Officer Jim Sabala - Senior Vice President and Chief Financial Officer Larry Radford - Senior Vice President, Operations Dean McDonald - Senior Vice President, Exploration
Analysts
John Bridges - JP Morgan Jorge Beristain - Deutsche Bank Garrett Nelson - BB&T Capital Markets David Deterding - Wells Fargo Anthony Sorrentino - Sorrentino Metals Matthew Fields - Bank of America Merrill Lynch Scott Murray - Black Stone Financial Joseph Reagor - Roth Capital Partners
Operator
Good day, ladies and gentlemen and welcome to the Third Quarter 2014 Hecla Mining Company Earnings Conference Call. My name is Lacy and I’ll be your coordinator for today.
At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of the presentation.
(Operator Instructions) I would now like to turn the presentation over to your host for today's call. Mike Westerlund, Vice President of Investor Relations.
Please proceed.
Mike Westerlund
Thank you, operator. Welcome everyone and thank you for joining us for Hecla’s third quarter 2014 financial and operations results conference call.
Our financial results news release that was issued this morning before market opened along with today’s presentation are available on Hecla’s website. On today’s call we have Phil Baker, Hecla’s President and CEO; Jim Sabala, Senior Vice President and Chief Financial Officer; Larry Radford, Hecla’s Senior Vice President, Operations; and Dean McDonald, Senior Vice President, Exploration.
Any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act and constitute forward-looking information under Canadian Securities Law as shown on slide two. Such statements include projections and goals which are likely to involve risks detailed in our Form 10-K, Form 10-Q and in the forward-looking disclaimer included in the earnings release and at the beginning of the presentation.
These risks could cause results to differ from those projected in the forward-looking statements. In addition, in our filings with the SEC, we are only allowed to disclose mineral deposits that we can economically and legally extract or produce.
Investors are cautioned about our use of terms such as measured, indicated and inferred resources, and we urge you to consider the disclosures that we make in our SEC filings. With that, I will pass the call to Phil Baker.
Phil Baker
Thanks, Mike. Hello everyone.
Thanks for being on the call. If there is one thing I hope you take away from the call today, it's that the third quarter results clearly show the strength that Hecla has in times of weak prices.
This strength comes from production growth, diversification of metals, our low-cost profile or strong cash balance and the ability to manage our capital and exploration investments depending on the prevailing metals price. Now this has been a strong third quarter for Hecla with all three mines operating well and we have seen quarter over quarter growth in production in our entire suite of metals, silver, gold, lead and zinc.
Greens Creek continues its solid, low-cost consistent cash generating performance. Lucky Friday is exceeding expectations with silver production increasing 19% over the second quarter of this year and 103% over the third quarter of last year.
We are also making improvements to our Casa Berardi mine and Larry will provide more details on all three mines in a few moments. The production increases come in times of volatile and low silver prices and we are fortunate to have several competitive advantages to reduce that volatility and deal with the low silver prices.
For example, because of our low cash cost after byproduct credits profile our high quality assets are not very price-sensitive. Meaning that we don't have to change your mine plans are start high grading at current prices.
Another advantage is that we produce large amounts of four metals. The prices of gold and silver are weaker but the prices of lead and zinc are stronger giving us a natural revenue hedge.
We also hedge a portion of our lead and zinc production, cushioning us further against price volatility. In addition to these competitive advantages we also are taking the steps to weatherproof the business.
We are currently in our planning phase for 2015 and expect our expenditures on capital to be reduced and the long mine lives of our high quality assets also means that exploration for new reserves and resources can be reduced if necessary. As part of our 2015 planning process, we run scenarios at significantly lower prices than current spot for all our metals.
If prices were to deteriorate significantly you would see us alter our plans accordingly. At current prices we are very comfortable with the plans that are coming together for next year.
We know the value that our capital projects can bring to Hecla both in terms of growing production and EBITDA from our existing assets, as well as increasing the consistency of the performance of those assets. And when it comes to growth over the next few years, our main growth initiative is the #4 Shaft and the Lucky Friday which is proceeding on track and on budget and will give us access to richer ore at depth in the Lucky Friday.
We are within two years of completing this long-term project and the increased grade from that material we will access from the shaft is the driver of this production and EBITDA growth. In addition, you will see us talking more about San Sebastian today and in the coming months.
And this is because it's looking like it could become a producing mine. We believe that San Sebastian is a district that over time will ultimately have more than 100 million silver equivalent ounces.
The resource is expanding rapidly with the discovery of new veins in close proximity to each other. These veins have impressive strike lengths which are increasing and the near surface material is high grade and could be very low cost to access.
