Established in 1891, Hecla Mining Company has survived two World Wars, the Great Depression and numerous crests and troughs of a cyclical metals market that has sunk many of the silver miner’s contemporaries over the past 125 years. Over this century-plus span, Hecla has grown adept at navigating tumultuous markets in a way that enables the company to be well-positioned for smooth sailing in calm waters.
“We have been in business longer than iconic American companies such as Hershey Co., Dow Chemical and General Electric,” said Hecla Mining Co. president and CEO Phillips Baker Jr. “We have operated through many price cycles; from recessions and depressions to boom times, and it is a testament to the power of our projects and the strength of our team that we have weathered them all and are now a transformed company having recently seen the highest reserves and production of our history.”
Tumultuous start
Hecla traces its roots to a largely overlooked claim covering a lead prospect in the Coeur d’Alene mining district of northern Idaho. This unassuming hillside deposit changed ownership several times before Patsy Clark, Amasa Campbell and John Finch recognized the potential of what would become Hecla’s namesake mine.
Capitalized for US$500,000, Hecla Mining was incorporated in Idaho on Oct. 14, 1891, marking the start of a company that is now the largest primary silver producer in the United States.
Going into business at the close of the 19th Century, a period marked by widespread economic uncertainty in the United States, it did not take long before the fledgling Hecla Mining Company got its first experience with tumultuous markets. By 1893, a number of American banks and railroads failed, leading to a chain reaction that culminated in more than 15,000 companies going out of business and unemployment in the United States spiking to nearly 20 percent.
Riding out the first of what would become many tough markets, Hecla got off to a slow start. With many of the mining companies that rushed to the Silver Valley during its heyday no longer around, in 1898 Hecla re-organized and raised more money, much of which was used to buy up claims adjacent to its Hecla lead mine.
Campbell, who was then president of the company, proclaimed: “The Hecla is developing into a wonderful mine.”
With a growing demand for lead in the United States at the turn of the 20th Century, the mine flourished.
By 1907, however, Hecla had to endure a second banking crisis in the United States, this one sending panic rippling through the financial markets and causing the New York Stock Exchange to tumble almost 50 percent in less than a year.
Over the next 35 years, Hecla Mining persevered, through two World Wars which bookended the Great Depression and a 1923 fire that leveled the town of Burke and all of Hecla’s facilities located there.
With the Depression eliminating virtually all demand for silver, net profits from all of the mines in the Coeur d’Alene Mining District plummeted to just US$437,000 in 1932 from US$4.2 million in 1930.
While this was a lean time for Hecla – with taxes devouring roughly 18.85 percent of the company’s profits and only about half of the lead produced at its mine being sold – the miner again used the downturn as an opportunity to pick up properties in the prolific Silver Valley area that hosts the Hecla Mine.
Today, the company owns more than 25 square miles of Silver Valley properties covering mines that together have produced more than 340 million ounces of silver, including the Lucky Friday and Star mines.
These properties, along with the lessons learned over these tumultuous first five decades formed the foundation of the 21st Century Hecla Mining Company.
“Hecla hasn’t just weathered the storms of the last 125 years, it’s been shaped by them,” a gravelly voiced narrator summarizes the silver miner’s history in a video marking the company’s anniversary.
Lucky Friday bridge
Four miles south of Hecla’s namesake mine, the Lucky Friday Mine provides a bridge between the company’s roots in the Silver Valley and its future as a precious metals miner expanding into the 21st Century.
Over the past 75 years, Lucky Friday has produced more than 155 million oz. of silver, along with healthy quantities of lead and zinc. Hecla first bought into Lucky Friday Silver-Lead Mines Company, operator of the underground mine located on the outskirts of Mullan, Idaho, in 1958. Six years later the two companies merged, bringing Lucky Friday into the Hecla portfolio.
Today, Hecla is taking Lucky Friday to new depths by investing roughly US$225 million in the No. 4 shaft, which will develop mineralization 10,000 feet below the surface and add more than 20 years of silver-rich resources to the operation.
This deep underground development, the largest capital project in Hecla’s storied history, is on pace to be finished this year.
Lucky Friday produced 3.2 million oz. of silver in 2015, and after crediting the operation for the 20,104 tons of lead and 8,159 tons of zinc recovered, the cost of each ounce of silver produced was US$9.44. Hecla expects silver recoveries and costs at the underground mine to be about the same this year.
By 2018, the mill at Lucky Friday is expected to process higher grade ore reached by deeper underground development associated with the No. 4 Shaft.
During a Feb. 23 presentation, Baker said “the No. 4 Shaft … will add more than 25 years of life to the Lucky Friday and provide access to the higher grades that we see at depth.”
Hecla estimates that only about half of the silver remaining underground at Luck Friday are included in the current estimated mine-life, providing outstanding potential to extend the life of this deep underground mine well into the 21st Century.
Foundation for growth
The Greens Creek Mine has been the foundation of Hecla’s growth since the company invested US$750 million to buy out Rio Tinto’s 70.27 percent ownership of the Southeast Alaska operation in 2008.
The Idaho-based silver miner got its foot in the door at Greens Creek when it purchased a 28 percent interest in the high-grade volcanogenic massive sulfide project in 1987, two years before the mine went into production.
Today, Greens Creek is one of the largest and lowest-cost primary silver mines on the planet – producing roughly 200 million oz. of silver and 1.5 million oz. of gold since its startup in 1989.
