Hecla Mining Co
NYSE:HL
Earnings Call Analysis
Q4-2023 Analysis
Hecla Mining Co
The company crafts a narrative of stability and expansion, focusing on operational consistency and potential growth avenues. With all four properties becoming operational, significant strides in production are anticipated. Greens Creek is hailed as the bedrock for future cash flow and production, albeit projecting slightly decreased silver production at 8.8 to 9.2 million ounces due to mining lower grade ore, which also implies an increased cost per ounce.
The narrative moves to exploring new territories with the acquisition of land packages, such as Mammoth claims and Cliff Creek, reflecting a dual focus on resource expansion and discovery. Cost management remains top of mind, with anticipation of more production and reduced costs at Lucky Friday, expected to bolster near-term growth. The company also balances cautious optimism with the need for responsible growth and safety culture improvements, particularly at Keno Hill, juxtaposing it with ongoing investments in safety and environmental performance.
Looking ahead, Keno Hill's year is marked as 'small investment' with expected silver production of about 3 million ounces. The company sets its sight on creating value through synergies between its Greens Creek and Keno operations, spearheaded by leadership promoting robust cash flow generation. Notably, the 2024 silver production guidance suggests an increase of 15% to 20% this year, aiming for 30% by 2026, with cash costs between $3 to $3.75 and AISC between $13 and $14.50. The result solidifies the company's status as a low-cost leader in the industry. Their focus transitions smoothly into their crucial role in supporting solar energy's growth, as a major silver demand driver in the energy transition.
In a financial lens, the company portrays strength with lower gold cost guidance and capital guidance, thanks to fruitful completion of major projects like the service hoist and ore bunker at Lucky Friday. It concludes by emphasizing silver's instrumental role in solar capacity expansion, with solar demand for silver increasing significantly — up by about 50 million ounces in 2023 — underscoring a potential need for higher silver prices to meet this burgeoning demand.
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Good morning. My name is Jeannie, and I will be your conference operator today. I would like to welcome you to the Q4 2023 Hecla Mining Company Earnings Conference Call. [Operator Instructions]I would now like to turn the conference over to Anvita Patil. You may begin your conference.
Good morning, Jeannie, and thank you all for joining us for Hecla's Fourth Quarter 2023 Financial and Operations Results Conference Call. I'm Anvita Patil, Hecla's Vice President of Investor Relations and Treasurer.Our financial results news release that was issued yesterday, along with today's presentation, are available on Hecla's website.On today's call, we have Phil Baker, Hecla's President and Chief Executive Officer; Russell Lawlar, Hecla's Senior Vice President and Chief Financial Officer; and Carlos Aguiar, Hecla's Vice President of Operations. Phil and Russell will make most of the presentation. Carlos, who is at Keno Hill, will make a couple of comments. All of them will be available to answer questions.Any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act and involve risks as shown on Slide 2 in our earnings release and in our 10-K and 10-Q filings with the SEC. These and other risks could cause results to differ from those projected in the forward-looking statements.Non-GAAP measures cited in this call and related slides are reconciled in the slides or the news release.I want to remind you, if you would like to have a call with the management, you can do so by using the link under the section Virtual Investor Event in our earnings release that was issued yesterday.I will now pass the call to Phil.