So returns, we would think, could be very good for San Sebastian. And so it's like it was in 2001 when we started mining here before we started with the small pits, we are likely to do the same thing.
So watch for more news early in the new year. We set the goal at the beginning of the year to operate within adjusted EBITDA to preserve our financial strength and we have more than met that objective.
In fact when you look at our cash balance at the third quarter of $222 million, which is unchanged from the end of the second quarter, we have generated $10 million of free cash flow this year so far. Now let's go to Slide 4.
When we look at our expectations for the year, we announced those expectations on October 20 that we are going to increase production from the Lucky Friday in the range of 3 to 3.2 million ounces, and that Greens Creek should finish the year at the high end of the 6.5 to 7 million ounces. And so the company as a whole will be at the high end of the 9.5 to 10 million ounce guidance.
With the continued decline in metals prices, I expect that we will use some of our cash on our balance sheet in the fourth quarter but we are still going to end the year around $200 million in cash and cash equivalents. With that, I will turn the call over to Jim for a review of our financials?
Jim Sabala
Thank you, Phil and good morning everyone. The third quarter of 2014 can best be described as another quarter of continuing improvement compared to the same period of last year.
We saw improvement in our key financial metrics, as well as silver and gold production. And it all starts with production and on Slide 6 you can see our silver production increase 25% to 2.9 million ounces due to increased production at the Lucky Friday and another strong quarter from Greens Creek.
Our gold production also increased 15% to 42.5 thousand ounces, primarily the result of improved production at Casa Berardi. This is the first quarterly comparison we have had now where we have had ownership of Casa for the full quarter as compared to the previous year.
An improving production drives the financial metrics. On Slide 7 we summarize the key financial statistics for the third quarter of 2014 compared to last year's comparable quarter.
Revenue increased 27% to $136 million. Adjusted EBITDA has increased 38% to $43 million.
Operating cash flow increased $7 million even after the payments of $55 million made in the third quarter of 2014 to satisfy the remaining obligation of the Coeur d’Alene Basin settlement putting that forever behind Hecla Mining Company. If one takes that payment out of the statistic for a truly comparable benchmark, operating cash flow for this quarter was $57 million, an increase of $62 million.
Cash cost after byproduct credits per ounce declined 27% to $5.43. These results have come about for several reasons including consistent operations and the availability of low-cost, hydroelectric power at Greens Creek, increasing production at Casa Berardi as operations ramped up and the benefit of consistent and improving operations at Casa Berardi.
The solid production improvement combined with careful attention to cost by our operators and strength in the base metals markets have allowed us to continue to report industry-leading low per ounce cash cost after byproduct credits and strong margins. As shown on Slide 8, silver operations continue to deliver a strong cash margin in the third quarter of 71% of sales or $13.10.
Our cash cost after byproduct credits per ounce of silver of $5.43 is a reduction of 27% over Q3 in '13 and remains at the low-end of the spectrum for our industry. Our cash cost after byproduct credits per gold ounce of $898 is a reduction of 16% over Q3 of 2013.
Our improved operating performance and strong margins come despite lower precious metals prices. As shown on Slide 9, average realized prices for silver and gold were 17% and 4% lower respectively compared to the third quarter of last year.
Offsetting this was an increase in our realized price of zinc of 22% while lead prices were up slightly. And as set forth on Slide 10, it demonstrates that Hecla offers the industry a truly diversified revenue stream with 37% of our revenue from gold, 31% from silver, 20% from zinc and 12% from lead.
We also have diversification among three distinct lines. We have 50% of our revenue coming from Greens Creek, 21% from Lucky Friday and 29% from Casa Berardi.
In addition, as Phil mentioned, we have an active hedging program which seeks to significantly reduce price risk associated with our forecast-based metals production while still allowing upward participation in base metals prices. So the question is, why do we hedge a portion of our base metals production?
First, it brings consistency to our operating performance. Reducing operating volatility allows us to maximize asset value over the long-term if we have predictable cash flows.
Second, it preserves our ability to service our debt as evidenced by the outstanding performance of our bonds. And third, it allows us to continue long-term capital investment and business development activities with less impact from short-term variables.
And we do it in a way to preserve the upside. For example, on Slide 11, through 2016 we have locked in about $175 million of revenue.
But importantly we have preserved a large portion of the upside if prices continue to strengthen. For zinc, we have prices guaranteed of just under a dollar but have flexible pricing for 41% of 2015, 57% of 2016 and all of 2017's production.
