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Vol. 15, No. 26 Week of June 27, 2010
Providing coverage of Alaska and Northwest Canada's mineral industry

Mining News: Hecla climbs to top U.S. silver producer

Greens Creek purchase reinforces historical strength of 119-year-old silver miner as it pursues continued growth via exploration

Shane Lasley

Mining News

Undaunted, undeterred and poised for growth is the message Hecla Mining Co. brought to its shareholders at the company’s annual meeting in May. This mantra reflects the silver miner’s perseverance in overcoming the financial challenges it faced after spending US$750 million in April 2008 to buy Rio Tinto’s 70.27 percent stake in Greens Creek Mine in Southeast Alaska, an acquisition that has catapulted it to the No. 1 silver producer in the United States.

“It was difficult in ‘08 and certainly the first part of ‘09; and our financial challenges at Hecla were not insignificant, we had a lot of short-term debt,” Hecla Vice President Corporate Development Don Poirier explained to Mining News. “We stayed very focused on cutting costs, optimizing output and getting the job done.”

“We faced some very challenging times; we came through them. We are not pretending it didn’t happen, or that it’s over,” he added.

Surviving the tumultuous financial markets and low metals prices of the latter half of 2008 and the first half of 2009, Hecla has repaid the US$380 million it borrowed to become sole owner of Greens Creek and positioned itself to take advantage of improved metals markets.

“We set a course in early 2009 to optimize our operations and eliminate our debt. We have accomplished that. Our two U.S. operations generated strong cash flow allowing full payment of the remaining portion of our term debt nearly one year ahead of the required schedule,” Hecla Mining Company President and CEO Phillips S. Baker, Jr. said.

Greens Creek drives success

The acquisition, which almost proved to be Hecla’s undoing, is the source of unparalleled success for the longtime silver company.

“Hecla’s success in 2009 stems in large part from the Greens Creek acquisition made in 2008, which nearly doubled Hecla’s silver reserves and metals production. The acquisition, the most significant in our history, upgraded our assets and provided Hecla with the benefits that come from operating on a larger scale,” Baker told shareholders.

The increased operations resulted in record-setting base metal production for the Idaho-based miner in the first quarter of 2010. In addition to the 2.5 million ounces of silver produced by Hecla during the quarter, the company’s output of 12,181 tons of lead set a new quarterly record, and the 22,212 tons of zinc produced was the second-highest in company history.

“This quarter’s performance is further evidence of the strength of Hecla’s mines and people. I am confident that Hecla will continue to be the lowest cost silver producer and the largest U.S. producer,” Baker said.

The byproduct metals and the gold produced paid for production costs and added US$3.03 to every ounce of silver produced in the quarter. With silver fetching an average of US$16.92 an ounce, Hecla enjoyed a margin of US$19.58 per ounce of silver produced in the quarter.

“At no time in our history have we had assets that have generated as much production, as much margin (and) had as low a cost,” Baker told financiers at the Bank of America Merrill Lynch 2010 Global Metals & Mining Conference in May.

Greens Creek drove this historically high production and margins. First quarter production at the Southeast Alaska silver mine was 1.6 million ounces of silver at an average cash cost of negative US$6.47 per ounce of silver after byproduct credits, or a margin of US$23.39 per ounce of silver produced.

Hecla has increased throughput at the mill at Greens Creek to counter lower silver grades being mined.

Baker explained, “Mining and milling operations at Greens Creek have made steady gains over the past five quarters. Since 2008, we have successfully increased mill throughput by approximately 10 percent, reducing operating costs significantly, and we still have excess mill capacity for potential increases in the future.”

Poised for growth

With its loans paid off, cash in the bank and strong results from both its operations, Hecla has boosted its exploration budget at its properties in Alaska, Idaho, Colorado and Mexico.

The company plans to spend US$17.8 million on exploration in 2010, almost double what it spent in 2009.

“We’re excited about targets on all of our properties this year and have had some promising early results with underground drill testing at Greens Creek and Lucky Friday to date,” Baker said.

About US$5 million of the exploration budget will be spent at Greens Creek.

Underground drilling at Greens Creek in 2010 has focused on refining and expanding the resource in the Northwest Zone and extending resources in the 200 South, 5250 South, and Deep 200 South.

Hecla said encouraging results have been seen in this year’s initial drill tests with a 1.3-meter intersection grading 37.6 ounces of silver per ton in the 5250 zone, and a 4.3-meter interval of massive sulfide along the southwestern extent of the 200 South Zone that further extends the resource.

The company is developing an exploration drift called the 1147 to provide a staging platform for expanding the 5250 South and 200 South ore zones to the south.

“Completion of the 1147 drift extension farther south will provide an excellent platform to drill additional southern extensions of the high-grade deep 200 South and 5250 South ore bodies later in the year,” said Hecla Vice President of Exploration Dean McDonald.

The Northeast contact, which is related to the same sequence of rocks as the ore bodies currently being mined, is a priority exploration target at Greens Creek. Though ore grade mineralization has yet to be discovered in this prospective zone, underground drilling has intersected promising quantities of sulfide mineralization along this newly defined mine contact near the current development.

Hecla has both underground and surface drills seeking production grade ore in this new area.

Drilling along the southern extent of this region at depth indicates that better mineralization lies above the tested sections, and this shallower region is a priority for this year’s surface drill program.

At Lucky Friday, two underground drills continue to test the potential to expand the resource area outwards to the east with one program evaluating the interval between the 6,100- and 6,800-foot levels of the mine, and the other is testing significantly below the 7,000-foot level of the mine.

“There is a very significant reserve and resource of silver at depth below existing infrastructure,” Poirier explained.

To reach this high-grade mineralization, Hecla plans to dig a shaft from the 4,900-foot level down to nearly 8,000 feet below the surface.

The company estimates the deep development could boost annual silver production at Lucky Friday by as much as 5 million ounces, nearly a 60 percent increase over recent years.

The 3,000-foot shaft is expected to cost between US$150 million and US$200 million and take about five years to complete.

In addition to near-mine exploration, Hecla is investigating district-scale targets in the vicinity of both of its operating mines. The silver miner also has two drills turning at its San Juan joint venture property in Colorado and is continuing a systematic district-scale drill program at its more than 300-square-mile, or 777-square-kilometer, San Sebastian project in Mexico.

Cautiously optimistic

While Hecla can let out a collective sigh of relief that it has overcome the challenges it faced following the purchase of Greens Creek, the company recognizes that global markets are still on shaky ground.

“Volatility will likely persist in a market that is managing record amounts of U.S. government and consumer debt. I believe the Western world may be several years away from a full recovery and recognize that our business, while much healthier today than in 2008, still faces challenges — and needs to continually adapt and find further efficiencies,” Baker told shareholders.

“While I’m highly optimistic about the direction of Hecla and precious metals over the next few years, I won’t discount the events around us. I know that we stand ready to meet every challenge we may face,” he added.



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