Thanks, Anvita. Good morning, everyone. Thanks for joining our call. I'm going to start on Slide 3.2023 was a year that was marked by wins and faced some challenges. Some of the challenges were expected, some not. So let me first start with the successes we achieved.We reported the second highest reserves in our history. Our silver reserves have increased almost 40% over the past 10 years. And we've accomplished this by not only replacing 130 million ounces of silver production, but adding 65 million ounces through the drill bit, primarily at the Lucky Friday and Greens Creek and, most recently, by our acquisition of Keno Hill.We've also had a successful year in exploration, with some spectacular results at Keno and Greens Creek.We recorded our second-highest revenue in silver production, and this was achieved despite Lucky Friday not being in production for 5 months.Both Greens Creek and Lucky Friday recorded their lowest all-injury frequency rate of all time.And we continue to be rewarded for the innovative culture we've created at our long legacy of 133 years: we received a patent on the Underhand Closed Bench mining method.Now in terms of challenges, this year it was really marked by 3 events: the unexpected fire at the Lucky Friday; our decision to pivot to a surface-only operation at Casa; and to prioritize safety over production at Keno, which has resulted in slower-than-expected ramp-up of the mine.Now the Lucky Friday is already back in production, and we expect to ramp up to full production by the end of the first quarter.Our decision in late August to transform Casa to a full open pit operation by mid-'24 was a recognition that we needed radical change and we prioritize margin over volume, and our execution of this strategy is already yielding results.At Keno Hill, exploration drilling has highlighted the potential and the opportunity at this mine. And while our ramp-up at Keno Hill has gone slower than expected, we firmly believe that by focusing on safety and the environment and getting the mine to Hecla standards is critical if we're going to be successful and provide that long-term value that Keno has the potential to provide.Now we've navigated through the challenges of 2023, and we enter 2024 with 4 operating mines that will give us significant growth over the next 3 years.So I'm going to talk about exploration and operations after Russell talks about the financial and technical reports and Carlos makes a few comments. Russell?
Thanks, Phil. I'll start on Slide 5. By several measures, 2023 was a very good year. We generated $720 million in revenue. Silver contributed 39% of our revenue, which is more than any other metal, demonstrating Hecla as a true silver company.We continue to have very strong margins from our silver operations, with a margin of 50% of the average realized price of silver for the year.As expected and as we reported in the last quarterly call, we did see our net leverage ratio tick up from 2.2x last quarter to 2.6x this quarter. This is primarily due to Lucky Friday not being in production for the last 5 months of the year. Our goal remains to manage the net leverage ratio to be less than 2x.I'll now turn to Slide 6 to discuss the company's priorities with its free cash flow as well as liquidity. On the previous slide, I mentioned the strong margins we see at our silver operations. These margins equate to significant free cash flows. With 12 months of production at Greens Creek and 6-plus months at Lucky Friday, these operations generated $155 million in free cash flow.With this cash flow and using our balance sheet, we've made some strategic investments for production growth: a $64 million investment at both Keno Hill and Casa Berardi.In 2024, we anticipate seeing strong free cash flow generation from Lucky Friday and Greens Creek, relatively small investments at Keno and Casa as well as we expect $50 million from the insurance on the Lucky Friday fire.Our priorities will be continued investment in the long-term production growth of our assets, which include development and exploration in all of our mines, but we'll also be prioritizing delevering our revolver debt. We have full access to our revolver and can access the accordion if necessary. We expect to have adequate sources of cash flow to not only finance our production growth, but also reduce the revolver debt. Our belief is revolvers are meant to provide liquidity when needed, which ours has, but are best undrawn.As we turn to the next couple of slides, I'll walk through some of the highlights of the technical reports. On Slide 7 is the summary of the technical report for Keno Hill. This report confirms the value which we've had the opportunity to capture at Keno Hill. The mine projects to have 55 million ounces of silver in reserves at a reserve grade of more than 26 ounces per ton, with an expected reserve life of 11 years and an undiscounted cash flow of $420 million. After-tax cash flows discounted at 5% is just over $300 million, at $22 silver.This report demonstrates the value of reserves at Keno Hill, which is only partially why we made this strategic acquisition. Phil will speak to this later in the presentation, but the value that we expect to be added at Keno Hill through the drill bit and our exploration success confirms the significant exploration potential.Turning to Slide 8, we've owned the Casa Berardi mine for more than a decade, and it's been a good mine over that time. However, when we acquired it back in 2013, we realized then that there was the potential for significant value in the open pits, which were anticipated to start production later in the mine life. We see that value crystallizing as we work through the 160 Pit and move our way toward the West Mine Crown Pillar [ and Principal ] Pits, where we anticipate seeing this mine generate substantial free cash flows.However, it's not [ all ] investment in the property until then. Based on this report, we anticipate seeing the cash flow from the property be slightly negative this year, turn positive next and be significant in 2026, which should return a large portion of our investment of the past couple of years, prior to taking a production pause while accommodating a permitting time frame for the higher-grade pits. In 2027, we expect to process the stockpile, followed by a production gap of 3 years, when the higher-grade pits start production.The revised technical report anticipates a mine life of 14 years, returning an undiscounted cash flow of nearly $600 million and a discounted cash flow of almost $350 million, which demonstrates the value this mine brings to the Hecla portfolio.Turn to Slide 9, and I'll turn the call to Carlos.