A similar situation exists for lead. Our hedge book is at prices from $1.03 to $1.07 per pound and we have 59% of 2015.
52% of 2016 and all of the subsequent years available. As we have previously communicated, one of our goals during 2014 is to operate within adjusted EBITDA.
As set forth on Slide 12, adjusted EBITDA was $42.6 million compared to our discretionary expenditures of $40.4 million. If metals prices move significantly in coming quarters, we could just discretionary expenditures and modify our business plan as appropriate.
As Phil mentioned, we are in the midst of our planning process for 2015 and capital and exploration expenditures are two of the levers that we can pull if we need to. And finally on Slide 13, we show our liquidity trend.
We finished the quarter on the back of strong operating results with contribution from all three of our long live mines and excellent liquidity. We have $222 million in cash and cash equivalents, consequently we have a total of over $320 million in total liquidity available to the company.
This is even after paying the final payment of about $55 million and the Coeur d’Alene Basin settlement in the third quarter, almost all of which was funded by proceeds from the exercise of remaining warrants. And as a result, as mentioned earlier, that decades old legacy liability is extinguished.
And with that I would like to turn the call over to Larry for a review of our operations. Larry?
Larry Radford
Thanks, Jim. On the operating side, Lucky Friday continues to impress showing a 19% increase in production over the second quarter and 103% increase over the prior year period as you can see on Slide 15.
The higher volume of 973,000 ounces of silver has lead to a lower cash cost after byproduct credits per ounce of silver of $8.71. The mine is running well.
As we said on the October 20 release, we expect the fourth quarter production to be less then Q3 due to mine sequencing. Regarding then #4 Shaft project on Slide 16, we are at the 7500 station and the shaft is more than 73% complete.
We are on track for completion of this approximately $215 million budgeted project in 2016. On July 17, Greens Creek had another consistent quarter product 1.9 million ounces at a cash cost after byproduct credits per sliver ounce of $3.75.
The increase in silver ounces produced is due to mine sequencing and has contributed to lower cost which are very low by industry standards and support our guidance for the year. The costs continue to be helped by the availability of hydro power, which we expect to last for the end of the year.
The planned expansion of the Greens Creek tailings facility continues to work its way through the permitting process. If all permits are received as anticipated, construction should begin in 2015.
On Slide 18 you can see that Casa Berardi produced 28,977 ounces of gold in third quarter at a cash cost after byproduct credits of $898 per gold ounce. This small increase in production from the second quarter contributed to the lower cash cost despite interruptions to production resulting from the shaft deepening project change over which I will discuss in a moment.
This brings the mine production to about 151,000 ounces of gold since we acquired it on June 1, 2013. We continue to work on our plan to optimize Casa Berardi's operations as it undergoes a transition from mining zones west of the west mine shaft to mining zones east of the shaft.
We have brought 118 and Principal zones into production. The Principal Zone has surface ramp access which has allowed for increased tonnage.
There are three principal areas of focus in the mine optimization. The first is increasing recoveries.
We anticipated lower recoveries from the arsenopyrite-rich ore in the 118 zone. Originally we had planned on an re-grind sulfide concentration of the sulfides to increase recoveries.
However, our preferred solution that was a project to optimize the CIL circuit to prevent preg-robbing, which has been successful. In addition, improvements to gravity circuit has also added to overall performance.
Year-to-date recoveries are similar to those we saw in 2013. So what this means is that we are receiving the benefit of higher recoveries already without requiring the new grinding flotation circuit.
The other two initiatives to decrease dilution and development are continuing. On Slide 19 you can see some images from the shaft deepening project at Casa.
The project that was originally started by Aurizon to deepen the West Mine Shaft by 340 meters has now reached the shaft bottom. This project is expected to provide additional access to the 118 zone, improve ventilation, provide lower cost material handlings and to enable deeper exploration.
During the quarter, the West Mine Shaft deepening project reached functional completion with removal of the bulkhead dividing the operating shaft and the deepened section. This change over required the shaft to be intermittently closed over a 22 day period which impacted production for the quarter.
We are now in the final steps of finishing off the project and production in the fourth quarter is expected to increase as the shaft resumes normal operations. I will turn the call over to Dean for exploration and pre-development.
Dean?
Dean McDonald
Thanks, Larry. Our exploration and pre-development budgets have been more constrained this year but we continue to make several high grade previous metal vein discoveries at San Sebastian.
At the mines we are systematically adding new resources and continuing to convert those resources to reserve, extending mine life even when contemplating lower metal prices. During the quarter we had active underground drilling programs at the mine and on surface at San Sebastian, Greens Creek and Casa Berardi.