The 8.5 million oz. of silver recovered at Greens Creek in 2015 helped propel Hecla’s companywide silver production to a record 11.6 million oz. for the year.
After crediting the operation for the gold, zinc and lead produced as by-products, the cost of mining the silver was US$3.91 per oz. last year.
This year, Hecla anticipates Greens Creek will produce roughly 7.5 million oz. of silver at US$6.00 per oz. – assuming an average of US$1,150 per oz. of gold, US75 cents per pound of zinc, and 80 cents per lb. of lead recovered this year. Rising metals prices would help drive down the already low production costs at the Juneau-area mine.
In 2015, Hecla invested roughly US$20.7 million on expanding the dry-stack tailings facility at Greens Creek.
“This is an investment in the future of Greens Creek providing another 10 years of tailings storage capacity,” explained Hecla Senior Vice President – Operations Lawrence Radford.
The company plans to invest US$48 million on capital spending at Greens Creek in 2016, including another US$14 million to finish the tailings storage project.
Going for the gold
While Hecla has enjoyed the benefits of some 55,000 oz. of gold per year as a by-product at Green Creek, aurum has traditionally ranked behind silver, lead and zinc in the company’s metals profile. The 2013 purchase of the Casa Berardi Mine in Quebec, however, has put gold above silver in terms of the value of the metals that the company mines.
Casa Berardi, Hecla’s only mine that primarily produces gold, reported output of 127,891 oz. of the yellow metal in 2015. This, combined with the 60,566 oz. of gold produced at Greens Creek, put the value of the gold mined by Hecla in 2015 at roughly US$219.6 million, compared with about US$182.1 million of silver during the same period.
Hecla recently decided to move ahead with development of East Mine Crown Pillar, a near-surface deposit expected to add 5.5 years of production by augmenting underground ore mined at Casa Berardi.
“We expect it to begin producing ore by year-end adding about 5,000 ounces of gold this year and about 30,000 ounces next year,” said Radford.
“We expect to take the mill to 3,100 short tons per day from its current approximately 2,300 tpd for the life of the mine starting in 2017,” he added.
As a result, Hecla is anticipating the Casa Berardi Mine to produce 135,000 oz. of gold at a cash-cost of US$700 during 2016, boosting the company’s total gold production to roughly 207,000 oz. this year.
Mexican mine online
Some of the added gold will come from the San Sebastian Mine in Mexico, which began processing ore Dec. 10 and produced 75,552 oz. of silver and 705 oz. of gold before the year came to a close.
“We … said we would start up our fourth mine, San Sebastian, by year’s end, and we did that ahead of schedule. The veins are extraordinarily high grade as we thought, and it will start kicking off cash this quarter,” Baker informed investors on Feb. 23.
“In January, the feed grade averaged 0.23 ounces per ton gold and 29.4 ounces per ton silver. And I’m pleased to note that the mill is handling the high-grade just fine, and we ship the first doré in January,” the Hecla CEO added.
Hecla operated an underground mine at San Sebastian from 2001-2005. During that time, the mine produced 545,476 tons of ore containing 177,541 oz. of gold and 11.6 million oz. of silver from the Francine Vein with an average grade of 0.32 oz. /ton gold and 22.5 oz. /ton silver, making it one of the highest-grade producers in Mexico.
Going into 2016, San Sebastian had 289,000 tons of proven and probable reserves, averaging 27.7 oz. /ton (8.0 million oz.) silver and 0.22 oz. /ton (64,000 oz.) gold.
“The focus in 2016 will be to maximize cash flow and to investigate opportunities to extend the life of these surface pits or to go underground,” Radford said.
With a fourth operating mine in its portfolio, Hecla is looking to have another banner year in 2016.
“All three mines exceeded guidance and San Sebastian has begun production,” said Baker. “We are continuing to see results from our strategy of investing in production growth, causing our silver-equivalent production to be the most in our 125-year history.”
Well-positioned approach
A longtime veteran of navigating the notoriously cyclical metals markets, Hecla Mining has once again positioned itself to be ready to benefit from the inevitable rebound in precious metals prices.
“Because our balance sheet allowed us to continue investing during the price decline of the last few years, we expect more than a 15 percent increase in silver production and about a 10 percent increase in gold production this year, positioning us to take advantage of the rally in prices we have seen in 2016,” Baker touted.
Even in this environment of metals prices trending higher, Hecla is implementing important cost-cutting measures, including across-the-board pay reductions for senior managers.
“Our senior management has taken a 10 percent pay cut, and I’ve taken a 20 percent pay cut,” the Hecla CEO explained. “We’re not doing this because of liquidity issues, we just think it’s the right thing to do during these times of price weakness.”
In addition to issuing smaller paychecks to its top executives, the company expects to reduce non-payroll costs by roughly US$25 million in 2016 – cuts expected to come from all areas of the business.
Despite these cautionary reductions in cash outflow, Hecla is confident its high-quality properties will continue to yield larger gold and silver reserves even as the company’s mines are expected to increase their outputs of these precious metals.
“The strength of our mineral resources, particularly at Greens Creek, and the historically high conversion rate at all the mines, give us confidence that we can continue to add reserves in the coming years,” Baker said.
For this reason, even at the bottom of a metals market cycle Hecla can celebrate 125 years of mining while focusing on reaching new heights in the future.
“This is our 125th anniversary but we are not looking backwards, we are looking forwards,” Baker said.
“We have mines that have demonstrated they can survive low prices, but we are adding production that’s going to allow us to take advantage of higher prices,” he added.