Thanks, Russell. I will make only a few comments since I'm at site and remote from [indiscernible].First, on safety, we had a strong overall safety record as of [indiscernible]. Greens Creek all-injury frequency rate was 0.29 and Lucky Friday, 0.66, both the lowest in their histories. Casa Berardi was not where it should be, but [ had lots of ] changes. [indiscernible] safety was unacceptable.For all the operations, we have started a safety program that is focusing more on leading indicators, like near misses, [indiscernible] interactions and inspections. We expect to make all our operations safer [indiscernible].Our 4 operations started this year strong. Lucky Friday restarted as planned in the first week of January. And Keno Hill is safer and, therefore, is beginning to ramp up faster. Greens Creek got the weather events behind it. And Casa Berardi continued the good performance of the last few months. What a difference we will have this year by having all 4 properties operational.With that, I will pass it on to Phil, starting on Slide 10.
Thanks, Carlos. We've labeled Greens Creek on this slide the "Foundation of Hecla's Future," since as we grow, Greens Creek will continue to be the foundation, providing stability and consistency in our cash flow and production well into the future. And the mine reported a strong year, which could have been even better without the weather reducing 12 days of production in the fourth quarter.Now we expect the mine to have another consistent year in 2024, with production expected to be about 8.8 million to 9.2 million ounces. So a little less silver and also produce a little less gold due to mine sequencing, where we're mining lower grades. But we will produce a bit higher zinc; the zinc grades are a bit higher. So the cost per ounce will be higher.We also are increasing the capital, replacing some mobile and mill equipment, as risk mitigation of operating at around 2,600 tons per day becomes particularly important. At this higher throughput, we really need everything to be more reliable, because there's not really an opportunity to catch up if we have an upset.And like we've done at Greens Creek for 30 years, we still see opportunities to have lower costs, these investments to allow us to have lower costs, and also increase recoveries with some of the investments.Slide 11 shows our planned '24 surface and underground exploration programs, which will be testing multiple targets with significant potential to add resources.When Greens Creek started, the mine had a mine plan of 7 years. And now 37 years later, the mine plan is 14 years. This past year's underground exploration had good success in 7 of the 8 zones drilled, with 4 of those zones in the fourth quarter. So we're very excited about this year's program that coordinates the drilling underground with the surface drilling in the East Ore, the Upper Plate and the Gallagher.We will also drill in the land package we recently acquired. That's the Mammoth claims. We've had an interest in acquiring these claims for at least 20 years.And then at Cliff Creek, which has been known to be a very prospective area. But as it's called, Cliff Creek, it's almost inaccessible. We started mapping this past year but had logistical issues, but we know what we need to do and we have a contractor that we think is going to be able to do it.So our focus is not just on expanding high-grade mineralization, but it's also in making new discoveries: new discoveries at Cliff Creek potentially and at Mammoth claims.Now Greens Creek is a premier silver mine. It's actually the 11th largest in the world. And I just want to congratulate the team on delivering excellent and consistent results and giving it a great future, because this is truly a world-class asset.So let's turn to Slide 12. And if Greens Creek is the foundation of Hecla's future, Lucky Friday is the pillar of near-term growth. The value, consistency, culture and leadership that the Lucky Friday brings makes it our second cornerstone asset. If you put this together with Greens Creek, these 2 mines make us the largest silver producer in the United States.The mine restarted in early January, as Carlos mentioned. Production should be about 5 million ounces. Cost per ounce should be similar to Greens Creek. Capital will be about $15 million less this year than last year, and that's about the same as what we had in 2022.Despite a 19-year mine plan, we are focusing on the potential to expand the mine to the east at the current elevation. So we're doing drilling and exploration to the east. Now there's lots of unknowns, but