A table of recent intersections can be found at the end of the Q3 press release. At our most advanced exploration pre-development project, the San Sebastian property near Durango, Mexico, we had considerable exploration success in the past year by adding and upgrading new high-grade silver, gold resources at the middle, north and recently discovered East Francine veins as shown in the plan map on Slide 21.
These veins are open along strike and at depth and their close proximity should have many synergies as mine planning is advanced. We are investigating a scenario where we open pit as well underground mine with the bulk of the resources being mined underground.
As Phil noted earlier, this is similar to the approached we took in 2001 to 2005 when we last mined on the project. Drilling the last quarter has defined a new high-grade gold silver resource at the north vein.
Currently the vein is being defined for a continuous strike length of over 2500 feet and to a depth of over 330 feet, as shown in the longitudinal section in Slide 22. Drilling pierce points shown in the grade by thickness longitudinal, define some very high grade zones near surface and are at a drill spacing required to upgrade most of the resource to an indicated category.
The recourse is open at depth, open both to the north west and south east where it crosses the San Ricardo fault system. The list of recent intersections as shown in the press release includes some spectacularly rich intervals, including 0.85 ounces per ton gold and 12.6 ounces per ton silver over 8.7 feet and 0.29 ounces per ton gold and 13.6 ounces per ton silver over 17.8 feet.
The cross-section in Slide 28 includes a number of high grade, gold silver rich intersections in the near surface, flat line north vein. What is particularly interesting from a mining perspective is that for about 700 feet of strike length, these two flat line north and middle veins overlap near surface and maybe suitable for open pit mining.
We believe we have found the faulted extension of the Francine Vein, whose production was one of the highest grade mines in Mexico. Over 10 holes have been completed on this thing and the drill hole shown in Slide 24 represents an inter-section of 1.1 ounces per ton gold and 203 ounces per ton silver over 18.1 true feet of width.
Another intersection of note is 1.4 ounces per ton gold and 381.6 ounces per ton silver over 11.9 feet. This is one of the highest grade intersections identified in the history of the property.
When combined with our new understanding of the fault offset of the San Ricardo fault, it is reinvigorating our search for extensions of additional veins to the southeast. The current exploration drill program at San Sebastian has been expanded and three core drills are active.
Two drilling the north vein and one on the East Francine Vein. Metallurgical test work of the middle and north vein mineralization is ongoing with preliminary results showing the material is leachable.
And related mill design and mine optimization continued to advance this project towards a potential production decision. At Greens Creek, we continue to deliver high-grade drill intersections that should add resources along the southwest bench.
200 South and Deep 200 South Gallagher Fault Block trends, as show in Slide 25. And upgrade resources to reserves at the northwest west, west wall zones, central west and Deep 200 south trends.
In the next quarter we expect to complete more exploration and definition drilling in these areas which should boost resources and reserves and continue to extend mine life. We have been very active at Casa Berardi with extensive definition and exploration drill programs from surface and underground as shown on the longitudinal section in Slide 26.
Recent drilling programs have been very successful at upgrading and expanding resources in the 113, 1718, 123 and 124 zones. The recent drill results from the 123 zone are some of the highest grade and widest intersections since Hecla acquired the mine.
Concurrent surface and underground drilling exploration on the 124 and 140 zones defined strong mineralization that extends down plunge from near surface to depths up to 1500 feet. Confirming our belief that significant exploration potential exists in many areas between the head frames.
A review of the southwest zone has produced new resource models that will allow mine planning in the area where a considerable portion of this resource could be brought in as new reserves. A review of the east Mine resources and drill intersections has revealed some high-grade vein opportunities.
In summary, with excellent drilling results at San Sebastian at the Middle, North and East Francine, we are expecting significant new resources for year end. We are working through our reserves and resource calculation at the mines and we do not see a significant change in either silver or gold reserves or resources despite using lower metal prices than last year.
Finally, at the San Juan silver project in Colorado, we are making steady progress in permitting and engineering design. And with that I will pass the call back to Phil for some closing comments.
Phil Baker
Okay. Thanks, Dean.
We have seen precious metals decline dramatically, particularly silver. Even today seen a big decline.
Hecla is 125 year old company. The Luck Friday is a 70 plus year old mine.
Greens Creek has been around more than 25 years. We have seen these declines in prices before.
These are assets and Casa is positioned to be another asset to weather the storm and allow us to emerge with more production, more cash flow, more reserves and more resources. And so with that, operator, I would be happy to open the line for questions.
Operator
(Operator Instructions) And our first question comes from the line of John Bridges with JP Morgan. Please proceed.
John Bridges - JP Morgan
I just wondered -- I remember how important San Sebastian was to you in the early 2000s. I just wonder how quickly you could get this thing up and running if things really deteriorated and actually as that cash flow.
Do you have remaining permits in place? How quickly could you get this thing moving?
Phil Baker
Look it would -- the construction of the mill would be the key element here and that’s a couple of year process to get that to happen. So nothing could occur immediately but this would probably be a relatively low capital project.
Something less than a $100 million. And when you look at this surface material, there would be a substantial amount of that, when I say that maybe it's a few years worth of that sort of material.
And it's quite high grade, quite high margin surface material. So absolutely the idea of being able to access that material and generate immediate free cash flow is appealing and something we are working on.
John Bridges - JP Morgan
But is there a custom mill, like the one you used before? Are those still available?
Phil Baker
Sure. I mean that is also an alternative, is to consider mills that are in the area and feed those mills.
And that's on the table as well.
John Bridges - JP Morgan
And if all you had to do was get permission to, or permitting to dig the hole. How quickly could you do that?
Phil Baker
Call it 9 months from the time we start that process.
John Bridges - JP Morgan
This (indiscernible) is a useful little discovery here.
Phil Baker
We think so. And that's why we are trying to highlight this a bit more.
We think this thing has good potential. It's produced -- in those early years we have produced about 25 million silver equivalent ounces and we started the year with about 55-60 million silver equivalent ounces.
We think this will continue to grow. And it's high-grade.
John Bridges - JP Morgan
Yes, I remember how important the asset was to you and obviously you got...
Phil Baker
Yes, it was 2013. It was the highest cash flow generating asset for the company.
Operator
Our next question comes from the line of Jorge Beristain with Deutsche Bank. Please proceed.
Jorge Beristain - Deutsche Bank
I just was wondering, Phil, if you could give us -- you have said over and over that your mantra is trying to live within your EBITDA or adjusted EBITDA generation. But as we look out ahead into 2015, it does seem that you've got some spill over CapEx still pending.
And if we just run a kind of mark-to-market on where silver and gold and everything are today, it would seem you are sort of trending towards about 100 millionish potential EBITDA, including even roughly the effect of the hedges. So, I'm just wondering if you could breakdown order of magnitude.
Do you see still spending $35 million on Greens Creek, $60 million on Lucky Friday, $30 million on Casa? And then would there be any growth CapEx on top of that because I'm just trying to ordinarily rank, if something had to give, where you would see tucking in the CapEx to still live within your EBITDA.
Phil Baker
Jorge, we are still in that planning process so I am not prepared to give guidance with respect to 2015. What I will say is that, the way we are starting the process is to attempt to live with than EBITDA.
I think we probably would have more than what you are projecting but we have quite a bit of flexibility as to what we turn off. First starting with the exploration efforts and then moving into various capital programs.
So just stay tuned is all I can tell you with respect to 2015. We are prepared to spend down a little bit of the cash on our balance sheet.
So with over $200 million today and we think we will end of the year somewhere around $200 million. We have the flexibility to do that.
Jorge Beristain - Deutsche Bank
Okay. And if maybe I could have a follow-up with Jim.
Just in terms of your recent debt issuance. Could you just bring us up to speed if there's any covenants or any kind of triggers there and the timeline on debt repayment?
Phil Baker
There are no covenants that we have to deal with. It's just covenants that essentially exist.
So I will let Jim comment on that.
Jim Sabala
No, Jorge, as Phil indicated there are no maintenance covenants, there are only incurrence covenants. And they are the type of covenants that as long as you keep making the interest payments, you are just fine.
And obviously we are under no stress whatsoever in that area with the liquidity we have got. And in terms of reduction of debt, that was an 8-year piece of paper when we issued it.
So while we always look at opportunities, I think it's safe to say that that's not immediately in our screen to reduce those bonds nor do we have really the ability to do so without paying a premium.
Jorge Beristain - Deutsche Bank
Got it. And, sorry, if I could just squeeze one more in.
Your San Sebastian, you quoted it could be 100 million ounce opportunity and you said that it would only cost about $100 million of CapEx, or essentially $1 an ounce to get that into production. Could you give us an idea of roughly what the operating cost per proud would be, the C1?
Phil Baker
Yes, we haven't developed that. But let me be clear on the hundred million ounces.
We have produced about 25 from there. We have on the books, at the beginning of the year, silver equivalent of about 55-60 million ounces.