success could mean more production and lower costs. And with the mine already stabilized, we're starting to work on small improvements to allow higher throughput, like the 5 new cyclones that we're putting in at the mill, which will be installed in June.Now I'm going to move to Slide 13. At Keno Hill we're struck by 2 things. First, the ore body is growing with a similar or better quality. And I'm going to take a minute to talk about exploration that makes me say that, and I'll do that in a couple of minutes.First, though, I want to talk about the second thing we're struck by, which is the safety and environmental performance that's not met our standard. Fixing them is not an overnight exercise. And given the long life that we see, we are laser-focused, but patient, on improving it.On safety, it means changing people's attitudes and habits and, where we can, engineering out risk. So we've taken many of our senior people from our corporate technical team and also at the Lucky Friday and have them rotating site. Basically, what they're doing is mentoring the Keno team.And then an example of engineering out the risk, we budgeted a cemented tailings backfill plant for Bermingham to enable it to mine in underhand mining, which will be safer than the way we're mining now.For the environmental issues we have at Keno, we're doing studies to make the site meet our standards. One of the things that's come out of these studies is putting in a new water filtration plant at Bermingham, which we'll build this year that will cost maybe $3 million to $5 million.Now at this point, we're not giving guidance as to when we'll be in production and reporting unit costs. We want to make sure that we have the safety and the environmental issues right, without the pressure of having the combined production targets with cost. What I can say is, though, that we think we're going to produce about 3 million ounces of silver. We expect to spend about $15 million to $17 million a quarter, and then we'll be $30 million to $34 million of capital.So 2024, at current prices, should be a small investment year that we make at Keno. But given the exploration potential and the long mine plan, now is the time to get it right, similar to what happened at Greens Creek almost 40 years ago.And so speaking of Greens Creek, what we've decided to do is to try to create more value by having Greens Creek and Keno try to implement as many synergies as possible. They're actually only 2 hours apart, and it's a 7-hour drive between the 2 sites once you get to Skagway, which is a short, 40-minute flight. Now many of the supplies for Keno actually go by Greens Creek to Skagway, and then they get trucked to Keno.So what we're going to do is we're going to promote Brian Erickson, who is our VP and GM at Greens Creek, and Kim Campbell, our Greens Creek controller, to provide leadership to both operations. Brian, in addition to having had the job as Greens Creek's GM, over the last 2 decades has led various departments. He's headed up mining. He's done surface ops. He's done maintenance. And Kim has led purchasing, warehousing, accounting and a number of other functions.So we're -- don't know exactly what the synergies will be or what their value will be, and we'll try to outline that over time. But given the maturity of the systems that we have at Greens Creek, this really should accelerate Keno into becoming a strong cash flow generating mine.So now let me go to the exploration at Keno, and this is on Slide 14. Our drilling programs continue to provide quite remarkable mineralized drill hole intercepts from both underground definition and surface exploration drilling. And I'm only going to talk about Bermingham this morning, but realize that there are a series of other targets at Keno, some of which we will drill this next year, that will actually get more drilling than -- as much drilling as Bermingham will get from surface.If you look at the planned view that's in the middle of the slide, and it's marked "B" and "B'" in the upper corners, you'll see that the Bermingham deposit has a number of zones: the Etta, Arctic, Bear, Northeast and Deep Northeast. And then the small inset to the right shows B/B' going through those zones. And then you can see A/A' is a cross-section that actually goes through the Bear zone.And if you look at the leftmost image, that's the A/A' in the upper corners. And the Bear zone has 3 veins: the Main Vein, the Footwall Vein and the Bear Vein. And what I want to draw your attention to is the 54 ounce over 39.5 feet that is the transverse vein between the Main and the