So we are saying it's -- we think that the property will ultimately be over 100 million ounces from where we are starting right now. Stay tuned on what the specific capital will be and what the operating cost will be.
But what I can suggest to you is that we will take this project forward if it generates significant returns in the current price environment. And I think there is the potential of this thing doing that given the low cost of mining the surface material and the fact that it's high-grade.
I mean there's lots of that surface material that probably has a value of maybe $400, Larry? $400 [rock] (ph).
Yes. So there is the potential for lots of margin from the surface material.
And there is the potential for a few years of production from that surface material.
Operator
And our next question comes from the line of Garrett Nelson with BB&T Capital Markets. Please proceed.
Garrett Nelson - BB&T Capital Markets
Nice work at Casa Berardi on the cost side, especially in light of the 22-day closure of the west mine shaft during the quarter. Was that work completed entirely during the third quarter or did it carry over into the fourth quarter?
I'm just trying to get a better sense of operational expectations at that mine in the fourth quarter and into 2015.
Phil Baker
Go ahead, Larry.
Larry Radford
Yes, the biggest task was to remove the bulkhead that separated the upper section which is the operating section, from the lower section which is the deepened section. So that was the -- we obviously had to put longer ropes on the hoist and that sort of thing.
And that was all completed in the third quarter. There was a little bit of cleanup work that spilled into the fourth quarter which is basically electrical work and a little bit of hydraulic work.
But to give you a sense for it, going into the fourth quarter we had only four of the contract employees left on the mine side.
Garrett Nelson - BB&T Capital Markets
Okay, great. And then I'm also trying to get a better sense of Hecla's earnings sensitivity to the Canadian dollar, as the U.S.
dollar just continues to rise. Obviously, that's helping to some degree on the cost side at that mine.
But have you disclosed anywhere the company's, say annual EBITDA sensitivity to 1% change in the U.S. dollar to Canadian dollar exchange rate?
Phil Baker
We haven't. But I will give you an easy way that you can put it into your models.
Since our revenues are U.S. dollar driven, all of our cost virtually are denominated in Canadian dollars.
And so when you look at our $898 cost of production, you can modify that pro rata for any changes in the Canadian dollar.
Operator
And our next question will come from the line of David Deterding with Wells Fargo. Please proceed.
David Deterding - Wells Fargo
Just looking here at the, I know you are not prepared to give what your CapEx is for 2015, but as you think about just maintenance CapEx, if things got really bad, what would be a level you think would be a maintenance CapEx level that you could run your mines at?
Phil Baker
Well, look, you can go back to 2009, which is -- we were coming out of the 2008 event, you can see the level of CapEx that we had at the Lucky Friday and at Greens Creek. Those were both order of magnitude $13 million.
Do I think we can go that low? I don't know, we would have to work through everything.
Certainly there is work that we need to do at the tailings for Greens Creek and we are not going to stop the development of the #4 Shaft. So it's certainly -- the maintenance capital might be that low but the total capital would be higher.
If you had sort of a scenario where prices went significantly lower than today, I guess the thing I would say David is, we do have that balance sheet that we can weather the storm because certainly prices couldn't stay a lot lower than where they are today for years. I think you'd be talking about a relatively short period of time.
David Deterding - Wells Fargo
Okay. That's a great segue kind of into my next question on Slide 13.
You guys have had this liquidity between $312 million and $338 million over the past, or $308 million and $338 million for the last five quarters and your cash balance has stayed steady. And you mentioned that you'd be willing to spend down some of that capital next year as you build out some of these projects.
What is a comfortable level you guys feel that you want to have in liquidity?
Phil Baker
I will let Jim add to this, but certainly somewhere around the $100 million range is always in the back of my mind because of the working capital requirements that you have it Greens Creek. If we have the ability to reduce that working capital requirement at Greens Creek then maybe I would be willing to see us go a little lower than that.
Jim?
Jim Sabala
Yes. I agree with everything Phil said and really don't have anything in addition David.
David Deterding - Wells Fargo
Okay. And then my just last question.
You were talking about prices staying much lower than this for a longer period of time. I think we've talked in the past about industry consolidation potentially at that $15 level and we're almost there.
Any thoughts on what we might see if we see silver prices stay in this $15-$16 range for the next 12 plus months?
Phil Baker
Well I think it puts a lot of pressure on the development capital for a number of mines. So what ends up happening is, yes, they are able to operate and they are able to stay in business for the next year, two years but they just get way behind on development and they sort of put themselves in a position where they cannot complete their mine plans.
And that's where we really have the opportunity, with the cash flow that our mines generate, we will be able to work our way through that price environment. And coming out the other side, we would be in a position to put capital into those mines that are troubled.
So we just see it as a great place to be. But if you're not able to do that, we still see growth from the Lucky Friday and we're trying to indicate we are going to see growth we thing from San Sebastian.
Operator
Our next question comes from the line of Anthony Sorrentino with Sorrentino Metals. Please proceed.
Anthony Sorrentino - Sorrentino Metals
With regard to the #4 Shaft at Lucky Friday, when that's complete in 2016, what will your annual silver production be from Lucky Friday?
Phil Baker
Once we complete the shaft and we do the development then we think we have the ability to operate at roughly a 5 million ounce a year rate. And there will be years ups and downs from that number, but what happens is the grade of the Lucky Friday increases as we go deeper.
So generally speaking, that's the sort of range that we would see this mine operating at.
Anthony Sorrentino - Sorrentino Metals
Okay. And that would probably come in 2017 which would be the first full year of the use of the #4 Shaft?
Phil Baker
At that rate you wouldn't see that level of production because you have got to do the development on the 6500 and 7500. But sort of post '17, again we have years that are higher, we have years that are lower but that's the sort of rate, general rate that we would expect to see post 2017.
Anthony Sorrentino - Sorrentino Metals
Okay, fine. And talking about San Sebastian.
You had mentioned about the possibility that there might be 100 million ounce equivalent there at San Sebastian. Have you decided over how many years you would try to bring that into production?
Would you try to do that over 5 years, or 10 years or 15 years?
Phil Baker
You know it's hard to say how long you will -- what rate you can mine at. Clearly surface mining would be easier and you can have a higher tonnage then you can from underground.
But we think this -- when you think of the combination of surface and underground, we think this will have a long mine life. I mean it's going to be significant.
Once we make the decision and should it be positive, it will be not be short. It will certainly be in excess of 5-10 years.
Operator
And our next question comes from the line of Matthew Fields with Bank of America. Please proceed.
Matthew Fields - Bank of America Merrill Lynch
Just wondering, looking at your EBITDA reconciliation, there's a $5 million add back for other that's sort of unspecified. Can you just give us a little color on what that is?
Phil Baker
Yes, we can do that. Jim, would you want to take that?
Jim Sabala
Off the top of my head I don't know -- to be quite frank. I will need to get back to you on it.
Matthew Fields - Bank of America Merrill Lynch
Okay, that's fine. And then just looking at the 2014 guidance and what that implies for the fourth quarter.
At Lucky Friday it looks like to stay at that $9.75 cash cost. It looks like fourth quarter costs are going to go way up at Lucky Friday and production will be a little down.
Is there something going on there at the mine this quarter?
Phil Baker
No. Look, I think that the production level will be in that 3 to -- or the total would get us to 3 million to 3.2 million ounces.
Cost wise, and there is nothing particularly extraordinary that I can think of, Larry?
Larry Radford
It's all volume given.
Phil Baker
Yes.
Larry Radford
And it's really a, it's a mine sequencing...
Phil Baker
So it really becomes a question of grade. So you can't say that -- but we will run through the same tons, I don’t think, I don't have it in front of me, but I do think the grade is probably somewhat lower in the fourth quarter.
You have that, Larry?
Larry Radford
Yes, the grade is down around 11 to 11.4 [variant] (ph), a little each month in the fourth quarter.
Matthew Fields - Bank of America Merrill Lynch
Okay. That's helpful, thanks.
And then just, finally, a lot of San Sebastian questions have been asked and you guys are not ready to give very specific color on this. Can we expect- ?
Phil Baker
Yes, because the story -- Matthew, the story at this point is the exploration. That's the thing that's so remarkable, is the success that we had with that exploration.
Matthew Fields - Bank of America Merrill Lynch
No, absolutely. Can we expect a more concrete plan in fourth quarter results?
Maybe with the 2015 CapEx estimate and all that? (indiscernible)
Phil Baker
That's certainly what we are working towards.
Matthew Fields - Bank of America Merrill Lynch
Okay.
Phil Baker
That's what we're working towards. Part of the problem that our mine planners, operators have is, that this thing keeps growing.
They keep putting a pin in it and then two months later it's significantly larger. So we are trying to deal with the good news that's coming out of the exploration effort.
Matthew Fields - Bank of America Merrill Lynch
All right. Well, I guess that's a good problem to have.
Phil Baker
Absolutely.
Matthew Fields - Bank of America Merrill Lynch
Thank you very much.