Footwall Vein. This is the widest, highest grade intercept that -- we had a similar grade intercepts a quarter earlier, just not quite as wide.Looking back at the B/B' image that's in the middle, there's a red star that is the high-grade mineralization that's more than 1,000 feet deeper than any previous drilling. The longstanding view is that Keno's potential was only in the top 300, 400 feet from the surface. We now have evidence that the high-grade mineralization can be hosted the full depth of the 1-kilometer favorable Basal Quartzite [ host rock ] unit.And so these 2 holes, I really think are emblematic of the potential at Keno.Now turning to Slide 15. Last year, we concluded that we could not generate enough margin mining 2 separate underground deposits in open pit, like I said at the beginning of our remarks. We just had too many people. We actually had 1,100 people between employees and contractors. And there just wasn't enough value in the rock to operate the mine that way.So we made the decision to simplify the operations by shutting down the underground. And so our team has really very successfully implemented the change. 2024 will have about a half-year of underground operations as we mine out the already developed stopes, and then we'll have only surface tons coming out of the 160 Pit.Then go to Slide 16. And what this shows is our production cost and capital guidance. Our 2024 silver production guidance shows an increase of about 15% to 20% this year; 30% by 2026. Silver cost guidance is slightly higher than '23. Cash costs are at $3 to $3.75. AISC, between $13 and $14.50. So we still have substantial margin at current and even lower prices and proves that we're really the low-cost leader in the industry.Gold cost guidance is lower.Capital guidance is lower as well, as we've completed and seen the benefits of the major projects such as the service hoist in the ore bunker at the Lucky Friday.Before I open the call to questions, I want to leave you with the increasing role that silver is playing in solar and the energy transition. And on Slide 17, you'll see some of the key numbers that highlights this.2023 was the 22nd year in a row that renewable capacity set a new record. So it's just continued to grow year after year. And 75% of this renewable capacity in 2023, the additions were solar. Just in the United States, solar capacity has expanded by 44% a year on average since 2009.Now it takes about 0.5 million ounces of silver per gigawatt of solar that's installed. So in 2023, silver demand in solar increased by about 50 million ounces, to 190 million ounces, and that's a 12% growth rate in the last 10 years.So to put this 50 million ounces in context, that's the equivalent of 5 new Greens Creek's or 10 new Lucky Friday's. So not likely to happen that we're going to have production that's going to increase at the same pace that this demand for silver for solar is growing at. So that means we're going to have to rely upon above-ground silver. And in order to get that, I think you're going to need higher prices to meet that demand.So with that, Jeannie, I'd like to open the call to questions.
[Operator Instructions] Your first question comes from the line of Lucas Pipes, with B. Riley Securities.
This is Nick Giles asking a question on behalf of Lucas. Really appreciate the update on Keno here. It sounds like you've already made some nice progress. Is there still any ongoing assessment? Or is it now down to purely implementation?
It's really execution. We're just working through getting people where they need to be, when they need to be there. We're -- certainly, one of the things that we've seen is that we have a lot of young, relatively inexperienced people that come from all over Canada. And so that's why having this mentoring we think is so important. And it's had real effect. It's been remarkable, the improvements that we've seen over the course of the last few months. But having said that, we want to be cautious that we're not pushing the organization faster than it's really capable of moving safely.
Nice to hear the synergies with Greens Creek as well. Can appreciate you're not...
Yes, I'm really excited about the potential for the synergies. I mean, one of the things is some back-office things that Kim is responsible for. Brian certainly brings a load of experience. And the mining methods are similar. Equipment is a bit different because it's larger at Greens Creek. I mean, one of the things we're even thinking about is doing rebuilds. We do them in Juneau for Greens Creek; maybe we'll also do one for Keno in Juneau.