Jim Sabala
And to follow up on your EBITDA question. It's related to the impairment on some miscellaneous stock positions that we have and also some non-cash accruals for reclamation.
Phil Baker
To that $5 million.
Operator
And our next question comes from the line of Scott Murray with Black Stone Financial. Please proceed.
Scott Murray - Black Stone Financial
Two quick questions. The first one is, your thoughts and comments about stock buyback based on the price of Hecla's stock today.
And the other one would be your thoughts and comments regarding supply-demand of silver over the next 1 to 5 years. Thank you.
Phil Baker
Sure. With respect to stock buybacks, we have authorization to buy shares back.
And in periods when we are not in blackout, the way we have utilized that authorization has been in on days our share price is performing materially worse than our peers for no apparent reason, then we will buy some shares back. And I would anticipate that we will continue that program.
We thing that's a good use of some of the cash on the balance sheet. With respect to making a big call on buying lots of shares back in just sort of a broad way, you are really making a call along the metals price.
And while we are very bullish about silver, gold, lead and zinc, we don't know when those prices will turn. And that's not business that we are in.
So we are inclined to do the sort of share buyback that we have done in the past. With respect to what we think about the supply-demand fundamentals for silver over the next five years, it's extraordinarily good, from the standpoint that there are so many new applications that are consuming silver.
And those new applications are being applied to significantly more people. I guess China has slowed down its growth but it's of a much, much larger base.
And so the impact of that on silver consumption is huge. You have got 300-400 million people in China whose lifestyle is very similar to the lifestyle in the Western world and the people in the Western world consume roughly 4/10 of an ounce of silver per annum.
And so the perspective, the outlook for silver seems to us to be very very good. And it will continue to improve beyond that five-year timeframe.
So, hence, why you see us making so much of an investment in the Lucky Friday, talking so much about San Sebastian, having so much a focus on silver relative to the other metals. I think he's off the line, so...
Operator
And our next question comes from the line of Joseph Reagor with Roth Capital Partners. Please proceed.
Joseph Reagor - Roth Capital Partners
Congrats on a strong quarter despite obviously a weak environment. Just one follow-on to what the last caller was asking.
On the share buyback, can you remind us what's available on that, still?
Jim Sabala
It's a lot. It's roughly 20 million shares, if I recall, was the authorization.
And I believe we had executed about 1.5 million shares of that. So those aren't the exact numbers but that's pretty darn close.
Joseph Reagor - Roth Capital Partners
Okay. So about 18.5 million shares left.
Jim Sabala
Yes.
Joseph Reagor - Roth Capital Partners
Okay. And then there's been varying degrees of conversation about you guys on the industry consolidation side.
At times it sounded like you guys have invested in small caps thinking that you get a foothold early. Now you guys were mentioning on today's call about being able to fund mines that aren't fundable internally coming out the back side of, let's say to 24 month poor price environment.
Given that kind of thought process what about today, next 6 to 12 months, even if we stay in this kind of 1100s gold price environment, $15 silver. Are you guys looking to do your own consolidation, buying up local projects?
Are you looking to potentially buy operating asset etcetera?
Phil Baker
The answer is yes to all those things. But we are going to protect our balance sheet.
We're going to make sure that’s assets that we have confidence that we can turn around in this price environment. But, yes, we are certainly looking at things.
And don't have a sort of a ban on acquiring assets for a couple of years. We are prepared to use a portion of our balance sheet to do that.
Joseph Reagor - Roth Capital Partners
Would you be...?
Phil Baker
Jim, you want to add anything?
Joseph Reagor - Roth Capital Partners
Would you guys be willing to take on additional debt as you did in the Aurizon transaction?
Phil Baker
So long as we maintain the coverage ratios that we are targeting, which is roughly, Jim, two times the EBITDA?
Jim Sabala
Three times.
Phil Baker
Three times on a gross basis.
Operator
Ladies and gentlemen, this concludes the question-and-answer portion of today's call. I would now turn the call back to Phil Baker for any closing comments.
Phil Baker
Well, I want to thank everyone for being on the call. If you have any questions, please contact Mike or me.
And, again, just rest assured that we recognize the price environment that we're in and we certainly are tightening the business down accordingly And we are fortunate in that we start with a business that has good margins and so the amount of tightening that we need to do is not traumatic but we do do that. And we think we are in a great position to continue to grow the business as well as add new assets to the company.
So thanks very much for participating on the call. Have a good day.
Operator
Thank you for your participation in today's conference. This concludes your presentation.
You may all disconnect. Good day everyone.