Got it. Got it. That's great to hear. I can appreciate you're not ready to give guidance, like you outlined. But safe to say it's kind of a second half event before we see anything? Or any color you could give around timing, just rough estimates?
Look, I'm not going to -- it will be as fast as we think we can do it safely and have a stabilized organization there. As we indicated when we made the change, we had fortunately no incidents that resulted in injury, major significant injury, but we had the potential for that. And that, we're just not going to take a risk.
And your next question comes from the line of Joseph Reagor, with Roth MKM.
On Keno Hill, as you look at the guide you gave this year versus the guide that was given at the beginning of last year, what do you think is the biggest [ delta ] for why there isn't as big of an increase as we might have anticipated for the mine this year? Is it not getting enough workers at site? Is it still underground development being behind schedule? Is it mine sequencing? How do you think about that? And then what do you guys think is the biggest things you need to do in the future to kind of get it to where you want it to be?
I mean, look, I think there's an element of caution here, Joe, that we want to make sure, as I said, that we're not pushing the organization too fast. I think what we didn't appreciate was the ability of the organization to deal in a systematic way with issues that arose, and we're getting those systems in place to be able to do that.I think it will take a little bit of time, but I'm highly confident that over the course of the coming year that we'll get there. Number one, we've taken our most senior experienced people in our organization and they're spending time; hence, why Carlos is there at site. With this reorganization with Brian heading up the activities at both of these operations, Greens Creek and Keno, we'll have that leadership, and the leadership will be close by. And so I think it puts us on a good path to see the improvements. Technically, it's not -- there's challenges, but technically, they're all manageable sorts of challenges.Carlos, is there anything you would like to add?
Well, it's just the mentoring and the training and trying to hire the most adequate people. Retain, train, promote and build the team in the proper way.
Okay. And then shifting over to Casa, looking at the long-term plan, do you guys have off the top of your head the after-tax IRR for that expansion project?
When we put the technical report together, and it will be filed with our 10-K, we didn't calculate an IRR, just because we're kind of mid-project here in terms of Casa. Casa is interesting because we're going to put a little bit of investment in this year. We should see some nice cash flows over the next few years and a pause and then an investment. So we actually didn't calculate the IRR. But what we did do is calculate the discounted cash flows of it.
We're laughing, Joe, because one of our directors asked the same question.
Well, the reason I ask is, general rule of thumb, like, if it was a nonoperating asset, a CapEx that exceeds the NPV after tax would suggest the IRR is in the 25% or lower range. And I was just wondering if there's any risk at all that you guys decide that there's a better use of capital than that?
I guess the first thing I'd say is that the investment that's going to end up happening there is really just the stripping from the pits that will happen in '28, '29. And so it's a relatively -- and we'll have much of the equipment already in hand. So there's very little equipment that needs to be purchased relative to just the cost of moving the rock. We have a place to store that waste rock.So I think -- certainly, we can do the math to figure out what that [ would be ]. Plus, we have very good cash flow between now and that pause time when we're doing that stripping.
The other thing, you'll see this in the technical report, but the payback on those pits, the Principal and the West Mine Crown Pillar Pit, comes very, very quickly, in the early 2030s. So that investment period of '28, '29, and then a little bit into 2030 gets paid back quickly in '31, '32, et cetera. That speaks to what Phil just said in terms of us already today we're investing in the surface fleet, et cetera, setting ourselves up for this mine for the long run.
Okay. And one final thing, if I could. I saw an article a couple of weeks ago. Phil, I believe you made the comments that you guys are looking at South America as an opportunity to maybe expand the company and the production profile. Is this something that's, like, a long-term thought? Or is there any potential to do M&A in the next year or two?
Well, there's always the potential, Joe, to do it. And what we have said consistently is we are prepared to go outside the United States and Canada for silver assets. We won't do that for gold or any other metal, but we will consider it for silver.Having said that, the ability to do those transactions are difficult. And so we're not going to -- we don't have to push it. We're fortunate in that we have growth in the near term. We should get to close to 20 million ounces by 2026. In our portfolio, we actually have, if you include the operating properties, we have 20 properties in our portfolio, half of which are silver assets, half of which are gold assets. And we'd like to advance those. Some of them are sort of in the permitting process. Some we need to do more exploration on. But we do have the ability to do things within our portfolio.But having said that, our long-term objective is to be really the premier silver company, which means more production, as well as become, and this is a super long-term goal, but as well as become an S&P 500 company. And we think with more production and higher prices, which we're, as I indicated why we think we'll see higher prices, we think that that's something that could be achieved in the long term.
Your next question comes from the line of Don DeMarco, with National Bank Financial.
My first question is maybe just building on the last caller's question about M&A. We've seen with regard to pursuing silver assets, we've seen some of your peers challenged to add silver assets. They're diversifying into gold. I think I heard from you that still your priority is silver, you wouldn't certainly go for gold outside of North America. But would you consider gold assets? Or are you still firmly focused in any M&A, if it met all your hurdles, primarily focused on silver?
We're absolutely primarily focused on silver. We will, however, consider gold and maybe even other metals that are in the jurisdictions in the places that we operate. So we're in Alaska, we're in the Yukon, we're in Idaho, we're in the Abitibi, Quebec, and I would characterize just across the border geologically as being [ the same ].So would we consider things other than silver in those places? The answer is, yes. Is it our first priority? No. But we certainly think -- you saw the ATAC transaction that we did in the Yukon. We think that it was a strategic acquisition that really sets up Hecla for very long term potential of things that could be very, very meaningful. So we're prepared to consider those things.
Okay. Yes, it makes sense looking at potential jurisdiction synergies.Okay. Looking at the production outlook, we see that silver production is increasing over the next 3 years. We see 20 million ounces at the high end of the range in a few years. Costs weren't included, we get that, but how should we think about costs over this time frame? Should we think about costs as increasing or flat? Or is there any just kind of, for the sake of modeling, what trends we should think about?
I would generally say that you'll have some inflationary pressures. So you'll see costs increase as a result of that.I'm going to talk about, first, in terms of the total quantum of costs rather than on a unit basis, you'll see some slight increases, but nothing -- at Greens Creek and the Lucky Friday, I'm not anticipating any sort of significant sort of cost increase.And at Keno, it will be in a transitional period. I think Keno will -- the objective we will probably have long term, given the exploration results we have, is to see that property increase its throughput. We, in fact, in the technical report have an assumption that we get to, I think, 550 tons or 600 short tons per day in sort of 3 or 4 years from now. So as a result, you'll see more dollars needing to be spent at that location.But then when you look at it on a unit basis, for Greens Creek and the Lucky Friday it's really going to be a function of the by-products and the prices of those by-products. And to the extent we're at the similar sort of price levels that we are now, I wouldn't anticipate much of a change.For Keno, I think over time we will be able to drive the costs down pretty substantially, but it's going to take more tons. And I think trying to get some of these synergies with Greens Creek, I think, could be a benefit to both properties.Anything to add, Russell?
I agree with what you've said. There's really nothing that we have coming at us that we could point to that would say this is going to change our cost profile dramatically, especially at the Lucky Friday and the Greens Creek. And I'm thinking about it from the kind of just as produced production costs, the costs we're going to spend on a monthly or a yearly basis.Keno Hill's cost structure has quite a bit of fixed costs within it. And so as we are able to scale that up and see more throughput, there will be additional variable costs, but we should see on a per unit basis those should come off.And then Phil mentioned the by-product credits, but we also have the treatment charges in there as well. And right now, I think the outlook for the treatment charges should be relatively stable, but we'll see. Those things can fluctuate and actually have an impact on our cost profile as well.
Pretty dramatic movement in treatment charges over time.
Okay. And just as a final question, Phil, you mentioned Keno Hill there ramping up to a throughput rate of around 550 short tons per year. And it's -- what should we think about? I see 2024 production at 2.7 million to 3 million ounces of silver. And what should we pair up in terms of the throughput rate for that? [ Rather ] that 550 tons per day, I would imagine. So what should we think about in terms of tons per day in '24?
That's certainly what we're still working through because we do have higher-grade areas. But generally speaking, somewhere between 300 and 400 tons per day. But again, we're not going to push it. If we're at the lower end of the range of ounces, then we're at the lower end of the tons per day. If we're at the higher end of the range, then it's just more tons that we've been able to process. So between 300 and 400 tons.
[Operator Instructions] Your next question comes from the line of John Tumazos, with John Tumazos Very Independent Research.
Was the $21 million inventory adjustment solely related to falling zinc prices and zinc concentrates in transit?
John, I think the short answer to that is it's the Lucky Friday.
John, you're looking at the cash flow statement, correct? The noncash, the add-back on the cash flow?
Correct.
That's a couple of things. First, that's related to Casa Berardi, I would say, is the largest part of it, where the cost per ounce, especially when you take into account the noncash charges, the depreciation that goes into the inventory, there was a net realizable value write-down there. And that was accelerated because when we stopped development of some new resources and new reserves at the West Mine underground, we accelerated depreciation because we anticipate that will mine out in mid-2024. So we see the noncash charges at Casa Berardi have gone up. And I think that detail, if you go into the 10-K, you'll see that detail as the noncash charges have gone up. So that's the biggest driver of that.There is then some changes as well at Greens Creek, where you shift concentrate and you get -- you have to true up estimates of what the inventory is that you have in the concentrate barn. So those will flow through there as well. But it's primarily Casa.What I would say is, you mentioned the change in the price of zinc, and we have seen the change in the price of the zinc has come off. A couple of things, though. If you look at the realized price of zinc, it's actually pretty healthy, because we had hedges in place that caused us to not have to take that lower price, right? So it's above $1.30 for the quarter.But also, even at $1 or $1.10 zinc, both Greens Creek and Lucky Friday have strong positive margins. So there's really no NRV write-downs at either of those mines.
Second question, if I may. The $76 million in idle facilities cost, does that largely disappear after the January restart at Lucky Friday and then, say, [ midyear ] when Keno Hill starts to produce revenue?
The short answer is, yes.
That's correct. In 2023, it was primarily driven by Lucky Friday. And then also there's a chunk of it that was Keno Hill as well, right, this ramp-up at Keno Hill where we essentially have our cost of goods sold match our revenue, and then the rest of the costs go through that. So as we see Keno Hill produce more, that should shrink as well.
And a little bit...
A little bit at Casa, and some in Nevada is in there as well.
Remember, as Casa, we had the fire in Quebec that caused this property to be shut down.
Your next question comes from the line of Lucas Pipes, with B. Riley Securities.
This is Nick Giles again on behalf of Lucas. Could you provide any color around the cadence of insurance payments throughout the year? I know first proceeds were here in February. And then how should we think about timing as far as paying down the revolver? Is paying that down contingent upon receiving these payments?
Well, Nick, this is an insurance company. So I'm not going to render a guess as to when they'll actually pay us. But we did -- they actually have been very good, and they did make a payment just a couple of days ago. What they have said is that they would anticipate during the course of the year. So just sometime over the course.As far as paying down the revolver, it will be a function of both that and the cash flow from our operations. So ideally, as we build up cash position, we'll pay it down.
There are no further questions at this time. I will now turn the call back over to Phil Baker, CEO, for closing remarks.
Okay. Well, thanks, everyone, for participating in the call.I'll remind you that we have the opportunity if you'd like to have a one-on-one meeting with us. You can schedule one with us in the next hour or two. And if that doesn't work, then please feel free to reach out to Anvita, and we'll be happy to schedule you at a different time.Just appreciate the interest, and I definitely think that we're in a place with silver that we've not been before. And we're going to keep banging that drum to try to get people to realize what's happening in the silver space with the growth in solar.So thanks so much. Talk soon.
This concludes today's call. You may now disconnect.